New drug approvals, acquisitions and other pipeline developments are back in the spotlight in the biotech industry, following the focus on the development of vaccines and antibody treatments for COVID-19 in the last two years. While the emergence of new variants of COVID-19 will ensure that companies focus on innovative treatments, most companies in the sector are looking to bolster their product portfolio through collaborations and acquisitions and pipeline development.
Some biotech companies like
Alkermes
ALKS
,
Geron
GERN
,
Immunocore
IMCR
and
BELLUS Health Inc
.
BLU
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 is key to higher drug 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 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 has picked up of late as biotech bigwigs like Gilead, Bristol Myers, among others, are evidently on the lookout to bolster their portfolios. While oncology and immuno-oncology are the key focus areas, 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
: Though 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 massive 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.
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 Encouraging 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 #105, which places it among the top 42% of more than 252 Zacks industries, mirroring a bright outlook for the space, probably due to the economic recovery. 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 Versus S&P 500 & Sector
The Zacks Biomedical and Genetics industry is a 710-stock group within the broader Zacks
Medical
sector. It has underperformed the S&P 500 Index and the Zacks Medical sector in the year so far.
While the stocks in this industry have declined 25.4%, the Zacks Medical sector has lost 15.2%. The S&P 500 composite has lost 19.1% 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 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 compared with the S&P 500’s 3.88 and the Zacks Medical sector’s 2.23.
Over the last five years, the industry has traded as high as 3.86X, as low as 1.90X and at a median of 3.06X, as the chart below shows.
Price/Sales TTM
.jpg)
.jpg)
4 Biotech Stocks Worth to Keep an Eye on
Alkermes
holds a diversified product portfolio and a promising pipeline of candidates targeting major central nervous system (CNS) disorders, including schizophrenia, depression, addiction and multiple sclerosis. Proprietary products, Vivitrol and Aristada, some partnered products – Vumerity, Risperdal Consta, Invega Sustenna/Xeplion, and Invega Trinza/Trevicta, continue to do well. The FDA approval of Lybalvi (olanzapine and samidorphan) for the treatment of adults with schizophrenia and adults who have bipolar I disorder has further broadened Alkermes’ portfolio.
The consensus loss estimates for 2022 have narrowed to 3 cents from 14 cents over the past 60 days. Alkermes currently carries a Zacks Rank #2 (Buy). The company’s shares have gained 20.9% in the year so far.
You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Price and Consensus: ALKS
Geron
is developing imetelstat, a novel, first-in-class telomerase inhibitor, in hematologic malignancies. Data from phase II studies provide evidence that imetelstat targets telomerase to inhibit the uncontrolled proliferation of malignant stem and progenitor cells in myeloid hematologic malignancies resulting in malignant cell apoptosis and potential disease-modifying activity. The candidate has been granted Fast Track designation by the FDA for both the treatment of patients with non-del(5q) lower risk MDS who are refractory or resistant to an erythropoiesis stimulating agent and for patients with Intermediate-2 or High-risk MF whose disease has relapsed after or is refractory to janus associated kinase (JAK) inhibitor treatment. The successful development of the candidate will be a significant boost for Geron.
Geron’s consensus loss estimates for 2022 have narrowed to 37 cents from 44 cents over the past 60 days. The company currently has a Zacks Rank #2. Its shares have gained 20.9% in the year so far.
Price and Consensus: GERN
Immunocore Holdings plc
is a commercial-stage biotechnology company pioneering the development of a novel class of T cell receptor (TCR) bispecific immunotherapies designed to treat a broad range of diseases, including cancer, autoimmune and infectious diseases. The company’s most advanced oncology TCR therapeutic, Kimmtrak (tebentafusp-tebn), has been approved by the FDA for the treatment of HLA-A*02:01-positive adult patients with unresectable or metastatic uveal melanoma (mUM). The drug has been recently approved by the European Commission. The company has entered into a collaboration and supply agreement with French pharma giant, Sanofi. Strategic collaborations like these will boost pipeline progress.
IMCR’s consensus loss estimates for 2022 have narrowed to $2.78 from $4.22 over the past 60 days. The company currently has a Zacks Rank #2.
Price and Consensus: IMCR
BELLUS Health Inc
. is a clinical-stage biopharmaceutical company developing BLU-5937, its highly selective, second-generation P2X3 antagonist product candidate for the treatment of refractory chronic cough (RCC). The company intends to have an end-of-phase II meeting with the FDA later in the month. During this meeting, BELLUS Health intends to discuss its planned phase III program, which it expects to initiate in the second half of 2022. The company expects to initiate a phase I trial investigating a once-daily, extended-release formulation of BLU-5937 in the second half of the year.
BLU’s consensus loss estimates for 2022 have narrowed to 76 cents from 87 cents over the past 60 days. The company currently has a Zacks Rank #2. Its shares have gained 1.9% in the year so far.
Price and Consensus: BLU
Just Released: Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?
From inception in 2012 through 2021, the
Zacks Top 10 Stocks
portfolios gained an impressive +1,001.2% versus the S&P 500’s +348.7%. Now our Director of Research has combed through 4,000 companies covered by the Zacks Rank and has handpicked the best 10 tickers to buy and hold. Don’t miss your chance to get in…because the sooner you do, the more upside you stand to grab.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
