There are three types of biotech stocks to buy that generally fall into one of these typically non-overlapping groups:
- Growing sales
- Undervalued by investors
- Upcoming binary events
The third group, those with upcoming binary events, tends to be what create the largest group of biotech stocks to buy, but this article will cover biotechs a little further down the development pipeline that already have drugs on the market.
They're not going to produce overnight doubles like binary events do, but they're also less likely to be cut in half overnight. Steady growth isn't necessarily as exciting, but it can still be profitable.
Stop me if you've heard this one before
There once was a biotech from Summit, NJ. It didn't have any drugs for sale. Then it did. And sales grew and grew and grew, adding drugs along the way. And so did its share price. Perhaps not so steadily -- a recession didn't help -- but in retrospect, it was arguably a stock to buy all along.
The biotech, of course, is Celgene (CELG). The cancer specialist sells Revlimid, Abraxane, Vidaza, and a couple of other drugs.
CELG Revenue TTM data by YCharts.
Lest your eyes deceive you, that's a 1,500% increase in share price and a nearly 3,000% increase in revenue. Overnight doubles are fun, but more than a decuple over 10 years? Most investors would be more than content with a double each year.
To keep the growth going, Celgene has a few drugs in the pipeline, notably pomalidomide for myelofibrosis and anti-inflammatory apremilast, but growth will also have to come from expanded use of Revlimid and Abraxane in additional cancer settings.
Stocks to buy now?
Here are a couple of biotechs that have drugs with sales that could see steady growth ahead.
Regeneron Pharmaceuticals (REGN -0.09%), the seemingly unstoppable biotech, has a macular degeneration drug, Eylea, which blew through guidance all of last year. Shares followed suit, tripling last year.
For Regenron to continue to be a stock to buy, it'll need to push its pipeline of drugs being developed with Sanofi through the clinic; the market for macular degeneration and related eye diseases is only so large. The companies have already rolled out the first drug, Zaltrap, as part of their collaboration. Next up is sarilumab for rheumatoid arthritis and alirocumab to lower cholesterol, which are both huge markets, albeit with lots of competition.
Vertex Pharmaceuticals (VRTX -1.02%) is an interesting case, having launched hepatitis C treatment Incivek, which was a blockbuster within its first year on the market. Unfortunately for Vertex, hepatitis C infection is a slow developing disease without any symptoms initially, so many patients have decided to wait for future treatments that don't have to be taken with peg-interferon, which has to be injected and has unpleasant side effects.
Vertex should be able to get revenue growing again with its cystic fibrosis franchise. It already has one drug approved, but Kalydeco by itself is only appropriate for about 4% of cystic fibrosis patients. To have Celgene-type success, Vertex need drugs in its pipeline that are being tested with Kalydeco to be a success. Early data certainly looks that way.
For a little more risk, consider the obesity drugmakers VIVUS (VVUS) and Arena Pharmaceuticals (ARNA). The potential is huge with so many overweight and obese people in the U.S., but to become blockbusters, the companies, along with Arena's marketing partner Eisai, have to get their drugs covered by insurance and convince doctors that the risks are worth the rewards. Neither is particularly easy, although the companies seem to be making progress.
Expectations and blind faith
Growth doesn't come without risk. A company like Regeneron looks like it has huge growth potential, but that's already factored into the share price.
Of course, Celgene never looked cheap through its run-up either, so these growth companies could still be stocks to buy, just be careful not to overload on companies that might not hold their weight.
