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The biotech industry had a volatile run in 2021. The rapid development of vaccines and antibody treatments for COVID-19 kept the companies in the spotlight and aided the economic recovery. Regulatory and pipeline developments are back on track with new drug approvals as the economic situation improves.
Most biotech bigwigs provided an encouraging outlook for the fourth quarter and 2022. The emergence of new variants and innovative treatments should keep this sector in focus.
Big biotech companies like Regeneron, Vertex Pharmaceuticals, Dynavax Technologies Corp. andRepligen are well poised on a solid portfolio and pipeline progress.
Industry Description
The Zacks Biomedical and Genetics industry includes biopharmaceutical and biotechnology companies that develop high-profile drugs using path-breaking 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.
4 Trends Shaping the Future of Biotech Industry
Innovation, Execution Hold the Key: As only a few companies in this industry have approved drugs in their portfolio, the focus is primarily on the performance of these high-profile drugs and pipeline development. Most companies spend millions and billions to create a drug with path-breaking technology, which leads to significant research & development expenditure. Hence, it takes several years before a biotech company turns profitable.
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.
Consolidation to Fight Slowdown:Consolidation has always taken center stage in the biotech industry. 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.
While the scale and pace of M&A activity slowed down last year due to the pandemic, the pace is picking up and bigwigs are evidently on the lookout to bolster their portfolios. While oncology and immuno-oncology are the key areas of focus, treatments for rare diseases and gene-editing companies also promise potential, making them lucrative investment areas.
Moreover, companies investing in mRNA technology are gaining a lot of attention, given the success of the technology in the development of COVID-19 vaccines. An attractive pipeline candidate is a key lure for these companies, and cost synergies in research and development are an added benefit as quite a few smaller biotech companies are using innovative technologies to develop drugs and treatments.
Opportunities Created by the Pandemic: While the onset of the COVID-19 pandemic impacted demand for drugs, it has turned out to be a growth opportunity for the companies in the biotech sector to develop innovative treatments for COVID-19. The successful development of treatments in such a short period has resulted in huge incremental revenues for these companies, which have developed vaccines, antibody treatments and antivirals for this disease. The emergence of new variants of the virus should keep the momentum going forward.
Pipeline Setbacks & Competition: Pipeline setbacks are a key deterrent for biotech companies, given the exorbitant cost of developing drugs 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.
Zacks Industry Rank Indicates Bleak Prospects
The group’s 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 #154, which places it among the bottom 39% of more than 254 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 despite the volatility, based on a strong portfolio/pipeline, let’s take a look at the industry’s stock-market performance and current valuation.
Industry Versus S&P 500 & Sector
The Zacks Biomedical and Genetics industry is a 501-stock group within the broader Zacks Medical sector. It has underperformed the S&P 500 Index and the Zacks Medical sector in the past year.
While the stocks in this industry have declined 40%, the Zacks Medical sector has lost 20.4%. On the other hand, the S&P 500 composite has gained 16% during this time frame.
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 trailing 12-month price-to-sales ratio (P/S TTM), which is commonly used for valuing biotech companies with approved portfolios of drugs, the industry is currently trading at 2.05 compared with the S&P 500’s 4.79 and the Zacks Medical sector's 2.72.
Over the last five years, the industry has traded as high as 3.81X, as low as 1.98X and at a median of 3.09X.
4 Biotech Stocks Worth Keeping an Eye On
Vertex Pharmaceuticals has a market-leading portfolio of cystic fibrosis (CF) products, which has maintained momentum for the company amid the pandemic. The franchise boasts drugs like Trikafta (elexacaftor/tezacaftor/ivacaftor and ivacaftor), Symdeko/Symkevi (tezacaftor/ivacaftor and ivacaftor), Orkambi (lumacaftor/ivacaftor) and Kalydeco (ivacaftor).
These products continue to drive growth for the company. In particular, triple therapy, Trikafta/Kaftrio’s early approval and strong launch have boosted growth prospects significantly. Approval of the triple therapy in more regions, additional reimbursement agreements for Kaftrio in EU countries and approval of all CF medicines for additional mutations and younger patient populations should drive further growth for the company.
Vertex currently sports a Zacks Rank #1 (Strong Buy). The consensus estimate for 2022 earnings has increased 33 cents over the past 60 days to $13.65. Shares of the company have gained 11.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Regeneron delivered a strong performance in 2021 owing to a stupendous contribution from REGEN-COV, its antibody cocktail for COVID-19. The company’s efforts to expand the label of existing drugs and concurrently develop the pipeline is aiding it.
