September has historically been the worst month for the S&P 500, a phenomenon called the "September effect." The next few weeks may or may not live up (or down) to these low expectations, but investors need not worry about any short-term blip. Whether the market or particular stocks perform well this month is less important than how they will do in the long run.
With that said, let's look at two biotech stocks to buy this month (or any month) that have excellent long-term prospects: Vertex Pharmaceuticals (VRTX -0.06%) and Regeneron Pharmaceuticals (REGN -0.84%).
1. Vertex
Vertex defied last year's bear market and has outperformed broader indexes over the trailing-12-month period thanks to solid financial results, a strong economic moat, and an exciting pipeline that should yield plenty of new approvals in the next five years. Let's start with the financial results.
Second-quarter revenue of $2.49 billion increased by 14% year over year, while net income of $915.7 million was 13% higher than the year-ago period. Over the past five years, Vertex has continued to grow its revenue consistently, with practically no disruptions even during the early days of the pandemic.
VRTX revenue (quarterly) data by YCharts.
The biotech sells therapies that address the underlying causes of cystic fibrosis (CF), a rare lung disease. Patients need to take these medicines regularly; they aren't optional. That's why Vertex's business continues to perform well even during challenging economies.
This factor also highlights the company's moat: It is the only company in the world that markets CF therapies that can treat the disease's underlying causes and not just some symptoms.
It's hard to think of a more potent competitive advantage than a monopoly. And while Vertex might not hold this position forever, it has done so for more than 10 years now. Other drugmakers have tried and failed to develop effective competing CF treatments.
More than 25,000 patients remain who have yet to start treatment (out of 88,000 in its target markets). About 5,000 of these aren't eligible for any of the company's current therapies, but it is working on developing new ones.
The biotech has another major potential catalyst on the way. It is awaiting approval for exa-cel, a gene-editing therapy for two rare blood-related disorders. If approved, exa-cel could easily generate well over $1 billion in annual sales at its peak.
Vertex is also seeking to reproduce the success it has had in CF by developing therapies for the underlying causes of other illnesses that need such medicines. This list includes Alpha-1 antitrypsin deficiency (a genetic disease of the lungs and liver) and APOL1-mediated kidney disease.
The company aims to launch five new drugs in the next five years, improving its financial results substantially while its stock continues to outperform the market.
2. Regeneron
Regeneron has also been a market beater over the past year, partly thanks to its solid financial results. In the second quarter, revenue of $3.16 billion jumped by 11% year over year. Its net income came in 14% higher at $968 million.
The biotech's top-line growth has been a bit of a roller coaster as it developed and marketed a COVID antibody that is no longer in use in the U.S. Still, sales growth has been pretty solid in recent years.
REGN revenue (quarterly) data by YCharts.
And that should continue for a while. Regeneron recently earned approval in the U.S. for a high-dose formulation of Eylea, a medicine for wet age-related macular degeneration (AMD), co-marketed with Bayer, that could start facing generic competition sometime next year. But the newly approved high-dose version has an advantage: It requires fewer injections per year. Many patients could switch to this newly approved option.
Dupixent, its medicine for eczema, is performing extremely well. Regeneron shares the rights to it with Sanofi. The two partners announced positive results for Dupixent earlier this year in treating the lung ailment COPD, an indication that could substantially improve its sales potential.
It has many more candidates in its pipeline, including nine programs in phase 3 studies. The company should successfully increase the size of its portfolio in the coming years, allowing it to maintain strong revenue and earnings growth. Regeneron has outperformed the market recently, but it's not too late to acquire shares of the biotech company.
