Biotech companies continue to be in the spotlight with the focus remaining on development of coronavirus vaccines and treatments to fight the pandemic. While quite a few biotech companies are developing vaccines and antibodies, companies like
Moderna, Novavax ( NVAX Quick Quote NVAX - Free Report) Regeneron ( REGN Quick Quote REGN - Free Report) and Gilead ( GILD Quick Quote GILD - Free Report) are leading the race. Most of these biotech companies are racing against time and currently evaluating every possible weapon in their arsenal to come up with effective solutions.
Apart from these, leading bigwigs like
Vertex ( VRTX Quick Quote VRTX - Free Report) , Biogen ( BIIB Quick Quote BIIB - Free Report) , Amgen, Incyte and Alexion are witnessing momentum on the back of a solid portfolio and strong pipeline progress. While the coronavirus treatments will take centerstage in 2021, other regulatory and pipeline developments are slowly getting back on track after the standstill induced by the pandemic. Key drug approvals and pipeline progress are back in focus. Notably, companies using innovative technology like gene-editing are gaining a lot of attention. Industry Description
Biomedical and Genetics industry includes biopharmaceutical and biotechnology companies that develop high-profile drugs using pathbreaking technology. These biologically processed drugs, which address virology, neuroscience, metabolism and rare diseases, are manufactured using live organisms. The main goal of biotech companies is to use innovative technology to create breakthrough treatments. Quite a few companies in this space work on vaccines as well. Given the dynamic and evolving nature of technology, the sector is perceived to be riskier than the more stable large-cap pharma or the drug industry. 3 Trends Shaping the Future of Biotech Industry : As only a few companies in this space have approved drugs in their portfolio, the focus is primarily on the performance of these high-profile drugs and product pipelines. Most companies spend millions and billions to create a drug with path-breaking technology, which flares up the research & development expenditure. Additionally, successful commercialization holds the key to the drugs' higher uptake as smaller biotechs generally lack the funds and expertise to execute the same. This, in turn, prompts collaboration deals with either pharma or biotech bigwigs, wherein sales are shared or royalties received. Moreover, it might take quite a few years for any newly-approved drug to contribute significantly to its company’s top line. Innovation, Execution Hold the Key : Consolidation has always taken center stage in the biotech industry and this has been an important trend as leading pharma/biotech companies look to diversify their revenue base in the face of dwindling sales of high-profile drugs. However, the scale and pace of M&A activity slowed down significantly in 2020 due to the pandemic. The focus in 2021 is mainly on forging alliances for COVID-19 drugs and vaccines. Quite a few smaller biotech companies are using innovative technologies to develop either antibodies or vaccines to combat this contagion as well as cure the infected at the earliest. Most biggies in the industry are developing treatments or vaccines for this deadly disease and investing a significant chunk of their R&D spend on the same. Given the alarming levels of the COVID-19 spread and severity, some approved drugs are being tested or repurposed to see their effectiveness in treating infected patients. Moreover, some major companies teamed up with smaller biotechs, which hold innovative technologies to develop coronavirus-related treatments. Consolidation to Fight Slowdown : Pipeline setbacks are a key deterrent for biotech companies, given the exorbitant cost of developing a drug using expensive technology. Most drugs/therapies take years to gain a regulatory nod. An unfavorable outcome from a crucial trial on a promising candidate is a huge setback. The leading biotechs also face other headwinds like a decline in the sales of high-profile drugs due to intensifying competition. Pipeline Setbacks & Competition Zacks Industry Rank Indicates Bleak Prospects
Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Biomedical and Genetics industry currently carries a Zacks Industry Rank #202, which places it among the bottom 20% of more than 253 Zacks industries, mirroring a low-key outlook for the space, probably due to the volatility. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few biotech stocks that are well positioned to beat the industry, based on a strong portfolio/pipeline, let’s take a look at the industry’s stock-market performance and current valuation.
Industry Outperforms Sector But Lags S&P 500
The Zacks Biomedical and Genetics industry, which is a 383-stock group within the broader Zacks
Medical Sector, has outperformed the sector but lagged the S&P 500 Index in the past year.
While the stocks in this industry have collectively gained 9.7%, the Zacks S&P 500 composite and the Zacks Medical sector have increased 17.4% and 6.6%, respectively.
Past Year Price Performance Industry’s Current Valuation
Since most companies in the biotech sector do not have approved drugs, valuing these companies becomes a complex process. On the basis of the forward 12-month price-to-sales ratio (P/S F12M), which is commonly used for valuing biotech companies with approved portfolios of drugs, the industry is currently trading at 2.35 compared with the S&P 500’s 4.53 and the Zacks Medical sector's 2.88.
Over the last five years, the industry has traded as high as 3.31X, as low as 1.83X and at a median of 2.34X as the chart below shows.
Forward 12 Month Price-to-Sales (P/S) Ratio 3 Biotech Stocks to Watch Out in 2021
Shares of Novavax, sporting a Zacks Rank #1 (Strong Buy), have skyrocketed 3011.23% in the past year on strong pipeline progress. Earnings estimates for 2021 have climbed to $17.65 from $13.50 in the past 60 days.
The company is engaged in developing innovative vaccines to prevent serious infectious diseases. It was in the spotlight in 2020 for the development of a vaccine for COVID-19. The company is set to file a biologics licensing application (BLA) for nanoparticle seasonal influenza vaccine candidate, NanoFlu, for senior patients aged 65 years and above. The company recently initiated a phase III study, PREVENT-19, on its experimental coronavirus vaccine, NVX-CoV2373, in the United States and Mexico.
Price and Consensus: NVAX
Halozyme Therapeutics, Inc. ( HALO Quick Quote HALO - Free Report) , which too sports a Zacks Rank #1, is a biopharma technology platform company that provides innovative and disruptive solutions for improving patient experience and outcomes. The company’s proprietary ENHANZE drug delivery technology has been used in the development of subcutaneous formulations of various approved drugs in partnerships with J&J, Roche and Takeda. This, in turn, generates a steady stream of revenues through royalties on sales of marketed drugs, milestone payments for pipeline candidates and annual license fees. The restructuring initiatives undertaken by the company have boosted the bottom line and should further generate returns.
The company’s stock price has soared 117.9% in the past year. The consensus mark for 2021 earnings has increased to $1.72 from $1.44 over the past 60 days.
Price and Consensus: HALO
Blueprint Medicines ( BPMC Quick Quote BPMC - Free Report) is a precision therapy company focused on genomically defined cancers, rare diseases and cancer immunotherapy. The company had a good run in 2020 on the back of solid pipeline progress and the momentum is expected to continue this year as well. In January 2020, lead drug Ayvakit (avapritinib), a kinase inhibitor, was approved by the FDA for the treatment of adults with unresectable or metastatic gastrointestinal stromal tumor (GIST) harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations. The recent approval of the second precision medicine, Gavreto (pralsetinib), for the treatment of patients with advanced/metastatic rearranged during transfection (“RET”)-mutant medullary thyroid cancer should fuel sales. In September 2020, Gavreto was also approved for the treatment of adults with metastatic RET fusion-positive non-small-cell lung cancer (“NSCLC”). The approval of these medicines positions Blueprint for strong growth in the future.
Blueprint currently carries a Zacks Rank #2 (Buy). Shares of the company have increased 33% in the past year. Loss estimates for 2021 have narrowed to $6.66 from $6.77 in the past 60 days.
Price and Consensus : BPMC