Several biotech stocks have outperformed the struggling market this year. This list includes Vertex Pharmaceuticals (VRTX 0.38%), Exelixis (EXEL 0.56%), and Amgen (AMGN -0.70%). Of course, the market downturn isn't over, and these three drugmakers could still feel the effects of macro headwinds and geopolitical tensions in the foreseeable future.
With an uncertain near-term outlook, it would be unwise to bet on these companies to continue beating the market in the short run. However, all three have the tools to deliver solid returns in the long run. Let's consider why these three biotechs are solid buys for the next decade.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals has been the best-performing of all three biotechs discussed here this year. There are good reasons for that. First, it continues to grow its revenue and profits thanks to its monopoly in the market for therapies that address the underlying causes of cystic fibrosis (CF).
The company's most-recent approval in this space was that of Trikafta, which earned the green light in 2019. Trikafta can treat up to 90% of CF patients -- more than any of Vertex's other products -- and it won't lose patent protection until the late 2030s. That gives Vertex Pharmaceuticals plenty of time to make headway within the 25,000 patients with CF within its target markets that have yet to start treatment.
And, of course, the drugmaker's revenue and earnings will continue to grow.
Further, Vertex Pharmaceuticals is developing new innovative therapies. The company's strategy remains the same: Target illnesses with few (if any) safe and effective treatment options. Among Vertex's most ambitious programs is VX-880, a potential therapy targeting type 1 diabetes. Perhaps this program is a long shot.
No matter; Vertex has other solid candidates in the pipeline. These include exa-cel, a potential treatment for sickle-cell disease and transfusion-dependent beta-thalassemia. Vertex Pharmaceuticals expects exa-cel to be its next launch.
Elsewhere, it is targeting the market for medicines for acute and neuropathic pain, APOL1-mediated kidney disease, and other conditions. In the next 10 years, Vertex will launch new therapies which, combined with its existing CF franchise, will propel its revenue, earnings, and stock price to ever higher levels. Don't wait too long to get in on this top biotech.
2. Exelixis
Exelixis is an oncology-focused mid-cap drugmaker. The company's crown jewel is Cabometyx, a drug approved to treat some forms of kidney and liver cancer. Exelixis has been able to live off Cabometyx for a while. The medicine has consistently earned new indications with practically no end in sight. Cabometyx is still being investigated in plenty of clinical trials.
In the second quarter, Exelixis' revenue increased by 8.9% year over year to $419.4 million -- a solid performance for a biotech company. Still, Exelixis will have to diversify its revenue base eventually.
Thankfully, the company is currently working on doing that. In June, it started a late-stage clinical trial for a new product, XL092, in treating metastatic colorectal cancer. The target is appropriate. Colorectal cancer is the third leading cause of cancer death in the U.S.
Although it can be treated reasonably effectively when caught early, many cases aren't diagnosed until they have metastasized. Current treatments aren't very effective at that stage. There is an unmet need here, one which Exelixis is looking to fill with this new therapy.
The biotech plans to start many other phase 3 studies with XL092 targeting various other forms of cancer. XL092 could be Exelixis' next crown jewel, and much like Cabometyx, it could earn tons of approval. But the drugmaker does have other candidates.
With a medicine still growing its revenue and an exciting pipeline, expect Exelixis to continue on its upward trajectory.
3. Amgen
Amgen has dealt with some issues that have impacted revenue growth over the past few years, including tougher competition and patent cliffs. But like any solid biotech, the company's investment in research and development is paying off. Newer approvals such as asthma medicine Tezspire and cancer drug Lumakras will help smooth out the losses from older products.
Amgen expects these medicines to become very successful, but they haven't been on the market for long. Lumakras was first approved in May 2021, while Tezspire earned the green light in December.
In the second quarter, Amgen's revenue grew by a meager 1% year over year to $6.6 billion. Investors should expect the company's top-line growth rates to improve as these newer products increasingly gain traction.
Amgen has a rich pipeline to help it land more new approvals and plenty of label expansions. The company has almost two dozen products in its late-stage pipeline alone and many more in phase 1 or 2 studies. Even a handful of regulatory nods could work wonders for the biotech giant.
Drugmakers routinely deal with patent cliffs, but successful ones can navigate them thanks to their ability to innovate. Amgen seems more than capable of doing so. One thing the company offers that the two others discussed here don't is a dividend. Amgen's yield of 3.42% is well above average, and the company's cash payout ratio of 49.2% is reasonable.
Amgen has increased its dividends by 68.7% in the past five years. That won't stop anytime soon, and the company's top line will return to stronger growth. In short, Amgen is a solid stock to buy and hold for risk-averse income-seeking investors.
