Five mid-cap pharmaceutical investments to purchase present three high-potential stocks and two exchange-traded funds, despite Russia’s war in Ukraine, inflation and recession risk.
The five mid-cap pharmaceutical investments to purchase focus on stocks that have the prospect of becoming large-cap companies of $10 billion and up. Mid-cap stocks, defined by the Financial Industry Regulatory Authority (FINRA) as those with a market cap of $2 billion to $10 billion, tend to grow at faster rates than industry giants since their smaller size magnifies the impact of gains.
Investors who want a diversified portfolio of pharmaceuticals, including biopharmaceuticals, can choose among several ETFs, said Bob Carlson, a pension fund chairman and also leads the Retirement Watch investment newsletter. Carlson said he likes the simplicity of choosing funds for investors seeking exposure to an array of drug company stocks of various sizes, including mid-caps.
Retirement Watch head Bob Carlson discusses investing with Paul Dykewicz.
Five Mid-Cap Pharmaceutical Investments to Purchase
Another seasoned investment professional who has successfully invested in pharmaceutical stocks is Mark Skousen, PhD, who recommended a profitable one in his Forecasts & Strategies investment newsletter as the overall market struggled during the pandemic. The dividend-paying stock rose 54.76% from December 2015 to July 2021, including part of the pandemic.
One of the challenges in investing in pharmaceutical stocks is entering and exiting at the right times, since new product development is not guaranteed to succeed. Skousen chose a large-cap stock and held it through the first part of the COVID-19 pandemic.
The stock, New York-based Pfizer Inc. (NYSE: PFE), proved to be a strong investment when it astutely teamed up with a smaller industry partner, BioNTech SE (NASDAQ: BNTX), a Mainz, Germany-based biotechnology company that has grown beyond the mid-cap stage and now is at the low end of the large-cap range with a market cap of $31.31 billion. Even though Pfizer did not acquire BioNTech, the two companies formed a partnership to provide one of the first and most effective COVID-19 vaccines in the world.
BioNTech was a mid-cap stock as recently as 2019, when it had a market cap of $7.68 billion before the pandemic. It then formed a partnership with Pfizer to lead the industry in producing and distributing an effective vaccine. The share prices of BioNTech and Pfizer both rose during the pandemic but Skousen, who also leads the Five Star Trader advisory service that features stocks and options, identified weakness developing in the stocks and the market when he instructed his subscribers to take profits. Skousen also tracks inflation and recession risk closely.
Mark Skousen, a scion of Ben Franklin and head of Five Star Trader, meets Paul Dykewicz.
Xenon is One of Five Mid-Cap Pharmaceutical Investments to Purchase
Vancouver, Canada-based Xenon Pharmaceuticals Inc. (NASDAQ: XENE), with a market capitalization of $2.272 billion, is a clinical stage biopharmaceutical company that is developing therapeutics to improve the lives of patients with neurological disorders. Xenon is rated to “outperform” the market by the Chicago-based William Blair investment banking and wealth management firm.
The investment firm assigned an estimated fair value of $47 per share to Xenon, based on a risk-adjusted net present value of the company’s key products sold in the United States and the European Union. The company’s niche is to provide a novel product pipeline of neurology therapies to address areas of high unmet medical need, with a focus on epilepsy.
With a significantly differentiated selective “voltage-gated ion channel modulator platform,” de-risked mechanisms of action for generalized antiseizure medications (ASMs) and a targeted therapy approach for pediatric EEs, Xenon is positioned as a potential market leader in that pediatric treatment, as well as a possible large provider in the broad epilepsy market.
Chart courtesy of www.stockcharts.com
Xenon improved its cash position in June 2022 with a public offering that boosted its cash, cash equivalents and marketable securities to $720.8 million at year-end 2022, compared to $551.8 million at the end of 2021. Based on current operating plans, including the completion of the XEN1101 Phase 3 epilepsy studies, Xenon management estimated having sufficient cash to fund operations into 2026.
The company reported no revenue in fourth-quarter 2022 and $9.4 million for full-year 2022, compared to $3.7 million and $18.4 million for the same periods in 2021, respectively. For 2022, the decrease of $9.0 million was primarily due to the Neurocrine Biosciences collaboration; all performance obligations associated with an upfront payment were completed in March 2022 and the research component of the collaboration ended in June 2022. In addition, $3.0 million was recognized under an agreement with Pacira BioSciences in the year ended 2021, whereas the agreement did not result in any revenue for the year ended 2022.
