Biotech stocks, after soaring from the depths of the pandemic low in 2020, have stalled out in 2021. While the group largely ran up in the year’s early weeks, they quickly gave up those gains (and a little more to boot) and have effectively been range-bound since April.
So while the S&P 500 is up some 25% year-to-date, biotech stocks – as represented by the SPDR S&P Biotech ETF (XBI) – are actually off 6.7% at this point.
The good news? Biotech stocks have shown some strength of late, with the XBI up 7.4% since Oct. 27. Several tailwinds are at the industry’s back too.
First, investors are showing positive sentiment toward third-quarter earnings results in the biotech and pharmaceutical industries. This has helped reassure investors that many biotech stocks have navigated some of the pandemic-related concerns hitting other industries.
Another tailwind is that many biotechnology companies are releasing regulatory updates this month. Wall Street appears bullish that approvals will be in store.
But which biotech stocks are best suited for investor portfolios at the moment?
We’ve decided to take a gander into some of the top-rated stocks from the POWR Ratings database. This particular stock-rating tool monitors 118 different factors – from valuations to balance-sheet strength to analyst opinions – to determine which shares are poised to outperform the market.
We’ll evaluate five highly rated biotech stocks and discuss why POWR Ratings (and the analyst community) views them so bullishly at the moment.
Data is as of Nov. 5.
- Market value: $40.9 billion
- POWR ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.65
Biogen (BIIB, $278.68) is one of the world’s leading biotechnology companies, focusing on developing innovative therapies for serious neurological and neurodegenerative diseases. The company’s core growth focuses on multiple sclerosis (MS), Alzheimer’s and dementia, Parkinson’s disease, spinal muscular atrophy and amyotrophic lateral sclerosis.
BIIB has a firm position in the multiple sclerosis market, with several products, including Avonex, Plegridy, Tecfidera and Tysabri. Its multiple sclerosis revenue was $8.7 billion last year, with almost 40% coming from Tecfidera and Vumerity. Its other MS drug, Tysabri, continues to bring in revenue for the company. Biogen is also looking to consolidate its position in the MS market by introducing new treatments.
The firm is also trying to diversify its pipeline to be a leader in the neuroscience and therapeutic areas. From 2017 to 2020, the firm executed 20 business development transactions to boost its pipeline significantly – including entering a partnership with Sangamo Therapeutics (SGMO) in February 2020 to develop gene regulation therapies for neurological diseases.
Plus, it’s looking to strengthen its Alzheimer’s and neurodegenerative disorders pipeline. For instance, its spinal muscular atrophy treatment, Spinraza, has consolidated its position in the neurological disease market. It was the first treatment to be approved in the U.S. for spinal muscular atrophy.
BIIB has an overall grade of B (Buy) in the POWR Ratings system. Among biotech stocks, this one is attractively valued, as evidenced by its low forward price-to-earnings (P/E) of 14.2 – a factor in its Value Grade of A.
Biogen also has a Quality Grade of B due to its solid fundamentals. At the end of the third quarter, BIIB had $3 billion in cash compared to only $999 million in short-term debt. The company also has a high gross margin of 82.5%. Here are the complete POWR Ratings for Biogen (BIIB).
- Market value: $83.2 billion
- POWR ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.71
Gilead Sciences (GILD, $66.32) develops and markets therapies to treat life-threatening infectious diseases, with the core of its portfolio focused on HIV and hepatitis B and C. The acquisitions of Corus Pharma, Myogen, CV Therapeutics, Arresto Biosciences and Calistoga Pharmaceuticals have broadened this focus to include pulmonary and cardiovascular diseases and cancer.
The company’s flagship HIV therapy, Biktarvy, continues to deliver strong growth and market share gains. Along with Genvoya, these next-generation HIV products offer better long-term safety profiles than competing drugs. The Food and Drug Administration’s (FDA) full approval of Gilead’s Veklury (remdesivir) for treating patients with COVID-19 has also aided growth.
GILD is also looking to boost its portfolio and pipeline and expand beyond antivirals into other areas. For instance, the company previously acquired the oncology company Immunomedics. This added breast cancer treatment Trodelvy to its portfolio, which should help accelerate Gilead’s oncology efforts and reduce its dependence on its virology business.
The company also recently beat sales and earnings estimates for the third quarter, driven by a solid contribution from its COVID-19 treatment, Veklury (remdesivir).
GILD is one of several B-rated (Buy) biotech stocks in the POWR Ratings system. The company has a Value Grade of A as its trailing P/E ratio arrives at 11.2 and its forward P/E ratio comes in at 9.7. Plus, its price-to-sales and price-to-book ratios are below industry averages.
Gilead Sciences also has a Sentiment Grade of B. Not only is the stock highly rated by analysts, but its average price target of $75.84 indicates expected upside of more than 14%. Get Gilead Sciences’ (GILD) complete POWR Ratings analysis here.
- Market value: $65.8 billion
- POWR ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.52
Regeneron Pharmaceuticals (REGN, $611.54) is a biopharma firm whose products address eye disease, cardiovascular disease, cancer and inflammation. The company has several marketed products, including Eylea, approved for wet age-related macular degeneration and other eye diseases; Praluent for LDL cholesterol-lowering; and Dupixent for atopic dermatitis, asthma and nasal polyposis.
