The three best biotech stocks to buy now include a premier developer of vaccines, a biotech startup revolutionizing prostate cancer treatments and the undisputed global leader in treating cystic fibrosis.
There is a difference between biotech and pharmaceutical companies, although it is not uncommon for a firm to straddle both industries. The distinction lies in the research and development of drugs.
Pharmaceutical companies rely on chemicals, while biotech companies use living organisms to produce treatments. This article focuses primarily on biotech companies but also includes corporations that operate in both biotechnology and pharmaceutical fields. For information on the top pharmaceutical investing opportunities, check out this article about the three best pharmaceutical stocks to buy now.
Biotechnology is one of the most profitable industries globally, raking in $298.7 billion in revenue in 2020, with a stellar 19.8% profit margin. The global biotech industry is considered mature and is forecast to experience an annual average increase of 3.1% in revenue in the next five years. However, the fragmented nature of global biotech, combined with its large overall market, means there is still tremendous potential for companies to grow and to profit.
The largest biotechnology companies in the world earn billions of dollars in profit each quarter, while high growth startups count yearly share price increases in the hundreds of percent. However, the complexity of the biotech industry means that it can be difficult for investors to identify solid investments. Like pharmaceutical companies, biotechnology companies often experience significant swings in share price, depending on the most recent clinical trial results.
Luckily, we have taken away much of the guesswork by identifying the three best biotech stocks to buy now.
3 Best Biotech Stocks to Buy Now: #3
Vertex Pharmaceuticals Inc. (NASDAQ:VRTX)
Vertex Pharmaceuticals Inc (NASDAQ:VRTX), founded in 1989, is a global biotechnology company headquartered in Boston, Massachusetts. Vertex specializes in the research and development of small-molecule drugs. The company is the undisputed worldwide leader in cystic fibrosis (CF) treatments with four drugs in its portfolio (Kalydeco, Symdeko, Trikafta and Orkambi) dedicated to combating CF. In addition to cystic fibrosis, Vertex also possesses experimental gene-editing therapies alongside pain and inflation treatments in its drug development pipeline.
Vertex Pharmaceuticals, despite its name, is one of the largest biotechnology firms in the world, with a market capitalization (market cap) of $47.2 billion. The company dominates the global cystic fibrosis treatment market. Its four CF drugs combined for more than $6.2 billion in revenue in 2020.
Trikafta, which accounted for approximately $3.9 billion of the $6.2 billion in total CF treatment revenue, gained U.S. Food and Drug Administration (FDA) approval in October 2019. With 2020 being the first full commercial year for Trikafta, the drug has a long runway to grow, with its patents not set to expire until 2037.
Trikafta is Vertex’s most powerful cystic fibrosis treatment to date. Although only 75,000 people are afflicted with cystic fibrosis worldwide, the genetic and incurable nature of the disease means that the global CF market is projected to reach $14.2 billion by 2027, an 8.2% compound annual growth rate (CAGR) over the next six years. Current CF treatments are capable of suppressing the symptoms but are not able to cure the affliction. Trikafta is expected to address 90% of global CF patients. Under patent for at least sixteen more years, the drug will be a profit windfall for Vertex Pharmaceuticals.
The company also has five additional cystic fibrosis treatments/treatment combinations in Phase 3 and 4 trials, further solidifying its status as the global leader in combating CF for years to come.
Vertex has also begun to signal an effort to diversify its portfolio beyond CF. The company has eight non-cystic fibrosis drugs in clinical trials in its product pipeline. The developmental drugs include treatments for pain, sickle cell disease and type 1 diabetes, among other afflictions.
Vertex has consistently beaten the standard with an average annual sales growth of 32.1% over the past five years compared to the biotechnology industry average of 0.4%. The company is projected to continue its strong growth. Vertex is expected to see an 18.6% year-on-year increase in revenue in Q4 2021 and a 10.5% increase in sales in 2022. The projected sales growth for the industry and S&P 500 averages are 1.4% and 9.8%, respectively.
Unlike the other companies on this list, Vertex is a value play, not a growth investment. VRTX is down 15.9% on the year. The downward trend and a 50-day moving average are displayed below.
Chart provided by Stock Rover.
In early June 2021, the company experienced a significant drop in its stock price after its alpha-1 antitrypsin deficiency (AATD) treatment, VX-864, was discontinued in its development following lackluster Phase 2 clinical trials. However, VRTX’s drop in stock price has caused it to become undervalued.
