Some investing decisions are much easier than others. When a stock is available at a steep discount and has great growth prospects, investors don’t have to agonize much over whether or not to buy it.
We asked three Motley Fool contributors which biotech stocks they think are no-brainers to buy right now. Here’s why they selected Regeneron Pharmaceuticals (NASDAQ:REGN), Vertex Pharmaceuticals (NASDAQ:VRTX), and Viatris (NASDAQ:VTRS).
This biotech’s recent pullback provides a golden opportunity
Prosper Junior Bakiny (Regeneron Pharmaceuticals): Shares of Regeneron dropped like a rock amid September’s broad market declines. For investors focused on the long game, though, that pullback simply provides a nice entry point. This biotech giant boasts both short-term catalysts and long-term opportunities that will drive above-average stock price gains.
First, the company is a leader in the market for COVID-19 medicines. Almost a year ago, its REGEN-COV received Emergency Use Authorization for the treatment and prevention of the disease. It can be administered via infusion or injection. This product generated $2.59 billion in sales during the second quarter, helping grow the company’s total revenue for the period to $5.14 billion, up 163% year over year.
While a majority of Americans are now vaccinated against the coronavirus, factors such as vaccine hesitancy among large segments of the population coupled with the spread of the more contagious Delta variant are unfortunately helping extend the pandemic. Although Regeneron will likely soon face more competition in the market for COVID-19 treatments, REGEN-COV should continue to contribute meaningfully to the company’s bottom line for some time.
Meanwhile, the company has other exciting products. U.S. sales of Eylea, which treats several eye-related disorders, rose by 28% in the second quarter to $1.43 billion. (Bayer holds the rights to that drug outside of the U.S.) The atopic dermatitis treatment Dupixent, the rights for which Regeneron shares with Sanofi, can also provide a boost to Regeneron’s top line. In the second quarter, worldwide sales of Dupixent soared by 59% year over year to $1.5 billion. Regeneron and Sanofi equally share U.S. profits and losses from this product, while the former is entitled to a fraction — not to exceed 45% — of Dupixent’s profits generated abroad. Dupixent and Eylea both look to be on upward sales trajectories, which will help Regeneron deliver consistently strong financial results.
And with more than two dozen pipeline programs, including nine in phase 3 studies, expect the company to expand its revenue base sooner than later. In short, Regeneron is a great stock to buy right now, especially after its poor share price performance over the past month and a half.
Playing with monopoly money
Keith Speights (Vertex Pharmaceuticals): The biggest reason to like Vertex is that it commands a monopoly in cystic fibrosis (CF). There are four approved therapies that treat the underlying cause of the genetic disease; Vertex markets all of them.
Sure, other companies are chasing after Vertex with their own CF programs. However, none of those potential rivals are beyond phase 2 testing so far. Meanwhile, Vertex is working to develop even better CF drugs.
The big biotech still has plenty of growth opportunities in this indication. There are around 83,000 CF patients in key markets including the U.S. Of those, more than 30,000 aren’t being treated with Vertex’s drugs.
Vertex’s CF franchise continues to generate strong cash flow. And it has helped the company amass a growing cash stockpile that totaled $6.71 billion as of June 30. The primary way that Vertex is putting this money to use is by investing in research and development. Its pipeline includes a couple of programs in phase 2, one targeting pain and the other targeting genetic kidney diseases.
Business development deals have also been key to Vertex’s efforts to expand beyond CF. It teamed up with CRISPR Therapeutics to develop a gene-editing therapy for the rare blood disorders beta-thalassemia and sickle cell disease. Its acquisition of Semma Therapeutics brought a promising gene therapy targeting type 1 diabetes into its pipeline.
Wall Street analysts think that this biotech stock could soar by more than 40% over the next 12 months. I agree with that optimistic outlook.
A beaten-down biotech that will richly reward patient investors
Rich Duprey (Viatris): The name Viatris might not be terribly familiar to biotech investors yet, but they’ll likely know the names that make up its pedigree. It was formed last November via the $12 billion merger of the established medicines business of Pfizer‘s Upjohn unit and generic-drug maker Mylan.
While the expectation was that combining those two would give the overall business greater strength, the stock has lost more than 28% of its value in 2021. Investors should see that as an opportunity.
Wall Street forecasts Viatris’ top line will remain relatively flat for the next couple of years. However, its bottom line is expected to rise almost 20% to $4.28 per share by 2025, while free cash flow per share is forecast to increase at a compound rate of 14% annually across that time frame.
The sluggish revenue forecast is due to the intense nature of competition in its branded products business, which represents more than 60% of its sales, though it recently won FDA approval for Semglee, an insulin drug for treating diabetes and the first interchangeable biosimilar in the U.S.
The real potential for Viatris will come as it pays down its significant debt, giving it more funds available to invest in research and development. Management expects to reduce annual operating expenses by over $1 billion by 2023 and will have repaid a quarter of the $26 billion debt it owed at the time of the merger.
The average age of the U.S. population keeps rising, and so do prescription drug prices — a pair of trends that should keep growing the market for generics, even if those carry lower margins for their manufacturers. Research and Markets anticipates that the U.S. generic drug industry’s sales will grow by 5.7% annually from $171.8 billion in 2020 revenue to $239.5 billion in 2026.
What makes Viatris a no-brainer here is that its stock is so deeply discounted. Shares go for less than 4 times estimated earnings and under 10 times free cash flow. This company is trading below the book value of the business. And its dividend yields 3.3% at current share prices.
Viatris looks like a stock that could reasonably grow to the $20 per share average price target Wall Street has set. That’s a potential 51% gain over the next 12 months, and the stock could deliver even better returns in the years to come.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.