It hasn't been a good year so far to be a biotech focused investor. Shares of the NASDAQ Biotechnology ETF (IBB 2.16%), a popular exchange-traded fund that owns a broad range of biotechnology stocks, are down 26% since the calendar turned to 2016. Still, with so much market negativity in the space, the odds are high that there are some real bargains to be had for those who are willing to invest against the grain.
To aid those brave investors in their search, we asked a team of our Motley Fool healthcare contributors to share the biotech stocks that they think are bargains right now.
Brian Feroldi: While the vast majority of small-cap biotech stocks are still in money-losing mode, Anika Therapeutics (ANIK 0.85%) sets itself apart from the crowd. Not only is Anika Therapeutics profitable and growing, but with its shares trading for about 22 times next year's earning estimates, I think they are also value priced.
Anika Therapeutics is primarily focused on creating products that deal with tissue protection, healing, and repair. While the company pulls in revenue from a variety of products on the market, the majority of its sales come from just two: Orthovisc and Monovisc. Both treatments reduce bone contact knee pain in osteoarthritis by delivering lubricating fluid into knee cartilage.
Sales of these drugs are growing nicely thanks to its partnership with DePuy Mitek, a division of Johnson & Johnson. Anika's revenue jumped 44% last quarter to $22.3 million and its diluted earnings per share nearly doubled to $0.45.
As good as these numbers look, I think the company stands a good chance of continuing to grow quickly as its next-generation osteoarthritis drug, Cingal, recently received approval in Europe and Canada. The company has plans to launch in these markets shortly, and is also actively seeking approval in the U.S. In addition, Monovisc is in late stage trials to be used as a treatment for osteoarthritis pain in the hip.
If all of the above wasn't enough to justify buying shares, investors will be impressed by Anika's financial position. The company is well capitalized with $116 million in cash and no debt, and it is even in the middle of an accelerated $25 million share repurchase program.
Anika Therapeutics is cash rich, in growth mode, buying back stock, and trades at a compelling price. That makes its shares a buy in my book.
Cory Renauer: I think the biotech stock to buy in May is Vanda Pharmaceuticals (VNDA 2.66%), based on its pending application at the FDA that would expand its schizophrenia drug Fanapt from the acute setting to long-term maintenance treatment.
The drug, which accounted for almost 60% of the company's total revenue last year, first earned approval in 2009 based on a couple of short-term trials. Last year, the company ran a much longer study that involved a stabilization phase with a large group of patients on the drug, then randomized 195 who were deemed suitable to receive either a placebo or continue on Fanapt.
The intention was to see if patients remaining on Fanapt would go longer without a relapse after 26 weeks. Investigators stopped the trial early because 68 of 96 patients in the placebo group relapsed before the end of the study, suggesting a highly significant improvement among patients receiving Fanapt. The company rushed those results to the FDA and expects a decision by May 27.
Annual sales of the drug have stalled, rising less than 1% in 2015 to $65.6 million. With roughly 1% of the U.S. population affected by schizophrenia, it's a large indication. Adding proof that Fanapt can effectively reduce the rate of relapse as a long-term maintenance treatment should boost the company's top line significantly.
Fanapt isn't the company's only drug. Sales of Hetlioz for treatment of non-24-hour sleep-wake syndrome in totally blind patients have soared since its U.S. launch about 2 years ago to over $44 million last year. If Hetlioz continues along this trajectory, and Fanapt rises with more physicians willing to use it as a long-term maintenance therapy, the company could begin producing steady profits by the end of the year.
Cheryl Swanson: Biotech share prices imploded after Hillary Clinton tweeted her outrage about unbelievable drug price hikes, but the ensuing vicious downturn means that investors now have the chance to add some top-quality stocks to their portfolios. While nothing can beat the excitement of seeing a small cap knock it out of the park with a new drug, investors more interested in long-term growth and relative safety shouldn't miss the current opportunity in Amgen (AMGN 0.93%).
First, Amgen blew away expectations last quarter, and also upped its sales and EPS guidance to new heights, but the stock still got hammered. That's not a surprise, given the overall biotech meltdown, but the upshot is that this iconic blue chip now sports a forward P/E of 13. For a company with strong margins, double-digit revenue growth, and now a 2.5% dividend yield, that's a compelling bargain.
Furthermore, Amgen is likely to bounce back and sooner than you might expect. It has a handful of drugs whose performance could single-handedly drive the stock higher in the second half. Those include not just rheumatoid arthritis fighter Enbrel, which grew 24% last year to $1.39 billion in revenue, but bad-cholesterol lowering PCSK9 inhibitor Repatha.
Finally, if you haven't been following this potent new class of drugs, you may not realize we're approaching the end of a long-term clinical trial that could well prove PCSK9 drugs prevent heart attacks. Currently two-thirds of the people treated for high cholesterol still do not have the risk of heart attacks under adequate control. While insurers have balked at Repatha's hefty price tag (around $14,000 a year), a confirmation it prevents heart attacks could well end their reluctance to cover it, and send this stock solidly upward.