Demand for ophthalmology drug, Eylea, revived significantly after a slowdown. Asthma drug, Dupixent, developed in partnership with Sanofi, maintains its stellar performance. Immunotherapy drug, Libtayo, is off to a good start, and the recent label expansions should further fuel sales. Moreover, an outstanding incremental contribution from REGEN-COV, its antibody cocktail for COVID-19, has significantly boosted the top line in the past three quarters.
The consensus estimate for 2022 earnings has increased from $46.98 to $48.35 over the past 60 days. Regeneron currently has a Zacks Rank #2 (Buy). The company's shares have gained 21.6% in the past year.
Dynavax Technologies' performance in the past year was impressive on the back of its hepatitis B vaccine, Helpisav –B. Dynavax is also advancing CpG 1018 adjuvant as a premier vaccine adjuvant through research collaborations and partnerships. Continued growth in market share and revenue for Helpisav –B should maintain growth. Multiple positive data readouts for adjuvanted COVID-19 vaccine candidates demonstrating the capabilities of CpG 1018 to help drive efficacy and high levels of antibodies while maintaining a favorable tolerability profile bode well for the company.
Dynavax’s shares have jumped 37.1% in the past year. The consensus estimate for 2022 earnings has increased from $1.00 to $1.18 over the past 60 days. The company currently carries a Zacks Rank #2.
Repligen Corp., a global sciences company, provides bioprocessing technologies and solutions used by large biopharmaceutical companies and contract manufacturing organizations for manufacturing biologic drugs, such as monoclonal antibodies (mAbs) and gene therapies. RGEN experienced a buoyancy in demand, driven by strong COVID-19-induced tailwinds.
Revenues from gene therapy customers also bumped up the top line. The momentum should continue in 2022 as well. Repligen made a few promising acquisitions to diversify its business. These buyouts are significantly expanding RGEN’s top line.
The consensus estimate for 2022 earnings has increased from $3.20 to $3.23 over the past 60 days. The company currently has a Zacks Rank #2.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +25.3% per year. So be sure to give these hand-picked 7 your immediate attention.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Regeneron, Vertex Pharmaceuticals, Dynavax Technologies Corp. and Repligen
For Immediate Release
Chicago, IL – February 2, 2022 – Today, Zacks Equity Research discusses Regeneron (REGN - Free Report) , Vertex Pharmaceuticals (VRTX - Free Report) , Dynavax Technologies Corp. (DVAX - Free Report) and Repligen (RGEN - Free Report) .
Industry: Biotech
Link: https://www.zacks.com/commentary/1860391/4-top-biotech-stocks-to-gain-amid-industry-challenges
The biotech industry had a volatile run in 2021. The rapid development of vaccines and antibody treatments for COVID-19 kept the companies in the spotlight and aided the economic recovery. Regulatory and pipeline developments are back on track with new drug approvals as the economic situation improves.
Most biotech bigwigs provided an encouraging outlook for the fourth quarter and 2022. The emergence of new variants and innovative treatments should keep this sector in focus.
Big biotech companies like Regeneron, Vertex Pharmaceuticals, Dynavax Technologies Corp. andRepligen are well poised on a solid portfolio and pipeline progress.
Industry Description
The Zacks Biomedical and Genetics industry includes biopharmaceutical and biotechnology companies that develop high-profile drugs using path-breaking 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.
4 Trends Shaping the Future of Biotech Industry
Innovation, Execution Hold the Key: As only a few companies in this industry have approved drugs in their portfolio, the focus is primarily on the performance of these high-profile drugs and pipeline development. Most companies spend millions and billions to create a drug with path-breaking technology, which leads to significant research & development expenditure. Hence, it takes several years before a biotech company turns profitable.
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.
Consolidation to Fight Slowdown:Consolidation has always taken center stage in the biotech industry. 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.
While the scale and pace of M&A activity slowed down last year due to the pandemic, the pace is picking up and bigwigs are evidently on the lookout to bolster their portfolios. While oncology and immuno-oncology are the key areas of focus, treatments for rare diseases and gene-editing companies also promise potential, making them lucrative investment areas.
Moreover, companies investing in mRNA technology are gaining a lot of attention, given the success of the technology in the development of COVID-19 vaccines. An attractive pipeline candidate is a key lure for these companies, and cost synergies in research and development are an added benefit as quite a few smaller biotech companies are using innovative technologies to develop drugs and treatments.
Opportunities Created by the Pandemic: While the onset of the COVID-19 pandemic impacted demand for drugs, it has turned out to be a growth opportunity for the companies in the biotech sector to develop innovative treatments for COVID-19. The successful development of treatments in such a short period has resulted in huge incremental revenues for these companies, which have developed vaccines, antibody treatments and antivirals for this disease. The emergence of new variants of the virus should keep the momentum going forward.
