Biotech stocks are leading the pack out on Wall Street. The iShares Nasdaq Biotechnology ETF (IBB Stock Report) has risen more than 10% while the S&P 500 is down 9% year to date. Understandably so, as there are more than 100 Covid-19 vaccines in the making. While both large and small pharmaceutical companies are developing a vaccine, the small cap biotech stocks are leading the race in terms of price gains. Hence, there are plenty of breakouts in biotech stocks when there’s news regarding regulatory approvals and clinical trials data.
As Even Seigerman from Credit Suisse put it: “Though investors are cautious in these unprecedented times, the renewed interest in Biotech highlights improved sentiment as investors look to Biotech for a potential treatment/ vaccine for COVID19, while macro overhangs (e.g. drug pricing legislation) have diminished.
When it comes to investing in biotech stocks, the risk tolerance level of investors shall ideally be well above average. Because these stocks can move both ways on an epic scale. And some investors may not like that when stock prices go south. As such, it would be great if we can invest in biotech stocks that have strong growth prospects which can justify their risks. However, it’s easier said than done. Here are three that I think could fit the bill as great potential buys before June.
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There’s no other biotech company like Vertex Pharmaceuticals (VRTX Stock Report). Why? Vertex commands a virtual monopoly in cystic fibrosis (CF) treatment and has a strong moat that largely insulates itself from the coronavirus pandemic and the broader economy. VRTX made nearly $4.2 billion last year, thanks to its CF monopoly. Patients will still consume the drugs prescribed by physicians regardless of the broader state of economy.
The biotech company’s pipeline includes another triple-drug combo for treating CF, a pain drug, and two candidates targeting rare genetic diseases alpha-1 antitrypsin deficiency (AATD) and focal segmental glomerulosclerosis (FSGS) in phase 2 testing. Vertex is currently sitting on a massive cash stockpile of $4.2 billion. This is especially reassuring during the current pandemic, as the timelines of clinical trials may be affected. The cash pile also gives Vertex the chance to venture into new drug candidates, or even to acquire smaller biotech companies. These could provide additional sources of revenue stream in the future. Given the strength of the company’s balance sheet, is VRTX stock a good buy for now?
Shares of Moderna (MRNA Stock Report) are down by 9.58% on Wednesday. That could be due to news of Moderna executives selling over $89 million in shares this year. Dr. Anthony Fauci singled out Moderna and its Covid-19 vaccine candidate as being especially promising. However, the big question here is, why are the executives selling the shares if they have trust in what the company is doing and its potential?
Up to this stage, it is still impossible to know which vaccine has the most potential. Fauci went on to say “the vaccine induced what we call neutralizing antibodies, as opposed to just binding antibodies, and neutralizing antibodies are antibodies that actually can block the virus. Having looked at the data myself, it is really quite promising.”
While the complete clinical data hasn’t been released yet, what we know so far seems really promising. But it can be quite risky if investors bank on a biotech stock solely because of its effort to find a potential vaccine for Covid-19. While MRNA stocks are up by more than 150% year to date, there are chances that the stock could implode if future clinical data are less exciting. Or if one of its competitors manages to develop an effective vaccine first. On the flip side, if Moderna is successful in developing the vaccine, that would be a boost to MRNA stock. The question is, has the potential upside been priced in?Best Biotech Stocks To Buy [Or Avoid]: Inovio Pharmaceuticals
The notable influx of trading volumes and analyst coverage has put Inovio Pharmaceuticals (INO Stock Report) on investors’ radar. Similar to Moderna, much of the interest lies with the company potentially being the first to market with a Covid-19 vaccine. Shares of Inovio have gone up more than 300% year to date. This makes it one of the top biotech stocks to buy alongside Moderna.
Inovio said its vaccine produced strong antibody and T-cell responses in animal studies. With positive results tested on animals, the company now wishes to see similar success in humans. Unlike traditional vaccines, Inovio focuses on the use of optimized DNA plasmids. What does that mean? The small circles of double stranded DNA are reorganized to produce a specific immune response in the body. That said, Inovio has yet to prove that and clinical trial results have yet to be available. If you are a potential investor in Inovio, you may want to proceed with caution.