Discerning between popular growth stocks that have room to run and those that will leave your portfolio in the red isn't an easy task, especially for companies in the biopharma sector. Picking the businesses that have the right mix of reliable earnings and catalysts for growth is key, but it takes more than a drug approval or two for your picks to succeed in the long run.
On that note, there's a pair of pharmaceutical stocks that might fit the bill when it comes to enduring growth, and both have experienced noteworthy and recent catalysts. The catch is that only one of the pair has a plan to supercharge its growth before the end of the decade, whereas the other is mired in troubles that might harm investors despite a recent success.
1 to buy: AbbVie
AbbVie (ABBV -1.03%) is a pharmaceutical growth stock par excellence because it will be commercializing new medicines and expanding the prescribable indications of its existing set of medicines at a quick clip throughout the rest of the decade. And at the moment its valuation is appealing. In 2023, it aims to submit nine approval packages to regulators and potentially get the final stamp of approval for eight other programs for which it already submitted the paperwork. That's anticipated to drive top-line growth at a compound annual growth rate (CAGR) of up to 9% from 2025 to 2030 after a temporary decline in 2023 and perhaps 2024, stemming from increasing competition from generic medicines for Humira, its highest-earning drug.
On average, Wall Street analysts anticipate the business will have around $54.2 billion in sales this year, down from an estimated $58.2 billion for 2022. But with its high-throughput development pipeline already making progress in replacing the revenue lost from Humira, management's expectations for a strong second half of the decade are justified.
The anticipated loss of exclusivity protections for Humira in 2023 is also why AbbVie stock is priced affordably; its near term will be difficult. Presently, its price-to-earnings (P/E) multiple is 21.5, which is a bit lower than the pharmaceutical industry's average P/E of 25.2. That's no deep bargain unless you consider the fact that the company pays a decent dividend that currently has a forward yield of above 3.6%. What's more, its dividend rose 108.5% in the last five years alone, and it's likely to continue rising.
Buying the stock now means getting the advantage of AbbVie's long-term top-line growth, which you'll need to wait for -- but you'll be getting its climbing dividend payment immediately and for a relatively good price.
1 to avoid: Biogen
Biogen (BIIB 4.56%) has many of the trappings of a superstar pharma stock. The company is a leader in treating multiple sclerosis, and its six medicines for the condition brought in more than $1.6 billion in the third quarter of 2022 alone. Its large pipeline of neurology medicines features 12 late-stage programs for common but difficult-to-treat illnesses like Alzheimer's disease and Parkinson's disease, not to mention a smattering of other programs in phase 1 clinical trials. Furthermore, its debt load of $6.6 billion isn't a major concern in light of its healthy profit margin of 27.6% and its trailing 12-month net income of more than $2.8 billion.
But you may want to avoid this stock. The problem with Biogen is that it's hard to take management at its word, and that's a huge risk.
The big catalyst for the business this year is that the Food and Drug Administration just gave its stamp of approval for the company's latest Alzheimer's disease candidate called lecanemab. But in 2021, its attempt to commercialize another Alzheimer's therapy, Aduhelm, ended in a cascade of largely self-inflicted disasters even after regulators gave it the green light. After ignoring internal doubts about Aduhelm, the company released data on the drug's safety and efficacy characteristics that disappointed the medical community to the point where it didn't get prescribed.
At the same time, its sky-high price tag of $56,000 per year ignited widespread controversy, which was fully expected internally, as well as widespread allegations of an overly close relationship between Biogen and regulators that eventually became the subject of a congressional investigation. Eventually, Aduhelm was a commercial failure despite management's persistent efforts to paint it as a promising work in progress. Similar concerns are already swirling about lecanemab's safety and efficacy, though a full-blown controversy hasn't developed so far.
Still, there's little evidence that management has changed its rigid approach to commercializing medicines, and that's too big of a risk for investors to bother with when there are better places to park their money.
