There are very few stock market sectors that provide the consistent volatility and profit potential of the biotech industry. In fact, outside of derivatives, it can be safely said that biotech stocks are the number one fastest way to earn quick profits in the entire equity market.
The above graph from Forbes Magazine illustrates the extreme potential of the sector. The chart shows the distribution of returns for every biotech IPO since 2013. As you can see, a substantial percentage gained greater than 100% over the last two years. However, at the same time, a disturbing number plunged 25% or greater over this same time frame.
If you look at biotech performance since 2011 compared to the Nasdaq or the S&P 500, it truly outperforms the overall market.
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However, things have changed for the worse in 2016!
In fact, biotech, as a sector, has been knocked sharply lower this year. Since the opening session of 2016, the iShares Nasdaq Biotechnology ETF is down by over 20%.
This plunge becomes even more dramatic when you consider that in July 2015, the ETF was trading in the $400 range and are currently selling for under $260.00 per share.
Exactly why this sell-off has occurred is hotly debated. TheStreet.com recently quoted analyst Mark Schoenebaum as stating:
There’s been no one good reason for the biotech sector to have fallen so hard. On a recent conference call with clients, Evercore ISI analyst Mark Schoenebaum chalked it up to an ongoing series of unfortunate events: uncertainty over pricing regulation; less-than-stellar earnings reports; a lack of exciting M&A deals; along with economic jitters and slowing demand from China.
Within this overall sell-off, we have identified tremendous opportunity in 3 biotech stocks.
Let’s take a closer look:
- Seattle Genetics (Nasdaq:SGEN)
We first suggested this stock back in July and shares soon hit our profit target. Now, the stock is back in the value buy zone and ripe to purchase once again.
The Washington State-based biotechnology company has set up to be an incredible buy at the present level.
The company specializes in antibody-based cancer therapies. Its technology called anti body drug conjugates or ADCs. ADCs are designed to control the targeting ability of antibodies to deliver cell killing agents directly to cancer cells.
This is a revolutionary cancer-fighting technology that could easily improve the lives of countless cancer victims over time.
Stated simply it is similar to a guided missile directly targeting and destroying cancer cells.
Seattle Genetics lead product ADCETRIS, an ADC, is approved in 35 nations including the USA and Japan. The company collaborates with multiple large pharmaceutical companies with its ADC technology.
The company just posted strong results with fourth quarter and fiscal year numbers. In the fourth quarter, revenues: $93.5M (+25.8%); R&D Expense: $74.6M (+16.6%); SG&A: $33.6M (+14.3%).
During the fiscal year, the operating loss plunged by 56.3% and loss per share gave back 50%. In addition to a 17.4% gain in revenue and a quick asset improvement of over 127%.
What I find most bullish is the 2016 projections total 2016 Revenues Expected to Increase to a Range of $390 Million to $430 Million, Including ADCETRIS U.S. and Canada Net Sales of $255 Million to $275 Million.
In addition, Vadastuximab Talirine (SGN-CD33A) Phase 3 Trial Initiation Planned by Third Quarter of 2016.
Not to mention, data from ADCETRIS Phase 3 ALCANZA Trial Expected in Second Half of 2016.
- Gilead Sciences (Nasdaq:GILD)
This stock hit our radar after Citigroup listed it as a top buy candidate. Shares are down over 12% despite posting solid 2015 results.
A just under $128 billion market cap monster, Gilead Sciences, Inc. (Gilead), is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines.
The Company’s primary areas of focus include human immunodeficiency virus (HIV), liver diseases such as chronic hepatitis C virus (HCV) infection and chronic hepatitis B virus (HBV) infection, oncology and inflammation, and serious cardiovascular and respiratory conditions.
GILDS HIV products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta. Its Liver Diseases products include Harvoni, Sovaldi, Viread and Hepsera. Zydelig is the Company’s oncology product. Its Cardiovascular products include Letairis, Ranexa and Lexiscan/Rapiscan. Its Respiratory products include Cayston and Tamiflu. Its other products include AmBisome and Macugen.
CNBC reported that reported the latest quarterly earnings and revenue on beat analysts’ expectations, boosted by sales of its drugs in Japan.
The giant listed fourth-quarter earnings per share of $3.32, compared to $2.43 a share a year earlier. Revenue was reported as $8.51 billion, up from $7.31 billion.
The average Wall Street analyst expected Gilead to report earnings of about $3 a share on $8.14 billion in revenue
Gilead’s stock initially shot up 2 percent on the news, but pared gains after the company announced it approved a $12 billion share buyback and a 10 percent increase in the quarterly dividend.
A dividend announcement and buyback program causing a sell off?
Aside from the solid performance, I am very impressed with GILD’s pipeline. Most investor’s focus on its hepatitis C products. The blockbuster hep C drugs, Sovaldi and Harvoni.
In addition to its leading HIV franchise, the company has a cavernous pipeline for other indications including anti-inflamatory compounds such as filgoninib via a partnership with Galapagos.
- ImmunoGen (Nasdaq:IMGN)
This exciting biotech company’s share price has plunged to support in the $7.00 per share range where a double bottom technical pattern has formed.
Although the company missed EPS by $0.02 and revenue was down by nearly 63% year over year, we strongly believe that the current price represents a great opportunity to buy.
ImmunoGen is off to a strong start for 2016, with multiple clinical trial initiations underway, commented Daniel Junius, President and CEO. Of particular importance is the opening of our FORWARD I trial assessing mirvetuximab soravtansine as single-agent therapy for pretreated FR±-positive ovarian cancer, which we believe is the fastest path to registration for this promising ADC. We expect several presentations of mirvetuximab soravtansine clinical data in 2016, including mature results from the 40-patient FR±-positive ovarian cancer Phase 1 cohort.
Mr. Junius continued, Our partners also are making meaningful progress. Of particular note is Bayers initiation of a Phase 2 trial designed to support registration of its anetumab ravtansine product candidate. Roche expects data to be reported from its trial assessing Kadcyla in the neoadjuvant setting this year and if positive to bring these to regulatory authorities for potential filing in 2016. A third partner compound is on track to advance into registration testing later this year.
We are particularly bullish on the progress of the partnership programs including.
Patient dosing has started in Bayers global Phase 2 clinical trial designed to support registration of its mesothelin-targeting ADC, anetumab ravtansine. This event triggers a milestone payment to ImmunoGen that will be reflected in the Companys 3QFY2016 financial results.
Roche forecasts data from its KRISTINE trial analysing Kadcyla in the neoadjuvant setting for early HER2-positive breast cancer to be reported this year and, if positive, to bring these to regulatory authorities for potential filing in 2016.
Not to mention that in December, Takeda took its first license for the exclusive right to develop ADCs to an undisclosed target using ImmunoGen technology.
Also in December, CytomX announced it is advancing a novel anticancer agent targeting CD166 using its ProbodyTM technology and ImmunoGen’s ADC technology under a strategic collaboration established between the companies in early 2014.
The Key Takeaway:
We firmly believe that the recent selling has created a powerful opportunity to get long biotechs. The three mentioned above fit the criteria to be strong performers in 2016.