Biotech stocks have taken investors on an unpredictable ride so far in 2023. One of the most popular biotech exchange-traded funds (ETFs), the iShares Biotechnology ETF, which focuses mostly on large-cap stocks, is down by about 1% year to date. However, the SPDR S&P Biotech ETF, which holds more small or mid-cap stocks, is up more than 8% to start the year.
Two of the better biotech stocks I see this month are Gilead Sciences (GILD -2.70%) and Vertex Pharmaceuticals (VRTX -0.76%). While Gilead's shares are down more than 11% so far this year, Vertex's shares are up more than 14%. Yet, each has strong financials. Plus, each company has a particular specialty that has served it well, and both are aiming to branch out into other therapy areas.
Let's see why each would make a good buy now.
Gilead is expanding its oncology offerings
Gilead Sciences best known for its treatments for HIV/AIDS and hepatitis C. However, it also has a strong pipeline, particularly in hematology, that should give it more diversity.
In the first quarter, Gilead reported revenue of $6.4 billion, down mostly because of declining sales for its COVID-19 therapy, Veklury (remdesivir). However, it was buoyed by more robust sales of its HIV and oncology therapies. HIV product sales, led by Biktarvy, totaled $4.2 billion, up by 13% over the same period last year. Oncology therapies rose 59% year over year, led by Yescarta (axicabtagene ciloleucel), a medication for large B-cell lymphoma.
Gilead's next blockbuster could be Trodelvy, which is already approved to treat several types of breast cancer as well as urothelial cancer, a type of bladder cancer; it's now being examined against a multitude of solid tumors, including non-small cell lung cancer.
Earnings per share (EPS) increased to $0.80, compared to $0.02 in the same period a year ago. The difference was due to a research and development (R&D) impairment charge in the same quarter a year ago.
Gilead offers something you rarely see in a biotech stock -- an above-average dividend. The company raised its quarterly dividend by 2.7% this year to $0.75, which works out to a current yield of just under 4%. Gilead has increased its dividend by 44% since it first instituted one in 2015, with increases every year.
The company expects revenue this year of between $26 billion and $26.5 billion, compared to $27.3 billion in 2022, and 2023 EPS between $4.75 and $5.15, up from $3.64 in 2022.
GILD Revenue (Annual) data by YCharts.
Vertex's shares could explode later this year
Vertex Pharmaceuticals has nearly cornered the market on therapies to treat cystic fibrosis (CF), a genetic disorder that affects the lungs, pancreas, and other organs. According to the Cystic Fibrosis Foundation, there are 40,000 children and adults with CF in the U.S. and roughly 105,000 worldwide.
In the first quarter, Vertex reported revenue of $2.37 billion, up 13% year over year. The company said it expects full-year revenue to be between $9.55 billion and $9.7 billion, compared to $8.75 billion last year. Net income in the quarter was down 8% to just under $700 million thanks to increased R&D costs.
The stock has a relatively high valuation, trading at around 26 times earnings, but the company's long-term potential validates the high price. What's exciting to me is that Vertex has continued to solidify its CF moat while branching out into other areas, using its steady cash flow to finance R&D.
Vertex has four approved CF therapies. The company's CF blockbuster is Trikafta, which brought in $7.9 billion last year and $2.1 billion in the first quarter alone. In addition, it is developing a next-gen treatment combining three drugs -- vanzacaftor, tezacaftor, and deutivacaftor. The potential once-a-day CF therapy is currently in phase 3 studies, and if all goes well, it could be on the market as soon as next year.
Looking past CF, Vertex's most exciting program is exa-cel, a gene therapy to treat the genetic blood disorders transfusion-dependent beta thalassemia (TDT) and sickle cell disease (SCD). Vertex is developing exa-cel along with CRISPR Therapeutics. The companies have completed the biologics license application for the therapy, and could gain approval as soon as this fall from the Food and Drug Administration. Exa-cel has the potential to end the need for transfusions for TDT and SCD patients, as a one-time curative therapy.
Vertex also has VX-548, a non-opioid painkiller to treat acute pain. After two positive phase 2 trials, it's now in phase 3 studies expected to finish by the end of 2023 or early in 2024. It's been given a Breakthrough Therapy designation by the FDA, so that could speed along its approval process. Another promising therapy is inaxaplin, to treat the cause of APOL1-mediated kidney disease (AMKD). The drug is now in a phase 2/3 pivotal trial.
All in all, both Gilead and Vertex are looking to expand their horizons and diversify their product offerings, which could be good news for investors.
