For those seeking stocks that have trounced the market over the past year, the biotech sector might be an excellent place to start. The SPDR S&P Biotech Index ETF, an industry benchmark, has climbed 34% over the trailing-12-month period, nearly three times the gains of the S&P 500.
Two drugmakers that have done particularly well for themselves are Vertex Pharmaceuticals (VRTX -0.06%) and Biogen (BIIB 3.18%). Moreover, both companies expect catalysts that could send their results even higher. Let's consider whether that makes either stock a buy.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals has a rich portfolio of cystic fibrosis (CF) drugs that generates growing revenue. And now, the company seems close to earning approval for its next potential blockbuster: exa-cel. Developed in partnership with CRISPR Therapeutics, exa-cel is a gene-editing therapy that targets sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), a duo of blood diseases with few available therapy options.
Vertex and CRISPR completed regulatory submissions in Europe late last year, and more recently, they finished sending submission packages to regulatory authorities in the U.S. Even with Vertex's dominance in the CF market, where it holds a monopoly, the addition of exa-cel could be a huge deal; here are two reasons why. First, the company would diversify and expand its lineup of approved medicines.
The risk, however remote, that a competitor would undercut its leadership in selling CF medicines, leading to much lower revenue for the company, would become even less of a threat with the approval of exa-cel. Second, the gene-editing medicine could command a price of $2 million, thereby putting its total addressable market at $64 billion given the 32,000 SCD and TDT patients Vertex plans on focusing on at first.
True, the biotech giant will have to share the spoils with CRISPR Therapeutics on a 60/40 basis. Still, exa-cel will meaningfully move the needle for Vertex on the top and bottom lines. Meanwhile, the company is developing other products, including some that could address the 5,000 out of 88,000 CF patients its current lineup can't help.
There are also products targeting acute and neuropathic pain, alpha-1 antitrypsin deficiency, and APOL1-mediated kidney disease in the mid- and late-stage pipeline. Vertex boasts more programs in the earlier stages; notably, the biotech is looking for a functional cure for type 1 diabetes. Exa-cel seems likely to earn the green light.
And if even half of its remaining programs also reach that milestone, Vertex Pharmaceuticals should continue delivering market-beating results for a while. That's why it is an excellent biotech stock to buy today.
2. Biogen
Biogen has been involved in an incredibly fascinating saga in its years-long efforts to develop effective medicines for Alzheimer's disease (AD). The company's previous attempt, Aduhelm, turned out to be a flop. But Biogen's Leqembi, which it developed with Eisai, could be different. Earlier this year, it earned accelerated approval in the U.S.
That was a good start, but a coverage decision by the U.S. Centers for Medicare and Medicaid Services (CMS) means that AD therapies that are granted accelerated approval will have minimal coverage, making Leqembi inaccessible to most patients. But the medicine could soon earn full approval.
The U.S. Food and Drug Administration (FDA) set a Prescription Drug User Fee Act (PDUFA) action goal date (the date by which it will approve or reject Biogen's application) of July 6. On June 9, Biogen announced that a committee of experts convened by the agency voted unanimously in favor of approving Leqembi.
The FDA tends to follow the recommendations of these experts, so things are looking good for Biogen. The company's top line has been declining over the past couple of years as it has faced competition, generic or otherwise, for some of its top-selling medicines.
BIIB Revenue (Quarterly) data by YCharts.
Aduhelm was supposed to be Biogen's new blockbuster, but that didn't happen. That's why approval of Leqembi is so crucial for Biogen. It should allow the biotech to start growing its revenue at a good clip again. But does that make Biogen's stock a buy? The company's financial results have been subpar lately. And yet, the stock has beaten the market over the past year, suggesting that investors anticipate Leqembi's full approval.
Leqembi's approval seems baked into Biogen's stock price already. Further, the company will eventually face competition from companies like Eli Lilly, which recently reported positive phase 3 results for its own AD therapy. Even so, Leqembi could rack up revenue of $12.9 billion through 2030 and eventually reach peak annual sales of $7.3 billion in 2030, according to some estimates.
Investors willing to hold onto Biogen's shares for a while may consider adding a small position in the company. With the windfall from Leqembi and a pipeline with more than a dozen candidates, Biogen could go on delivering solid returns.
