Don't let the dismal performance for many biotech stocks last year disillusion you. The future remains bright for quite a few biotech companies.
We asked three Motley Fool contributors to pick unstoppable biotech stocks to buy now. Here's why they chose AstraZeneca (NASDAQ:AZN), Moderna (NASDAQ:MRNA), and Vertex Pharmaceuticals (NASDAQ:VRTX).
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This money-making machine has a bright future ahead
David Jagielski (AstraZeneca): One biopharmaceutical stock that you can buy and forget about for the long term is AstraZeneca. The business is not only generating strong growth numbers today but it also has a robust pipeline that will help secure its future growth. And in the past five years, it has proven to be a reliable growth stock to own, rising 109% during that time and slightly outperforming the S&P 500, which rose by 103% over the same period.
Among the reasons I'm bullish on the stock over the long haul is that it is generating billions of dollars in free cash flow. Money can solve problems, open doors, and make a stock a whole lot safer. AstraZeneca has reported free cash flow of $4.3 billion over the past four quarters. That has enabled it to not only pay its dividend, which yields 2.4% (well above the S&P 500 average of 1.3%), but to also pay down its debt by $4.5 billion over the same time frame.
Another way to put that cash to use is through acquisitions. Last year, the company completed its $39 billion purchase of Alexion Pharmaceuticals, which specializes in treating rare diseases.
But AstraZeneca doesn't need to be a serial acquirer in order to grow. Through the first three quarters of 2021, the company's revenue (excluding its COVID-19 vaccine), rose by 17% to $23.2 billion. It has reported double-digit growth across all of its major segments, with oncology being its largest and also its fastest-growing, rising by 16% to more than $9.7 billion. For the full year, AstraZeneca expects its growth rate to be in the low 20s (when including COVID-19 sales, this forecast rises to the mid- to high 20s).
One of the more exciting aspects of AstraZeneca's future is its pipeline. It has 175 projects that it is currently working on. In oncology alone, it has more than a dozen that are in phase 3 trials. Alexion expanded its pipeline in rare diseases (including multiple trials that are in late stages) and subsequent acquisitions could do the same.
With tons of potential ahead and the company already delivering strong growth today, AstraZeneca is a solid long-term investment to consider adding to your portfolio.
The future starts now
Prosper Junior Bakiny (Moderna): By now, we're all familiar with Moderna, a biotech company that rose to prominence after it developed one of the leading coronavirus vaccines on the market, mRNA-1273. Overall, the market handsomely rewarded Moderna for its efforts, but that could just be the beginning.
The lack of regulatory wins weighed heavily on Moderna before 2020. But now that it has shown the potential of its approach to vaccination, it has unlocked a very bright future for itself and its shareholders. There is no shortage of viruses and infectious diseases for which we still need effective vaccines. Moderna is going after several of them.
The company currently has about half a dozen non-coronavirus vaccines that are at least in phase 2 clinical trials. These include a potential flu vaccine, a vaccine for the Zika virus, and another for the cytomegalovirus. Of these three candidates, two are targeting viruses for which there are no approved vaccines. And while there are ways to prevent flu infection, Moderna argues that there is still a need for new vaccines since current ones are only 40% to 60% effective, among other limitations.
Furthermore, there are many more targets the biotech could go after. Of the more than 80 viruses discovered in the past 40 years, only 4% of them have vaccines commercially approved in the U.S. The opportunities here are vast.
Moderna's recent success in the COVID-19 market will help it set the stage for the future. The company now has experience successfully going through the regulatory and commercialization processes.
But equally important, it has generated tons of cash that will help it advance its current candidates without resorting to dilutive forms of financing. That's why even though it has faced headwinds in the past four months or so, this vaccine remains an excellent option for long-term investors.
Unstoppable on several fronts
Keith Speights (Vertex Pharmaceuticals): There's no question whatsoever that Vertex is unstoppable in the cystic fibrosis (CF) market. All four of the currently approved therapies that treat the underlying cause of the rare genetic disease belong to Vertex. The nearest rival only has CF candidates in phase 2 testing.
However, I think Vertex is looking unstoppable (or close to it) on several other fronts as well. The company and its partner, CRISPR Therapeutics, expect to file for regulatory approvals of CTX001 in treating beta-thalassemia and sickle cell disease later this year. Based on the successful clinical testing of the gene-editing therapy so far, the prospects for winning approvals appear to be good.
Speaking of successful clinical tests, Vertex excited investors in December with its results from a phase 2 study of VX-147 in treating APOL1-mediated focal segmental glomerulosclerosis (FSGS). The company is advancing the program into pivotal studies in the first quarter of 2022.
Vertex isn't just focusing on FSGS, though. It's expanding the phase 3 study to include multiple APOL1-mediated kidney diseases. There's a great market opportunity for the company. Over 100,000 people have proteinuric kidney disease mediated by variants in the APOL1 gene compared to roughly 83,000 patients with CF worldwide.
In addition, Vertex's pipeline includes other programs that hold tremendous potential. I'm especially intrigued by the company's islet cell therapies targeting type 1 diabetes.
Finally, Vertex's growing cash stockpile adds to its "unstoppable-ness." The company ended the third quarter of 2021 with a cash position of $7 billion. That's an ample amount to enable Vertex to continue making smart deals to acquire or license candidates that bolster its pipeline.
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.
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