It's been an ugly year in the stock market in 2022, and most investors are deep in the red. But there's always a winner somewhere. Right now healthcare is seeing a lot of bright spots.
For instance, Immunocore (IMCR 4.52%) investors just had a U.S. Food and Drug Administration (FDA) approval, and that stock has shot higher with a 30% gain this year. Will Axsome Therapeutics (AXSM 0.97%) be the next stock to pop? Its valuation recently jumped 52% in a single day. And Japan's largest drug company, Takeda (TAK -0.35%), is significantly outperforming the American market while paying a nice dividend. Here's why our roundtable is bullish on these three names for 2022.
Up almost 30% with more room to run
Patrick Bafuma (Immunocore): Forget about doing just fine -- Immunocore is crushing it, up over 29% year to date. Since its first drug, Kimmtrak, was approved earlier this year for a rare form of eye cancer called uveal melanoma, this biotech has been off to the races. Plus, with potential label expansion and multiple drugs in its pipeline, this biotech could reward investors for years to come.
This $1.9 billion biotech's approved therapy acts by redirecting the patient's immune system to attack the tumor -- and has been shown to increase overall survival for its approved indication. Immunocore has already impressed me with Kimmtrak being the first T-cell receptor (TCR) immunotherapy to receive approval in multiple countries, including the U.S., Canada, the E.U., the U.K., and Australia. For a small-cap healthcare company to hold such an honor early in its history is a sizable feat. And with no other approved therapy for Kimmtrak's specific indication, Immunocore has the market all to itself.
Taking the 10,000-foot view, I think Immunocore's management was smart to trial Kimmtrak in a rare form of melanoma first and go for the slam-dunk approval -- particularly when the drug was designed to target a protein, gp100, highly expressed in over half of all melanomas. The hope is that the treatment will work in melanoma regardless of the site of origin, number of tumor mutations, or prior therapy. A phase 2 trial testing this theory is planned to be initiated in fourth-quarter 2022, for what is likely a $3 billion addressable market in the U.S. alone.
Not only that, but the company has four other clinical-stage programs. This may be more than a profitable year for Immunocore investors; it might be a profitable decade if Kimmtrak keeps winning in trials and if anything in the pipeline pans out.
Axsome now has 3 potential blockbusters
Taylor Carmichael (Axsome Therapeutics): In 2019, Axsome Therapeutics had the biggest gains in the whole stock market, running up an incredible 3,600%. The tiny micro-cap had remarkable success in one clinical trial after another, and the stock zoomed higher on a wave of good news.
Over the next two years, 2020-2021, Axsome stock dropped 63% as the biotech suffered FDA delays while it tried to get its top two drug candidates, AXS-05 and AXS-07, to market. That bad news is about to end. A few weeks ago, the stock spiked 52% when the company filed a disclosure with the SEC, announcing that the FDA had sent its proposed labeling to the company for its not-yet-approved drug, AXS-05, for major depressive disorder. Bullish investors are expecting an FDA approval any day now.
While it will likely be another year before the company's migraine drug, AXS-07, hits the market, Axsome might have pulled a rabbit out of its hat in May by acquiring an already-approved drug, Sunosi, from Jazz Pharmaceuticals for $53 million (plus future royalties in the single digits).
Sunosi is a narcolepsy drug. Axsome picked it up for a song because the drug only had $57 million in sales for Jazz in 2021. (Narcolepsy is a small market opportunity, roughly $2 billion a year.) But Axsome is very bullish on its newly acquired drug. Founder and CEO Herriot Tabuteau estimates Sunosi will be a blockbuster with peak annual sales of $1 billion.
So how is Sunosi going to grow from a tiny drug to a major blockbuster? Axsome is planning a phase 3 trial later this year to see if the drug will work for people who have attention deficit hyperactivity disorder (ADHD). That's a massive market opportunity, roughly $20 billion in annual sales. Any good news there and this stock will spike a lot higher.
An attractive dividend and value play
George Budwell (Takeda Pharmaceutical): While most healthcare stocks have struggled mightily this year, shares of the Japanese drugmaker Takeda Pharmaceutical have posted a respectable 5% gain through the first half of 2022. There are multiple keys to Takeda's surprising uptick in the midst of this raging bear market.
Turning to the specifics, Takeda's shares have been trading at one of the cheapest valuations within the entire healthcare sector over the course of the prior decade. What's more, the company's 5.68% annualized dividend yield at current levels is among the highest within the major drug manufacturer space. Takeda's improving top-line outlook, stemming from the launch of several new drugs over the past few years, has also helped it push back against this exceedingly rough climate for pharmaceutical stocks.
Last but not least, the drugmaker's rich pipeline, consisting of approximately 40 clinical candidates and 10 late-stage assets, also appears to be turning heads on Wall Street of late.
Can Takeda continue to defy the bear market in 2022? I think the answer is a resounding "yes." My confidence stems mainly from the fact that Takeda's free cash flows have been rising in a significant manner over the prior 12 months. The company, in turn, ought to have ample firepower to reduce its heavy debt load, service its dividend program, and pursue value-creating business development opportunities.
At a bare minimum, though, I suspect conservative-oriented investors will continue to pile into this top pharma stock for its relatively safe and sizable passive income opportunity.