“Prescribing physicians are seeking new, differentiated therapeutic options that improve upon existing anti-seizure medications, and we remain committed to improving the lives of patients with epilepsy,” said Ian Mortimer, Xenon’s president and chief executive officer. “We look forward to important clinical milestones this year including the anticipated topline read-out in the third quarter from our XEN1101 Phase 2 X-NOVA study in major depressive disorder as well as an anticipated data read-out from our partners at Neurocrine from their Phase 2 study in adult patients with focal onset seizures in the second half of the year.”
Five Mid-Cap Pharmaceutical Investments to Purchase Include CRISPR Therapeutics
Zug, Switzerland-based CRISPR Therapeutics AG (NASDAQ: CRSP) is a mid-cap stock with $3.762 billion market capitalization. William Blair gave CRISPR Therapeutics an “outperform” rating, adding that the company has shown initial proof of concept for intransfusion-dependent beta thalassemia (TDT), sickle cell disease (SCD) and its wholly owned immuno-oncology platform, de-risking the ex vivo use of its technology.
In addition, CRISPR Therapeutics has executed on the licensing of its platform in noncore indications for nondilutive capital, William Blair wrote in a recent research note. Given the optionality of the CRISPR-Cas9 platform and potential cost-effectiveness compared with lentiviral-based therapies, William Blair wrote that the company could be a potential takeout candidate for the right acquirer.
CRISPR Therapeutics reported fourth-quarter earnings and provided a corporate update on Feb. 21. CRISPR, with its partner Vertex (NASDAQ: VRTX), completed regulatory submissions with the European Union and United Kingdom for exa-cel (CTX001) in the treatment of sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT) in late 2022. Both the European Medicines Agency (EMA) and the Medicines and Healthcare products Regulatory Agency (MHRA) have validated the related marketing authorization application. The companies expect to complete the submission of their rolling BLA filing in the United States by the end of the first quarter of 2023.
Chart courtesy of www.stockcharts.com
Five Mid-Cap Pharmaceutical Investments to Purchase Include Rising Small Cap
Tustin, California-based Avid Bioservices (CDMO), with a market cap of $1.01 billion, is a contract development and manufacturing organization, or a CDMO. It explains why the company’s leaders chose CDMO as the stock’s ticker symbol, said Michelle Connell, head of Dallas-based Portia Capital Management.
Avid provides manufacturing facilities to other biotech companies, since the industry is constrained and is “very short” on capacity. To address the problem, Avid is in the process of more than doubling its capacity, Connell continued.
Michelle Connell leads Dallas-based Portia Capital Management.
A reason Connell said she prefers CDMO to other biotech companies is that it is not developing pharmaceuticals and thereby is not dependent on Food and Drug Administration (FDA) approval, Connell counseled. Biotech companies that are dependent upon FDA approval are binary, either winning or losing, she added.
“Thus, there can be huge risk owning one or two pure biotech plays,” Connell said.
Last quarter, CDMO failed to meet its earnings estimates. However, since Avid is building out capacity, the company’s management remains very optimistic, she added.
Avid increased its guidance for future quarters when it missed its latest earnings, Connell continued. She further pointed out that, unlike many biotech plays, Avid is profitable in terms of net income and cash flow. Even though the stock is not quite big enough to reach the low end of the mid-cap category, Connell said she likes it well enough to rate the rising small cap as top choice in both groups.
“Its operating cash flow has been positive for the past three years,” Connell said. “Like most biotechnology stocks, Avid had negative performance in 2022. However, this year the stock is up over 20%. As the company is still cheap on a price-to-earnings as well as price-to-sales basis, I believe the stock has additional upside of 10 to 20% in the next 12 months.”
Chart courtesy of www.stockcharts.com
Connell counseled not to buy a full investment position in Avid in any rush, since its earnings are expected on March 9.
“I think there will be opportunities to add to positions after this earnings announcement,” Connell said.
ETF Is One of Five Mid-Cap Pharmaceutical Investments to Purchase for Safety
First Trust Nasdaq Pharmaceuticals (FTXH) has earned higher returns over time compared to the alternative ETF, but it is the more volatile of the two choices, Carlson said. The fund generally holds smaller companies that are trading at lower valuations, compared to the portfolios of competing pharmaceutical ETFs, he added.
“As a result, the companies owned by the fund tend to have lower dividends and stock buybacks than others in the industry,” Carlson said.
In addition, FTXH is a concentrated fund that recently held 30 positions and had 58% of the portfolio in the 10 largest positions. The portfolio can change rapidly, with the ETF having a 77% turnover rate in the last year, Carlson counseled.