Although the loss of VX-864 hurts, AATD treatments are not the company’s revenue driver. The company’s bottom line from cystic fibrosis treatments is still intact. Vertex retains approximately a dozen additional treatments in its drug development pipeline, including several that are in Phase 3 and 4 clinical trials, further along than VX-864 ever was. The company’s future remains well intact.
The decline in VRTX’s share price has made it an attractive target for any value investor. Despite consistently outperforming similar companies and projected future performance continuing to outclass rivals, Vertex’s (share) price-to-sales (P/S) ratio of 7.1 and (share) price-to-book (P/B) ratio of 5.1 both fall under the industry average. The average industry P/S and P/B ratios stand at 12.6 and 7.3, respectively. A biotech company’s P/B ratio is important because it represents its assets, such as cash and drug patents, to drive its bottom-line, along with its research and development efforts.
VRTX has also realized much more of its assets than its competitors. Vertex has a (share) price-to-tangible book (P/TB) ratio of 6.1 compared to the industry average of 45.2. By realizing more of its assets into tangible holdings such as cash, the company can more readily and easily fund future drug research and development.
With a near-perfect Stock Rover quality score of 99/100, Vertex is an excellent value investment and a steady company in a volatile industry.
A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $263.57, 42.1% higher than its latest closing price of $185.49, earning VRTX a “BUY” recommendation from Stock Rover and a place among our three best biotech stocks to buy now.
3 Best Biotech Stocks to Buy Now: #2
Novavax Inc. (NASDAQ:NVAX)
Novavax Inc (NASDAQ:NVAX) is an American biotechnology company based in Gaithersburg, Maryland, specializing in vaccine development. The company was founded in 1987 and currently possesses a market cap of $12.6 billion. Alongside its Swedish subsidiary, Novavax AB, formerly known as Isconova AB, Novavax has developed vaccines for various viruses from Ebola to influenza to respiratory syncytial.
Similar to other biotech and pharmaceutical companies, Novavax turned its attention to combatting COVID-19 in early 2020. The company’s history in vaccine research and development led the FDA to reach a $1.6 billion agreement in July 2020 for 100 million prospective doses of a future Novavax COVID-19 vaccine upon the completion of successful clinical trials.
Novavax has since inked similar COVID-19 vaccine deals with the national governments of the United Kingdom, Australia, India and Canada. India’s Novavax deal amounts to a minimum of one billion vaccines alone. The United Kingdom’s agreement calls for 60 million vaccines. Canada’s contract with Novavax is for 52 million vaccines, with an option to buy 24 million more doses. Finally, Australia reached an agreement with Novavax for 51 million doses.
Novavax’s NVX-CoV2373 COVID-19 vaccine completed Phase 3 trials in the United States and Mexico in June 2021, demonstrating a 90.4% efficacy rate, clearing the last hurdle before FDA approval. Phase 3 is the last stage prior to FDA approval. Phase 4 follows FDA approval and constitutes continuous monitoring of the treatment for unexpected side effects in the following years. As a result, Novavax is expected to experience a large windfall of cash from its vaccine deals. The company announced in early September 2021 that it expects at least two billion doses of its COVID-19 vaccine to be produced in 2022.
COVID-19’s projected trajectory has experienced a momentous shift since March 2020. The emergence of new variants has made it less likely that the virus will disappear for good. Experts forecast that COVID-19 will become a seasonal illness similar to the flu, with advancements in modern medicine hopefully reducing it to a yearly nuisance rather than a pandemic.
The public health shift from eradicating COVID-19 to mitigating its effects also has played into Novavax’s hands. The company also announced in September 2021 positive Phase 3 trial results for its next-generation NanoFlu vaccine that is intended to help fight influenza. Novavax executives have contemplated combining its NanoFlu vaccine with its NVX-CoV2373 vaccine to build immunity against COVID-19 for its patients better. Influenza vaccines have been shown to increase protection against severe COVID-19 cases.
Novavax has exhibited solid financial performance even prior to COVID-19, with an average five-year sales growth rate of 136.9% and a return rate of 420.7% over the same period. However, the company is expected to skyrocket with the recent success of its influenza and COVID-19 vaccine trials. Novavax is forecast to experience a 211.7% year-on-year revenue growth in Q4 2021 and a 181.5% increase in sales in 2022. As a result, NVAX has encountered a 34.1% increase in its share price over the trailing 12 months, shown below alongside a 50-day moving average.
Chart provided by Stock Rover.
