The biotech industry hasn't performed well this year, even by the standards of the struggling stock market. The SPDR S&P Biotech ETF -- an industry benchmark -- is down by 36% year to date. The good news is that there are still plenty of great biotech stocks that could be solid long-term picks.
Let's look at two top cutting-edge healthcare stocks that could make investors richer: Moderna (MRNA 0.89%) and Exelixis (EXEL 1.80%).
1. Moderna
Biotech giant Moderna has lost nearly 48% of its value since the beginning of the year. While the company has been a victim of broader economic worries, investors are likely concerned that Moderna won't be as successful in the long run as it is right now. The company is currently benefiting from its COVID vaccine Spikevax, which is one of the market leaders.
With the pandemic seemingly subsiding, perhaps Moderna's success will be short-lived. But there is another side to this argument. First, Moderna's shares have fallen so low that they look overvalued, at least by the standards of traditional valuation metrics. The company's forward price-to-earnings (P/E) ratio currently stands at 4.6. The biotech industry's forward P/E is a much higher 12. Furthermore, many experts believe that COVID-19 will become endemic.
In addition to its highly successful Spikevax, Moderna is working on several other coronavirus vaccine candidates that specifically target potent variants of the virus and others aimed at the potentially lucrative pediatric market.
That brings us to yet another critical point: Moderna's pipeline. Biotech companies can't survive very long unless they have at least a couple of promising programs that can earn regulatory approval. In this department, Moderna excels. The company's pipeline includes vaccines for various targets, including the flu, cytomegalovirus, Zika virus, and several forms of cancer.
Moderna is running a few (non-coronavirus-related) phase 2 clinical trials. Expect the company to record key clinical wins in the next two years. Moderna has the funds to advance its pipeline programs thanks to its success in the coronavirus market. The company ended the first quarter with $19.3 billion in cash, cash equivalents, and investments.
Even if Moderna's fortunes shift once the pandemic truly ends, the company is well-positioned for decades to come thanks to its cash hoard and rich pipeline. At current levels, this biotech stock can indeed make investors richer.
2. Exelixis
Exelixis is a biotech that focuses on cancer treatments. It is best known for Cabometyx, an oncology product that treats renal cell carcinoma (RCC) and hepatocellular carcinoma. Cabometyx was the first RCC treatment approved by the U.S. Food and Drug Administration to demonstrate improvement in three critical parameters in clinical trials: Overall survival, progression-free survival (the length of time the patient lives with cancer without experiencing worsening symptoms), and objective response rate (the percentage of patients whose cancers reduce after treatment).
Cabometyx is the No. 1 prescribed tyrosine kinase inhibitor (TKI, a class of drugs that specifically target and attack cancer cells) for RCC patients. Cabometyx has been able to grind out new indications that have helped it continue to grow its revenue. In the first quarter, the biotech's top line (generated primarily through Cabometyx) jumped by an impressive 31.7% to about $356 million.
Exelixis' adjusted net income for the quarter was $83.9 million, compared to the adjusted net income of $28.5 million reported during the year-ago period.
Exelixis is likely to continue earning new indications for Cabometyx. The medicine is being investigated in dozens of clinical trials. Meanwhile, the company is developing other therapies. Exelixis recently announced that it was starting a phase 3 clinical trial for XL092 as a potential treatment for metastatic colorectal cancer. This form of cancer is the third leading cause of cancer death in the U.S. When diagnosed at the metastatic stage, the five-year survival rate is just 15% (compared to a survival rate of about 91% when it is diagnosed before it metastasizes).
Exelixis has other early-stage programs it is working on, too. Investors can count on Exelixis to earn solid returns for the foreseeable future.
