The market looks scary this year, with the S&P 500 down 22%. Moreover, even the healthcare and biotech sectors -- considered defensive sectors in the equity markets -- have taken a beating. While the SPDR S&P Healthcare ETF is down 10% year to date, the SPDR S&P Biotech ETF has plummeted 29%. But there are still some stocks that are defying the bear market exceptionally.
Investors should always keep the long-term potential of businesses in mind when investing in the stock market. Despite worsening economic conditions, demand for quality healthcare and drugs will never truly decline. And biotech companies have positioned themselves well to meet that demand. Here are some reasons why adding these three high-growth stocks to your portfolio could reward you in the long run.
1. Axsome Therapeutics
Axsome Therapeutics (AXSM 4.71%) has garnered a lot of attention so far this year amid expectations that sales of its two new drugs will soar in the years to come.
Sunosi, purchased from Jazz Pharmaceuticals in May, has been Axsome's blockbuster drug. It is used to treat excessive daytime drowsiness caused by narcolepsy. The drug brought in $8.8 million in net sales in less than two months since its acquisition for the second quarter that ended June 30.
In August, the U.S. Food and Drug Administration (FDA) authorized Axsome's drug Auvelity, which treats major depressive disorder (MDD), or depression. By the fourth quarter, Axsome hopes to introduce it to the American market. This medication could be a game changer, given the surge in people diagnosed with MDD since the pandemic began. Once introduced in the international markets, these two drugs could be a major revenue driver for Axsome.
In addition to these, Axsome is developing several intriguing products. A clinical trial for AXS-05, to treat MDD, smoking cessation, and agitation associated with Alzheimer's disease (AD), is currently in its second phase. Axsome may achieve new heights once products like AXS-07 (to treat migraines), AXS-12 (a potential therapy for narcolepsy), and AXS-14 (to manage fibromyalgia) become available on the market.
The company's finances are strong enough to support its present and future pipeline. At the end of the second quarter, it had $73 million in cash and "the remaining committed capital under the $300 million term credit facility."
2. Vertex Pharmaceuticals
Vertex Pharmaceuticals' (VRTX 1.43%) stock has surged 35% this year, thanks to its rising top and bottom lines.
The company's cystic fibrosis (CF) drugs could contribute significantly to its future growth. Sales of Trikafta, its top-selling treatment for CF, increased by 22% year over year to $2.1 billion in the second quarter. This single drug saw outstanding growth both in the U.S. and global markets.
Adjusted earnings per share (EPS) also jumped an impressive 20% year over year in Q2. A strong quarter made the company raise its revenue guidance, now expected to be in the range of $8.6 billion to $8.8 billion. If the upper end of the guidance is achieved, it would mean a year-over-year growth of 17%. Vertex is also diversifying its business with many exciting products in the works.
Image source: Getty Images.
In November, along with partner CRISPR Therapeutics, Vertex plans to submit exa-cel (a gene-edited therapy) for FDA regulatory approval as a treatment for sickle cell disease and beta-thalassemia. The submissions could be completed by the first quarter of 2023.
Vertex ended its Q2 with a hefty cash balance of $9.2 billion, which could fuel its pipeline development.
3. Bristol Myers Squibb
Bristol Myers Squibb's (BMY 0.43%) decision to acquire biotech company Celgene in 2019 has worked well in its favor. The deal has added quality drugs like cancer treatments Revlimid, Pomalyst/Imnovid, Abraxane, and Reblozyl, along with bone marrow disorder treatment Inrebic, to Bristol's portfolio.
Its own line of products is pretty impressive as well. Its anticoagulant drug Eliquis's Q2 sales jumped 16% to $3.2 billion. Meanwhile, contributing the second highest to total sales, its drug Opdivo brought in $2 billion in the quarter. Total net sales in the quarter surged 2% to $12 billion. Meanwhile, adjusted EPS increased 18% to $1.93 per share.
While patents for many of the company's strongest products, including Eliquis, Opdivo, Pomalyst, Revlimid, and Yervoy, are due to expire in the next few years, its new pipeline of drugs has solid long-term potential. With high hopes from its drug portfolio, management at Bristol Myers believes it has the "potential to generate greater than $25 billion in revenue on a non-risk-adjusted basis in 2029."
Another feature of Bristol Myers that makes it attractive is its consistency in paying dividends. It has a track record of 15 years of dividend hikes. It yields 3%, higher than the S&P 500's average of 1.8%. Its dividend payout ratio (net income available to shareholders) stands at 71.6%.
Despite having an excellent pipeline in the works, the market seems stuck on its patent expirations. That's probably why the stock is cheap now, making it the right time for long-term investors to get in. We should know more about its product pipeline when it releases its third-quarter results on Oct. 26.
Oncology is a fast-growing segment, growing at a compound annual rate of 8%. According to Precedence Research, the global oncology market could be worth $536 billion by 2029. By 2030, the global biotechnology market could be valued at $3.4 trillion, growing at a compound annual rate of 17.8%.
Buying and holding these biotech stocks could be highly rewarding for investors preparing for the long haul.
