There are always exceptions. Keep that in mind when considering the overall dismal performance of biotech stocks over the past year. A few outliers are continuing to swim against the tide and remain solid picks for investors.
We asked three Motley Fool contributors to identify fantastic biotech stocks to buy in April. Here's why they chose Novartis (NVS 1.93%), Regeneron Pharmaceuticals (REGN 0.32%), and Vertex Pharmaceuticals (VRTX 0.20%).
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This stock gives investors a bit of everything
David Jagielski (Novartis): Regardless of whether you value growth, dividends, or just want a reasonably priced investment that you can hang on to for years, Novartis is a stock that you should consider adding to your portfolio. Although the stock is trading near its 52-week high, there's plenty of potential to rise higher in the years ahead.
The company has 20 assets that it believes could each generate at least $1 billion in annual revenue for the business. That will be key to driving 4% sales growth through 2026.
Even if many of those assets don't pan out, Novartis will still have more ways to continue its growth. That's because it consistently generates tens of billions of dollars each year in free cash flow. As of the end of last year, it was sitting on cash and short-term investments worth more than $28 billion.
Novartis is confident that it can buy back up to $15 billion worth of shares before the end of 2023, continue to grow its dividend (which today yields 3.6%), and still pursue mergers and acquisitions that can expand its business. This is why investors should love cash-rich businesses that continuously bring in a steady stream of cash flow. Money can enable a company to pursue plenty of different ways to create value for its shareholders.
Today, Novartis stock trades at a forward price-to-earnings (P/E) multiple of less than 15, which is cheaper than the average stock in the Health Care Select Sector SPDR Fund, which trades at close to 17 times its future profits. And Novartis' bottom line could look even better in the not-too-distant future. The company announced this month it would be simplifying its operations by integrating its pharmaceutical and oncology businesses in a move that will save the company $1 billion by 2024.
Beyond the pandemic
Prosper Junior Bakiny (Regeneron): Last year, Regeneron emerged as a leader in the market for coronavirus therapies. The company reported $6.19 billion in total revenue from REGEN-COV, an antibody cocktail for the treatment and prevention of the disease. REGEN-COV's net sales accounted for 38.5% of Regeneron's total revenue last year. However, due to a recent regulatory decision, sales of REGEN-COV will almost certainly drop substantially in the U.S.
Despite this development, Regeneron remains an excellent biotech stock to buy. The company's lineup features two other exciting products: wet age-related macular degeneration therapy Eylea and eczema therapy Dupixent. Thanks to growing sales from these medicines, Regeneron would have performed well last year even without the help of REGEN-COV.
The company's total revenue for 2021 including these drugs increased by 89% year over year to $16.07 billion. Without the revenue it racked up thanks to REGEN-COV, Regeneron's top line would have jumped by 19% compared to 2020. That's still an excellent performance for a biotech giant. Regeneron expects both Dupixent and Eylea to make headway into their respective markets and continue to improve their sales.
Meanwhile, the company is working on expanding its pipeline with label expansions and brand new drugs. For instance, Regeneron submitted a supplemental new drug application for cancer therapy Libtayo to authorities in both the U.S. and Europe, seeking a new indication for the medicine in treating advanced non-small-cell lung cancer in combination with chemotherapy. The drugmaker boasts a total of 39 pipeline programs, including 11 in late-stage studies.
That sets a strong foundation for Regeneron to expand its lineup in the next couple of years and beyond, which will work wonders for its top and bottom lines. Amid the market's volatility since the beginning of the year, the stock has performed well, jumping 16% year to date. Investors can expect many more years of robust returns from this fantastic biotech stock.
Simply the best
Keith Speights (Vertex): If I had to name one biotech stock as the best on the planet right now, I'd go with Vertex Pharmaceuticals. And the decision would be a relatively easy one.
Vertex has a monopoly in treating the underlying cause of the rare genetic disease cystic fibrosis (CF). None of its rivals have advanced programs beyond phase 2 testing yet. The company should have significant growth prospects in the CF market by securing reimbursement deals and winning additional approvals for younger age groups for its existing therapies.
It shouldn't be too long before Vertex scores outside of CF. Vertex and CRISPR Therapeutics expect to file for regulatory approvals of CTX001 in treating rare blood disorders sickle cell disease and beta-thalassemia in the latter part of 2022. Vertex thinks the gene-editing therapy has a multibillion-dollar opportunity.
The company also has two promising programs that are advancing into late-stage testing. VX-147 targets APOL1-mediated kidney disease, which represents a bigger potential market than CF. VX-548 appears to be a safe and effective non-opioid drug for relieving acute pain. In addition, Vertex is moving forward with an early-stage program that holds the potential to effectively cure type 1 diabetes.
Don't be surprised if the company bolsters its pipeline even more. Vertex ended 2021 with $7.5 billion in cash, cash equivalents, and short-term investments. Its cash position should continue to grow thanks to the strong performance of its CF franchise.
I truly believe that Vertex's growth prospects and financial strength make it the best biotech stock around. And I think that some investors just might kick themselves later for not buying this stock now.
