The biotech companies’ performance in the first quarter was pretty ho-hum as most of them experienced softness in sales due to the ongoing pandemic. Nevertheless, these companies continue to grab the spotlight, as the development of coronavirus vaccines and treatments becomes the prime focus worldwide. While quite a few biotech companies are developing vaccines and antibodies, companies like Moderna, Novavax,
Regeneron ( REGN Quick Quote REGN - Free Report) and Gilead ( GILD Quick Quote GILD - Free Report) are pioneering the race.
Apart from these, leading bigwigs like
Amgen ( AMGN Quick Quote AMGN - Free Report) , Biogen ( BIIB Quick Quote BIIB - Free Report) , Vertex and Incyte maintain momentum on the back of a solid portfolio and strong pipeline progress. While the coronavirus treatments will continue gaining importance for the rest of the year as well, 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 technologies 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 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. It takes quite some time before a biotech company turns profitable. Most companies spend millions and billions to create a drug with path-breaking technology, which leads to significant Research & Development expenditure. Additionally, successful commercialization holds the key to drugs’ higher uptake as smaller biotechs generally lack 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 are 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 the 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. Consolidation to Fight Slowdown
Quite a few smaller biotech companies are using innovative technologies to develop either antibodies or vaccines to combat this contagion and cure the infected at the earliest. Most of these companies have entered collaboration deals with larger biotech or pharma players to ramp up the development of vaccines and antibodies. Simultaneously, most biggies in the industry are developing treatments or vaccines for this deadly disease and investing a significant chunk of their R&D spends 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 the infected patients.
: 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 #203, which places it among the bottom 19% of more than 251 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 Lags S&P 500 & Sector
The Zacks Biomedical and Genetics industry, which is a 444-stock group within the broader Zacks
Medical Sector, has underperformed the sector and the S&P 500 Index in the year so far.
While the stocks in this industry have lost 5.4%, the Zacks Medical sector has lost 1.6% and the S&P 500 composite gained 10.4% during this time frame.
Year To Date 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 2.11 compared with the S&P 500’s 4.64 and the Zacks Medical sector's 2.63.
Over the last five years, the industry has traded as high as 3.01X, as low as 1.83X and at a median of 2.32X, as the chart below shows.
Forward 12 Month Price-to-Sales (P/S) Ratio
3 Biotech Stocks to Watch for 2021
BioNTech SE ( BNTX Quick Quote BNTX - Free Report) , sporting a Zacks Rank #1 (Strong Buy), have skyrocketed 144.2% in the year so far on strong progress with the COVID-19 vaccine. Earnings estimates for 2021 have climbed to $29.44 from $10.91 in the past 60 days. You can see . the complete list of today’s Zacks #1 Rank stocks here
The company has had a tremendous run in the year so far on the success of its COVID-19 vaccine, which has been developed in partnership with Pfizer and the demand is expected to be strong in the upcoming quarters.
Price and Consensus: BNTX
Repligen Corporation ( RGEN Quick Quote RGEN - Free Report) , which too sports a Zacks Rank #1, is a global life sciences company that develops and commercializes highly innovative bioprocessing technologies and systems that increase efficiencies in the process of manufacturing biological drugs. The company has experienced a surge in demand, driven by strong COVID-induced tailwinds. The recent acquisitions too should boost performance.
Earnings estimates for 2021 have increased to $2.21 from $1.91 in the past 60 days.
Price and Consensus: REGN
Ovid Therapeutics Inc. ( OVID Quick Quote OVID - Free Report) , which carries a Zacks Rank #2 (Buy), is a biopharma company that develops drugs that transform the lives of patients with rare neurological disorders. The company’s emerging pipeline programs include OV329, a small molecule GABA aminotransferase inhibitor for seizures associated with Tuberous Sclerosis Complex and Infantile Spasms; OV882, a short hairpin RNA therapy approach for Angelman syndrome; OV815, a genetic therapy approach for KIF1A associated neurological disorder; and other non-disclosed research targets.
The company’s stock price has soared 65.3% in the year so far. The consensus mark for 2021 earnings has increased to $1.53 from 75 cents over the past 60 days.
Price and Consensus: OVID