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Yikes! A few weeks into February, and the indiscriminate sell-off in biotech just keeps getting more unnerving.
But here's the good news. With virtually ever biotech getting dinged, there's growing upside for investors able to discern the value from the junk in the sector. While a bigger drop could certainly be ahead, a lot of the downside risk is likely baked in for companies with big catalysts ahead.
But what about all the political posturing about drug pricing? Won't that continue to weigh? Here's what the market is missing: Proposals to cut drug pricing have been discussed for many years, and the chances of changes materializing in the coming years are slim. In addition, recent high-profile concerns have focused on the pricing for older pharmaceutical drugs -- not the kind of breakthrough treatments many biotechs are pursuing.
Biotech stocks are not for the risk-averse, however, since they drop or pop on a whisper. But maintaining a small position in a few well-chosen biotechs also adds a lot more potential upside to a well diversified portfolio. With that in mind, three of our contributors pinpoint stocks that could help boost your portfolio through 2016 and beyond.
Selena Maranjian: One biotech stock that seems quite likely to snap back from its recent slump is Celgene Corporation (CELG +0.00%). The stock was recently down more than 17% over the past 12 months -- in part due to a disappointing quarter -- but it has been a very strong long-term performer, leading to a market cap that recently topped $75 billion. It seems very likely to keep growing because it already has successful drugs on the market and, more importantly, it boasts a promising pipeline of drugs in development as well as plans to gain additional approvals for existing blockbuster drugs.
That last aim is a powerful way both to boost earnings and to prolong patent protection. Celgene's current big sellers include Revlimid, Pomalyst, and Otezla, which together generated $9.2 billion in 2015, with $10.5 billion expected in 2016. Thanks to the company's purchase of Receptos last year, it stands to possibly rake in even more eventually from the immunotherapy drug ozanimod. The rest of its pipeline is promising, too, addressing anemia, solid tumors, inflammation, and immunology, among other things. Celgene has also partnered with many other drug developers, giving it many more potential wins. With annual free cash flow topping $2 billion, double-digit net profit margins, and a forward-looking P/E ratio around 18, Celgene looks very appealing.
Brian Feroldi: A biotech stock that I think is poised to bounce back nicely in 2016 is Vertex Pharmaceuticals (VRTX 0.27%), a large cap biotechnology company that specializes in treating cystic fibrosis, or CF. Vertex's sales have been growing quickly over the past few years on the back on Kalydeco, one of its two approved CF treatments. Sales of Kalydeco grew 36% in 2015 to $632 million, and given that it grabbed several recent label expansions, the odds look good that 2016 will be another year of growth for the drug.
