Biotechnology stocks have been one of the market's darlings over the past year. The iShares Nasdaq Biotechnology ETF (NASDAQ: IBB) has roughly doubled the S&P 500's return over the past 5 weeks. Today though, the ETF is down 5% as of this writing. Investors are fleeing the basket today based in part on worries that Express Scripts' decision to remove Gilead Sciences' (NASDAQ: GILD) hepatitis C drugs from its preferred drug formulary will prove to be a game-changer in the future of drug pricing. As a result, shares in many biotech leaders are falling, and while no one can predict where the bottom will be for these stocks, investors may be right to consider picking up a few of the best-in-breed players on sale, including these three, which are trading sharply lower this week.
1. Riding out the storm
Given that Express Scripts challenge most directly impacts Gilead Sciences, it's not too surprising to learn that Gilead Sciences shares have been one of the industry's hardest hit. Since last Friday, shares in Gilead Sciences have tumbled more than 18.25%. However, that sell-off may be providing a long-term opportunity for investors given that hepatitis C remains a blockbuster indication that despite Express Scripts decision is likely to continue to generate billions of dollars in revenue for Gilead Sciences in 2015.
Investors can take additional comfort in knowing that Gilead Sciences is far from a one-drug company. In fact, Gilead Sciences markets a slate of top-selling HIV therapies that combined will generate more than $10 billion in revenue this year. Additionally, Gilead Sciences also markets cardiovascular drugs that will add another billion dollars to its top line, and the company rolled out its first cancer drug, Zydelig, this past summer.
Another reason for investors to consider picking up shares in Gilead Sciences on the drop is because Gilead Sciences appears to have a rock-solid balance sheet that includes a rapidly growing cash stockpile. The company's cash balance has climbed from $2.1 billion exiting December to $6.2 billion exiting the third quarter.
So, although Gilead Sciences sales could be dented next year by AbbVie's (NYSE:ABBV) recently approved hepatitis C drug Viekira Pak, the company has plenty of financial flexibility that its using in part to develop its next generation of hepatitis C drugs. Those drugs may not only offer better cure rates for tough-to-treat genotypes of the disease, but they may also reduce patient treatment periods.
2. Multiple growth levers
Celgene Corp (NASDAQ:CELG) shares are similarly under fire as investors worry that payers may push back over the pricing of Celgene's cancer drug Abraxane, which is used for pancreatic cancer and has captured the ire of payers in the past.
However, before investors get too worried over Celgene's pricing power, they should remember that Celgene's product line-up, spear-headed by the multiple myeloma drug Revlimid, addresses tough-to-treat cancers, which currently have limited treatment options.
Celgene's Revlimid, which is on pace to record sales of $5 billion next year, is the most widely used multiple myeloma drug for relapsing patients, and the company expects Revlimid's sales could march up to $7 billion by 2017, especially if the FDA approves its use as a first-line treatment in February. Celgene's Abraxane, which had sales of $212 million last quarter, is more at risk of payer price pushback, but pancreatic cancer is notoriously tough to treat and its unlikely that doctors or patients will stop using it in the absence of other options. Celgene also markets Pomalyst, a third-line multiple myeloma drug that saw its sales more than double in the past year to $181 million in the third quarter. And Celgene's Otezla, which was approved as a treatment for psoriasis in September, could eclipse the billion-dollar sales mark by 2017, too.
If Celgene's product line-up isn't compelling enough for investors to want to give it a closer look, Celgene is also one of the most aggressive in terms of R&D spending on next-generation drugs. The company is conducting dozens of studies that could move the revenue needle in the future, and it has inked partnership deals on some of emerging biotechnology's most intriguing up-and-coming therapies. Although the company is spending a lot of money on research, investors shouldn't be too nervous. It still has an enviable balance sheet, with $6.8 billion in cash and equivalents as of September, up from $5.7 billion in December.
3. Dominant player
In addition to considering Gilead Sciences and Celgene for portfolios, investors may also want to look at Biogen Idec (NASDAQ:BIIB). Biogen is a major player in the treatment of multiple sclerosis, marketing three billion-dollar blockbuster drugs for the indication. Its top-selling Avonex has been a go-to solution for treating multiple sclerosis relapses for years, yet it still produces sales of roughly $3 billion annually. Biogen's Tysabri has also been successful, posting sales of $501 million last quarter, but it's Tecfidera, an oral MS drug, that has really taken off in the past year and a half. Since its launch in 2013, Tecfidera's sales have surged to $1.47 billion through the first nine months of this year, up from $1.1 billion last year.
In addition to its slate of highly successful MS drugs, Biogen also launched two hemophilia drugs this past year that could begin contributing nicely to the top line in 2015. Sales of these long-lasting therapies are off to a solid start, with Aprolix and Eloctate posting sales of $25 million and $21 million last quarter, respectively. Biogen also launched Plegridy, a long-lasting MS therapy, this past fall that could post solid sales next year. Biogen is also developing additional therapies, including a potential therapy for Alzheimer's disease. Couple those opportunities with a market dominant position in MS and a balance sheet arguably as solid as Gilead Sciences and Celgene, and that may make Biogen a compelling buy here, too.
Tying it together
It's often difficult to take the long view when shares are sinking, but its been proven time and time again that long-term thinking outperforms short-term trading. As a result, focusing less on the short term pops and drops of this industry may not prove to be nearly as profit-friendly as considering the long-term opportunity for these companies and their game-changing therapies.
Todd Campbell owns shares of Gilead Sciences, Celgene, and Biogen. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Celgene and Gilead Sciences. The Motley Fool owns shares of Gilead Sciences. 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.