In this series, our goal is to develop a diversified health care virtual portfolio that provides returns above and beyond the S&P 500. Since its inception a few weeks ago, we've tracked our progress on the HealthyMoney CAPS page. Now that we're halfway to the goal of 10 companies, let's check in and see how the portfolio is shaping up.
Here's a list of the virtual portfolio's contents thus far.
The virtual portfolio has already seen some action investors should know about. Most of that news actually pits our holdings against one another.
Two of the most exciting drugs driving the biotech industry this year have been Gilead's (NASDAQ: GILD) sofosbuvir and Johnson & Johnson's (NYSE:JNJ) simeprevir. Both antiviral treatments have paved the way for a new generation of Hepatitis C therapies that have shown remarkable success in treating even the most difficult patients.
In late October, both companies faced FDA advisory panels, and both came out more than happy with the result. First, a panel voted unanimously to recommend simeprevir for regulatory approval. Then the same panel voted to recommend sofosbuvir for use in several types of hepatitis C.
To top it off, Johnson & Johnson received FDA approval for simeprevir, and will market the drug under brand name Olysio. You can expect a similar announcement from Gilead, when the FDA makes its final decision in early December. For now, investors can be satisfied with a positive recommendation in Europe.
These events have been central to our virtual investment theses. Sofosbuvir represents Gilead's greatest candidate for growth in the coming years, and should provide plenty of cash flows to support expansion of its up-and-coming oncology franchise. For Johnson & Johnson, this is yet another victory in the resurgence of its pharmaceutical division that has fueled growth in the last year, but the question is whether or not it can stack up against a slew of competition.
As a protease inhibitor, Olysio must be taken with ribavarin and peg-interferon, which causes flu-like side-effects. It is still more effective than Vertex's Incivek and Merck's Victrelis, though, and takes the lead in that class of drug. Sofosbuvir, however, is a nucleotide analogue, which has proven much more effective at treating some patients without the use of interferon. As a first-in-class drug, Gilead could have a leg up on the market.
Johnson & Johnson and partner Pharmacyclics (NASDAQ:PCYC) picked up another win on Nov. 13 when the FDA approved cancer drug Ibrutinib, now branded as Imbruvica. Imbruvica was approved for the treatment of mantle cell lymphoma, or MCL, under expedited review with the FDA's new breakthrough therapy designation. Johnson & Johnson had earlier executed a wonderful deal, pitching $975 million to collaborate on development of a drug now estimated to bring in $6 billion at its peak.
Imbruvica will initially face competition from Celgene's (NASDAQ:CELG) Revlimid. Revlimid is the anchor of Celgene's pipeline, and is approved for three indications including as a third-line treatment for MCL. Then there's Gilead's idelalisib, which is currently under FDA review for treatment of indolent non-Hodgkin lymphoma, of which MCL is one type.
But the battle doesn't stop with MCL -- the next frontier is chronic lymphocytic leukemia, or CLL. The FDA is still considering the approval of Imbruvica for CLL. Gilead appears poised to compete yet again after pulling idelalisib from a phase 3 trial because it worked so well. After a predefined interim analysis, idelalisib showed a large and statistically significant improvement to progression-free survival when added to rituximab as a second-line treatment. Those results have earned idelalisib breakthrough designation, as well. Revlimid is also on the chase, but unlike idelalisib its trial was stopped in July due to safety concerns.
The bottom line
Our virtual portfolio has done well thus far, while beating the S&P 500 by more than 12 percentage points. So far our investment theses remain in tact, with Gilead's growth story coming together, Johnson & Johnson's pharmaceutical revival in full swing, and Celgene's Revlimid anchoring the company's growth. By including these businesses in the virtual portfolio chances are good that we can see gains from both the large hepatitis C market and the oncology market, where advances continue to address unmet medical needs.
Seth Robey has no position in any stocks mentioned. The Motley Fool recommends Celgene, Gilead Sciences, and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.