The biotechnology sector had been starved for love on Wall Street for the past few years despite the life-changing research and the introduction of fresh and innovative treatments for previously incurable conditions.
A year ago, the sector had the lowest price earnings multiple with the fastest earnings growth.
That couldn’t last.
With the outbreak of the catastrophic coronavirus disease (COVID-19) pandemic the public has fallen in love with the sector. While the biotechnology sector tanked in March with everything else, several industry benchmarks have been outperforming the broader market so far.
The harsh truth is that cures and vaccines remain far off.
The biotech sector is likely to become the next decade’s largest growth story.
The key is to find companies with strong balance sheets along and leadership that can manage any financial storm.
Nonetheless, there are biotech companies worth considering now, particularly those selling at bargain bin prices but with mature pipelines and promising soon-to-launch commercial products.
One compelling stock for long-term holding is Blueprint Medicines (BPMC).
This company develops targeted medicines for rare genetic types of cancer. So far, Blueprint has three treatments lined up for release in the market in the next 18 months. Just last month, the company announced the FDA approval of its first-ever cancer drug Ayavakit.
Ayavakit, which will be marketed as a treatment for a rare, genetically linked kind of gastrointestinal cancer, comes with a jaw-dropping price tag of $32,000 for a 30-day supply.
This cost is twice the amount of what was originally forecasted. However, analysts claim that this price is “justifiable” considering Ayavakit’s effectiveness and the absence of competition.
Riding the momentum of Ayavakit’s FDA approval, Blueprint has already filed for a second application in a bid to expand the indication for the drug to include patients suffering from gastrointestinal stromal tumors who already underwent three other treatments but failed.
According to the World Health Organization, 5,000 to 6,000 Americans are diagnosed with these tumors every year. Blueprint believes there's a strong chance this gets approved since 86% of their participants in the clinical trial responded to the drug.
Another potential blockbuster for Blueprint is a lung cancer drug currently dubbed as Pralsetinib. If the company gets approved, it can tap into a lucrative market as lung cancer comprises almost 25% of all cancer diagnoses.
Despite the COVID-induced economic crisis, Blueprint remains an attractive investment since it raised money prior to the pandemic. That means the company is well-capitalized.
Admittedly, the stock has gone down by 42% since its July 2019 high and only trades for $57 these days.
Although the company may experience disruptions in the near term, it’s undeniable that patients will still need their medications. Hence, business will definitely come back.
Another scenario is that Blueprint attracts more attention from aggressive acquirers.
So, if you’re looking into how to maximize this opportunity, keep it in mind that your reward all depends on the size of the position you plan to take.
Obviously, this stock comes with its own risks so it might not be an attractive option as a cornerstone of your portfolio. However, adding it to your diversified portfolio could offer you with market-beating returns in the long run.
Another stock that has been disrupted but still presents enticing rewards in the post-COVID days is Invitae (NVTA).
It peaked around February at $28 but went down to trade at a measly $9 to $12 as the coronavirus situation worsened. In fact, Invitae shares bottomed sometime in March at around $7. Since then, investors have been snapping it up at this low price.
Invitae offers genetic testing for kids with developmental issues, so you can easily see why the company isn’t going out of business anytime soon.
Fueling investors’ enthusiasm on this biotech stock are the series of acquisitions it made recently, with the company pouring money on virtual medicine.
In a way, you can say that Invitae is actually quite prepared for what’s happening today.
Just last month, Invitae acquired Orbicule BV otherwise known as Diploid. This recently acquired company develops an AI software that analyzes next-generation sequencing data combined with a patient’s information in order to diagnose genetic disorders.
The terms had Invitae buy 2,800,623 shares of Diploid’s common stock plus roughly $32 million in cash.
In April, Invitae acquired two companies.
One is YouScript Incorporated, which offers clinical decision support and functions as an analytics platform. This deal consisted of 2,293,452 shares of common stock plus $25 million in cash.
The second is Genetic Solutions, operating under the name Genelex, which is a precision medicine company.
With these acquisitions, Invitae needed to raise capital at a bargain-basement price. Does that mean that this genetic testing stock bottomed out?
That’s highly unlikely, but it’s virtually impossible to time market peaks and troughs anyway. The only reasonable means to deal with the current situation is to adopt a long-term mindset.
Keep in mind that this coronavirus pandemic will eventually pass. When it does, the biotechnology industry will return to growth.
After all, the revolutionary and groundbreaking drugs developed by this sector are critical.
For any growth investor on the lookout for high-value and sustainable options, the biotech industry can turn out to be the most lucrative one out there.