Pipeline Setbacks & Competition: Pipeline setbacks are a key deterrent for biotech companies, given the exorbitant cost of developing drugs 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.
Zacks Industry Rank Indicates Bleak Prospects
The group’s 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 #154, which places it among the bottom 39% of more than 254 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 despite the volatility, based on a strong portfolio/pipeline, let’s take a look at the industry’s stock-market performance and current valuation.
Industry Versus S&P 500 & Sector
The Zacks Biomedical and Genetics industry is a 501-stock group within the broader Zacks Medical sector. It has underperformed the S&P 500 Index and the Zacks Medical sector in the past year.
While the stocks in this industry have declined 40%, the Zacks Medical sector has lost 20.4%. On the other hand, the S&P 500 composite has gained 16% during this time frame.
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 trailing 12-month price-to-sales ratio (P/S TTM), which is commonly used for valuing biotech companies with approved portfolios of drugs, the industry is currently trading at 2.05 compared with the S&P 500’s 4.79 and the Zacks Medical sector's 2.72.
Over the last five years, the industry has traded as high as 3.81X, as low as 1.98X and at a median of 3.09X.
4 Biotech Stocks Worth Keeping an Eye On
Vertex Pharmaceuticals has a market-leading portfolio of cystic fibrosis (CF) products, which has maintained momentum for the company amid the pandemic. The franchise boasts drugs like Trikafta (elexacaftor/tezacaftor/ivacaftor and ivacaftor), Symdeko/Symkevi (tezacaftor/ivacaftor and ivacaftor), Orkambi (lumacaftor/ivacaftor) and Kalydeco (ivacaftor).
These products continue to drive growth for the company. In particular, triple therapy, Trikafta/Kaftrio’s early approval and strong launch have boosted growth prospects significantly. Approval of the triple therapy in more regions, additional reimbursement agreements for Kaftrio in EU countries and approval of all CF medicines for additional mutations and younger patient populations should drive further growth for the company.
Vertex currently sports a Zacks Rank #1 (Strong Buy). The consensus estimate for 2022 earnings has increased 33 cents over the past 60 days to $13.65. Shares of the company have gained 11.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Regeneron delivered a strong performance in 2021 owing to a stupendous contribution from REGEN-COV, its antibody cocktail for COVID-19. The company’s efforts to expand the label of existing drugs and concurrently develop the pipeline is aiding it.
Demand for ophthalmology drug, Eylea, revived significantly after a slowdown. Asthma drug, Dupixent, developed in partnership with Sanofi, maintains its stellar performance. Immunotherapy drug, Libtayo, is off to a good start, and the recent label expansions should further fuel sales. Moreover, an outstanding incremental contribution from REGEN-COV, its antibody cocktail for COVID-19, has significantly boosted the top line in the past three quarters.
The consensus estimate for 2022 earnings has increased from $46.98 to $48.35 over the past 60 days. Regeneron currently has a Zacks Rank #2 (Buy). The company's shares have gained 21.6% in the past year.
Dynavax Technologies' performance in the past year was impressive on the back of its hepatitis B vaccine, Helpisav –B. Dynavax is also advancing CpG 1018 adjuvant as a premier vaccine adjuvant through research collaborations and partnerships. Continued growth in market share and revenue for Helpisav –B should maintain growth. Multiple positive data readouts for adjuvanted COVID-19 vaccine candidates demonstrating the capabilities of CpG 1018 to help drive efficacy and high levels of antibodies while maintaining a favorable tolerability profile bode well for the company.
Dynavax’s shares have jumped 37.1% in the past year. The consensus estimate for 2022 earnings has increased from $1.00 to $1.18 over the past 60 days. The company currently carries a Zacks Rank #2.
Repligen Corp., a global sciences company, provides bioprocessing technologies and solutions used by large biopharmaceutical companies and contract manufacturing organizations for manufacturing biologic drugs, such as monoclonal antibodies (mAbs) and gene therapies. RGEN experienced a buoyancy in demand, driven by strong COVID-19-induced tailwinds.
Revenues from gene therapy customers also bumped up the top line. The momentum should continue in 2022 as well. Repligen made a few promising acquisitions to diversify its business. These buyouts are significantly expanding RGEN’s top line.
The consensus estimate for 2022 earnings has increased from $3.20 to $3.23 over the past 60 days. The company currently has a Zacks Rank #2.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +25.3% per year. So be sure to give these hand-picked 7 your immediate attention.
See them now >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.