Top holdings recently were Merck & Co. (NYSE: MRK), Gilead Sciences (NASDAQ: QILD), Bristol-Meyers Squibb (NYSE: BMY), Johnson & Johnson (NYSE: JNJ) and Amgen (NASDAQ: AMGN). The fund had a 2.55% return in 2022.
Chart courtesy of www.stockcharts.com
Five Mid-Cap Pharmaceutical Investments to Purchase as Protection Include IHE
A more conservative choice than FTXH is iShares U.S. Pharmaceuticals (IHE). The fund aims to track the Dow Jones U.S. Select Pharmaceuticals Index. Because it tries to mirror an index, IHE has a much lower turnover ratio of only 20% compared to FTXH.
IHE recently had 48 positions and 74% of its portfolio was composed of its 10 largest positions. Top holdings were Johnson & Johnson, Eli Lilly (NYSE: LLY), Catalent (NYSE: CTLT), Zoetis (NYSE: ZTS) and Viatris (NASDAQ: VTRS).
The fund declined 4.87% in 2022 and is down 6.05% so far this year.
Chart courtesy of www.stockcharts.com
Micro-Cap Pharmaceutical Stocks Offer Alternative Way to Invest
Another way to invest in biopharmaceuticals is through micro-cap stocks. That is the niche of futurist George Gilder’s Moonshots advisory service, which intentionally limits its circulation to enhance its exclusivity. The Moonshots track record has been shining as an outperforming advisory service that may have a new pharmaceutical pick soon after Gilder and Senior Analyst Richard Vigilante recently returned from a trip to Israel to conduct due diligence on potential investments.
My column next week will feature mid-cap pharmaceutical stocks, but investors interested in micro-cap alternatives may want to know Moonshots’ portfolio companies jumped an average of 84%, double the gains of the NASDAQ, from July 2019 to February 2023, counting only closed positions. I am trying to obtain direct input from Gilder and his team next week as they seek out companies developing the kinds of new paradigms that investors crave.
Wagner Mercenary Boss Blames Russia for Not Providing Enough Ammunition
The head of Russia’s Wagner private army complained that his soldiers are not receiving the needed ammunition to gain control of Bakhmut, a fiercely contested city in eastern Ukraine. Wagner’s leader Yevgeny Prigozhin was quoted as saying his army’s inadequate ammunition supply could be bureaucracy or a ‘betrayal.”
Russian forces have not managed to surround the city, Ukrainian officials said. Civilians there reportedly number in the thousands and are mostly cut off from humanitarian relief.
Russia has absorbed more combat deaths in Ukraine during its first year of war than in all its wars combined since the end of World War II, according to research from the Center for Strategic and International Studies (CSIS). The average number of Russian troops killed per month is 25 times the number per month in Chechnya and 35 times those killed in Afghanistan.
“The Ukrainian military has also performed remarkably well against a much larger and initially better-equipped Russian military, in part due to the innovation of its forces,” the CSIS wrote.
Xi Voices Hostility After FBI Chief Says COVID-19 Likely Came from Lab in China
China’s leader, Xi Jinping, and his new Foreign Minister Qin Gang accused U.S. leaders in recent days of suppressing China’s development and creating conflict between the two countries. The criticism came after FBI Director Christopher Wray said on Tuesday, Feb. 28, that COVID-19 likely leaked out of a laboratory in China. It marked the first public opinion of that kind from the FBI about the origins of the virus that caused a global pandemic.
“The FBI has for quite some time now assessed that the origins of the pandemic are most likely a potential lab incident in Wuhan,” Wray told Fox News. “Here you are talking about a potential leak from a Chinese government-controlled lab.”
Worldwide COVID-19 deaths rose to 6,878,624 people, with total cases of 676,202,710, Johns Hopkins University reported on March 7. COVID-19 cases in the United States totaled 103,680,242, while deaths reached 1,122,599 as of March 7, according to Johns Hopkins University. Until recent reports that China had more than 248 million cases of COVID-19, America had ranked as the nation with the most coronavirus cases and deaths.
The U.S. Centers for Disease Control and Prevention reported that 269,554,116 people, or 81.2% of the U.S. population, have received at least one dose of a COVID-19 vaccine, as of March 1. People who have completed the primary COVID-19 doses totaled 230,075,934 of the U.S. population, or 69.3%, according to the CDC. The United States has given a bivalent COVID-19 booster to 50,544,428 people who are age 18 and up, equaling 19.6% as of March 1.
The five mid-cap pharmaceutical investments to purchase for safety offer opportunities that seem insulated from the ravages of Russia’s ongoing invasion of Ukraine and elevated inflation and recession risk. Pharmaceutical investments may offer a formula for investors to gain exposure to companies that provide medications that are needed regardless of war.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. He is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.