The firm is also developing monoclonal antibodies with Sanofi (SNY) in immunology and cancer. REGN is developing bispecific antibodies and antibody cocktails with other collaborators and independently. However, its key growth driver is Eylea, which continues to generate substantial revenues from continued label expansions.
Eylea – which treats neovascular age-related macular degeneration, diabetic macular edema and macular edema – is approved in the U.S., the European Union, Japan and other countries. Demographic trends, including an aging population and an increase in the prevalence of diabetes, are driving growth in the U.S. REGN also is working on expanding the drug’s label into additional indications, which would naturally boost sales.
The company also is benefiting from the approval of Dupixent injection to treat adults with moderate-to-severe atopic dermatitis and asthma.
Regeneron recently reported better-than-expected third-quarter results, including profits that jumped 84% year-over-year. COVID-19 treatment Regen-COV aided that growth, supplying more than $800 million in sales during the quarters. But Pfizer (PFE) might soon eat into that business – the pharmaceutical giant recently announced that its experimental pill Paxlovid reduced by 89% the risk of hospitalization or death in vulnerable patients, weighing on REGN and other stocks that offer COVID-19 treatments.
As for the POWR Ratings system, it gives REGN has an overall grade of B, which is a Buy rating. That’s helped by a Growth Grade of B, which isn’t surprising: Analysts expect sales to rise 71.5% for the year, and earnings are forecasted to more than double. REGN also has a Sentiment Grade of A as it is well-liked by the analyst community; 18 analysts currently have a Strong Buy or Buy rating on the stock, versus eight Holds and no Sells or Strong Sells.
Among those bullish pros is UBS analyst Esther Rajavelu (Buy), who says “We remain bullish on the base business and anticipate Eylea to grow modestly even with increasing competition near-term.” See the complete POWR Ratings for Regeneron (REGN) here.
- Market value: $120.4 billion
- POWR ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.78
Amgen (AMGN, $213.77) is a leader in biotechnology-based human therapeutics, with historical expertise in renal disease and cancer supportive care products. Flagship drugs include red blood cell boosters Epogen and Aranesp, immune system strengtheners Neupogen and Neulasta, and Enbrel and Otezla for inflammatory diseases.
The company has a history of acquisitions to drive growth and boost its pipeline. For instance, in 2013, its purchase of Onyx strengthened its presence in the oncology market thanks to the addition of Kyprolis to its portfolio. The drug treats multiple myeloma and has very significant commercial potential. Plus, other drugs such as Blincyto, Nplate, Prolia, Xgeva and Vectibix are all performing well.
AMGN has also seen label expansions and new drug approvals. For example, Aimovig was approved by the FDA in 2018 for the prevention of migraines, while Evenity was approved in 2019 to treat osteoporosis in postmenopausal women at increased risk for fracture. Both drugs are performing well.
The company also has a deep pipeline and a strong biosimilars portfolio which could help drive growth over the long term. AMGN’s expansion into international markets such as China and Japan also bode well.
The company is one of the best-rated biotech stocks on this list, with an overall grade of A (Strong Buy) in the POWR Ratings system. AMGN’s Stability Grade of B reflects growth and price performance that have been fairly consistent. For instance, the stock’s beta is only 0.68, suggesting it is less volatile than the broader market.
Amgen also has a Quality Grade of A due to a rock-solid balance sheet. It has a current ratio of 1.3, which indicates it has more than enough liquidity to handle short-term obligations, and its return on equity is sky-high at 69.7%. Read more about the full POWR Ratings for Amgen (AMGN) here.
- Market value: $15.0 billion
- POWR ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.56
Incyte (INCY, $67.86) focuses on the discovery and development of small-molecule drugs. The firm’s lead drug, Jakafi, treats two types of rare blood cancer and graft versus host disease. The company’s other marketed treatments include Olumiant for rheumatoid arthritis and oncology drugs Iclusig for leukemia, Pemazyre for bile duct cancer, Tabrecta for lung cancer and Monjuvi for diffuse large B-cell lymphoma.
Jakafi continues to be the big driver of growth, though. It became the first FDA-approved JAK inhibitor for any indication and the first and only product approved for the treatment of myelofibrosis and polycythemia vera, two rare blood cancers. Its label has been updated several times since its first approval, which has boosted the company’s sales.
The drug has a long patent life that runs until late 2027. INCY is working on expanding the drug’s label further to help drive additional revenue.
Incyte had a solid third quarter where revenue came in at $813 million, up 31% year-over-year. Plus, adjusted earnings per share jumped to $1.18 from 23 cents the year prior.
INCY is another A-rated (Strong Buy) biotech stocks in the POWR Ratings system. The company has a Value Grade of A due to a low valuation. The stock’s forward P/E is only 15.8, while its price-to-tangible book ratio of 5.3 is well below the industry average of 41.3.
Incyte also has a Quality Grade of A. Its latest cash balance of $2 billion compares favorably to $11 million in short-term debt. The firm’s gross margin of 95.1% is also quite strong. Check out the complete POWR Ratings analysis for Incyte (INCY) here.
Source: kiplinger.com