The most significant source of concern for NVAX investors is its drop in net income in recent years. Novavax has previously hugged the break-even line for years but has seen its bottom line decrease dramatically in recent years, losing $418 million in 2020. However, a characteristic of the pharmaceutical and biotech industries is the painstaking drug development and approval processes. A drug manufacturer can lose money for years before striking it rich with one or two well-placed vaccines. Novavax is undoubtedly on track to be one of those companies, with both its COVID-19 and Influenza vaccines yielding positive results in Phase 3 trials, making NVAX an excellent growth investment.
A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $264.20, 93.04% higher than its latest closing price of $136.86, earning NVAX a “BUY” recommendation from Stock Rover and a place among our three best biotech stocks to buy now.
3 Best Biotech Stocks to Buy Now: #1
Myovant Sciences Ltd. (NYSE:MYOV)
Myovant Sciences Ltd (NYSE:MYOV), founded in 2016, is a British biotech company with a broad mission statement to create transformative medicine to improve people’s lives. Myovant is headquartered in London, United Kingdom, and contains a market cap of $1.9 billion. The company’s primary research and drug development is currently centered around uterine fibroids and prostate cancer.
What separates Myovant Sciences from its competitors is its ability to develop and rapidly introduce drugs commercially. In the United States, only one out of every 5,000 experimental drugs makes it to market. Of the drugs that ultimately succeed, it takes, on average, 12 years for a treatment to gain FDA approval and become commercially available.
Despite only being founded in 2016, Myovant Sciences has gained FDA approval for its first drug, Relugolix, to treat uterine fibroids (UF) and advanced prostate cancer. Relugolix gained approval for treating prostate cancer in December 2020 and UF in May 2021. Furthermore, Myovant has already signed an agreement with American drug manufacturing titan Pfizer (NYSE:PFE) to help mass-produce the treatment.
Over a quarter of reproductive-age women experience uterine fibroids and a quarter of those cases become severe enough to require treatment. Treatment options for uterine fibroids are still relatively limited. Compared to hysterectomies and progestin-releasing intrauterine devices (IUD), two of the current most common therapies for UF, Relugolix is a much less invasive pill. With the backing of Pfizer, Relugolix has a major opportunity to shake up the UF treatment field.
On the prostate cancer side, Relugolix also possesses significant advantages compared to other commonly used androgen deprivation therapy (ADT) drugs. ADT drugs, such as leuprolide (Lupron) treatment, have been at the epicenter of treating advanced prostate cancer for decades. However, Relugolix is more effective than other ADT drugs at reducing testosterone levels (a positive for prostate cancer patients) and much less likely to cause serious heart issues.
Neal Shore, M.D., of the Carolina Urologic Research Center, stated that “given [Relugolix’s] superior ability to reduce testosterone and safety concerning heart-related effects, ‘it’s perfectly arguable that Relugolix should be the preferred choice for ADT in men with advanced prostate cancer.”
Beyond Relugolix, Myovant is developing the Relugolix Combination Tablet, currently undergoing Phase 3 trials to treat endometriosis and prevent unwanted pregnancies. The company is also working on MVT-602, an experimental drug for egg maturation in women undergoing assisted reproduction. The MVT-602 passed Phase 2a trials in 2019.
Relugolix, combined with a rich drug development pipeline, has positioned Myovant for an incredibly bright future. The company is projected for a year-on-year sales growth of 4,729.6% in Q4, 2021 due to Myovant reaping the rewards of Relugolix to become its first commercially available drug. Myovant is expected to continue experiencing the financial cornucopia of Relugolix, with revenue expected to increase by an additional 38.7%, after the spike in profits, in 2022 from 2021.
MYOV has seen a 26.6% increase in stock price over the past year due to its recent success. The growth has been graphed below along with a 50-day moving average.
Chart provided by Stock Rover.
The main downside surrounding MYOV is the company’s age. Myovant Sciences’ track record (gaining FDA approval for Relugolix, partnering with Pfizer and developing a robust drug development pipeline) is impressive for a five-year-old company. However, Myovant is still a new company, which means its entire revenue stream currently relies on Relugolix. The company can potentially go bankrupt or become unable to fund its other development programs if the drug underperforms or is found to possess defections.
Although Myovant is riskier than more established companies like Bristol-Myers Squibb (NYSE:BMY) or Sanofi (NASDAQ:SNY), the company’s $570 million in cash on the balance sheet, its Relugolix Combination Tablet rapidly progressing through Phase 3 trials and its partnership with Pfizer means that MYOV is a solid investment with sky-high potential.
A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $34.75, 72.0% higher than its latest closing price of $20.20, earning MYOV a “BUY” recommendation from Stock Rover and a place among our three best biotech stocks to buy now.