March--as the saying goes--comes in like a lion and goes out like a lamb.
And biotechs may be about to do the same, although it's also certainly possible there's more chilly, costly, inconvenient Wall Street weather ahead. In fact, so long as political posturing about drug pricing keeps making the headlines, biotech investors would do well to keep their snow shovels handy and insulating layers on.
But here's the good news.Thanks to a jittery market rushing to take profits, several biotechs now provide unique buying opportunities for long-term investors. Both high quality big caps and promising small caps are trading at very attractive price points.
In fact, despite the nasty recent drop, the iShares NASDAQ Biotechnology Index (NASDAQ: IBB) is up more than 155% over the past five years. That's not due to smoke and mirrors. The FDA approved 45 new drugs in 2015, four more than 2014, which was already a year for the record books. Not only are drug approvals up, some of the new drugs represent entirely new therapies, best-in-class treatments, or even major advances against widespread maladies like cancer or heart disease.
In short, while the roads may still be covered with ice, it could be beautiful and warm again any day now. And while you wait for the thaw, here are three biotechs our contributors see as headed for superb long-term gains.
Kristine Harjes: I'm on the edge of my seat waiting for Portola Pharmaceuticals (NASDAQ:PTLA) to get the nod from the FDA for its breakthrough drug andexanet alfa. The PDUFA date is set for August 17, and I'm dying to know if the market will finally recognize the true value of this company once (and ok, if) it has a drug officially on the market.
Andexanet alfa works by reversing the effects of a novel class of blood thinners called Factor Xa inhibitors. It's not often that there's a need to make drugs less effective, but there's a strong use case when it comes to anticoagulant reversal agents. If a patient on a Factor Xa inhibitor undergoes emergency surgery or another bleeding episode, the effects of the blood thinner need to be halted.
The old go-to blood thinner, warfarin, has an easy reversal – a simple vitamin K pill. The new Factor Xa class, despite being a better solution than warfarin, is lacking one, and so sales have been relatively sluggish. With that in mind, it's easy to see why some of the biggest drugmakers in the world (think Pfizer, Johnson & Johnson, Bristol-Myers Squibb...) have been giving Portola fistfuls of money to develop andexanet alfa.
The best part? Through it all, Portola retained 100% of the rights to andexanet alfa. The healthcare heavyweights are so desperate to have a reversal agent on the market (in hopes that sales of the already-successful Factor Xa inhibitors will pick up) that they're willing to provide money for nothing to make it happen.
Portola's current valuation of $1.7 billion seems to me to wildly undervalue the company's potential. (Just think, if it gets approved and Factor Xa use takes off, every hospital in the country will have to have andexanet alfa on hand.) Still not convinced? Portola also has its own Factor Xa inhibitor in Phase 3 trials that looks so far to have best-in-class potential. This drug, betrixaban, could easily bring in a billion or more in peak annual sales, making Portola's currently $1.7 billion valuation look measly. The way I see it, now's the time to pick up some shares.
Cheryl Swanson: Regeneron Pharmaceuticals' (NASDAQ:REGN) shares went on life support in the recent biotech blood bath, and the stock is down over 35% from its November peak. That's despite Wall Street thinking the company could deliver some of the best EPS growth of any large-cap biopharma this year.
Regeneron's track record is hard to beat, with the company's stock returning over 220% since 2013. Much of that growth is due to vision loss treatment Eylea, whose demand keeps growing, pushing sales up more than 40% to $41 billion last year.
The company could also have another billion dollar drug on its hands with the Sanofi and Regeneron collaborated cholesterol-fighter Praluent. Sales should rise significantly in 2016, as UnitedHealth Group chose Praluent for its formularies covering more than 100 million patients last December. While Amgen (NASDAQ: AMGN) recently won a case supporting the validity of its patent for a competing drug, investors should note that the decision doesn't affect Regeneron's ability to sell Praluent.
This October, the FDA should be making a decision on another billion-dollar blockbuster possibility for Regeneron. The new drug, sarilumab, has a good shot at taking a big chunk of the rheumatoid arthritis market, projected to grow to 8.5 million individuals by 2023 .
Regeneron's shares trade at about 30 times forward EPS, not a bargain, but not expensive for a biotech. All this, and Regeneron is in Phase III trials for yet another potential blockbuster, dupilumab. With its exceptional revenue growth, expanding profits, and a more reasonable valuation, investors should be well rewarded long-term with this stock.
Brian Feroldi:One biotech stock that I think is a great buy right now is Ionis Pharmaceuticals (NASDAQ:IONS), a predominantly clinical-stage drug developer. This company's stock has been taken to the woodshed over the past few months, as shares are down more than 50% from their 52-week high. That's owed to the fact that the company's lipid-lowering medicine Kynamro is being handed back by its commercial partner Sanofi -- most likely because of weak sales -- and from investors fleeing the biotech sector in general.
So if Ionis Pharmaceuticals first drug looks like it's a flop, why do I think the company is a great buy today? Three reasons: First, the company has access to plenty of capital, as it ended the year with more than $775 million in cash on its books. Second, despite the fact that its earnings are negative, the company's burn rate is remarkably low thanks to its continued ability to pull in millions from up-front and milestone payments from its partnerships. Finally, with more than 38 drugs in development -- many of which are in late stage trials -- Ionis Pharmaceuticals has one of the most impressive pipelines out there.
The year ahead looks like it should be another good one for Ionis as the company is expecting to generate more than than $240 million in revenue from its partnerships and it believes that it will end the year with more than $600 million in cash on its books. Next year should be even more exciting as the company is scheduled to report readouts from multiple phase 3 trials. If any of them go well then plans to submit for regulatory approval soon after, and the company's CFO believes that a successful commercialization of any of them could turn the company profitable.
Ionis's stock isn't for the faint of heart, but the company is cash rich and has multiple catalysts on the horizon. Investors who can stay focused on Ionis' long term potential might want to give this company a closer look.
Cheryl Swanson owns shares of Amgen and Johnson & Johnson. Kristine Harjes owns shares of Johnson & Johnson and Portola. Brian Feroldi has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ionis Pharmaceuticals. The Motley Fool recommends 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.