If you want to invest in companies, have you considered biotech companies?
These are showing great promise when it comes to finding treatments and cures for various diseases that affect millions of people. But investing in biotech companies always comes with some risks.
What should you look for in a biotech company to invest in?
It’s important to check out a company’s stats, such as when it comes to its profits and beta value, which identifies the company’s stock’s stability.
Let’s explore five biotech companies that you should invest in. We’ll start by checking out their specs in the below table.
Now that we’ve looked at some basic information about the five best biotech companies that you should invest in, let’s take a deeper look at each of them, focusing on their benefits, features, and drawbacks.
Best Biotech Companies You Should Invest In – Reviews & Buying guide for 2020
Best overall: Gilead Sciences, Inc.
Gilead Sciences is one of the top biotech companies. It researches, develops and commercializes pharmaceutical drugs where there’s medical need for them which hasn’t been met.
It focuses on the human immunodeficiency virus, acquired immunodeficiency syndrome, oncology, liver disease, and respiratory diseases. Here’s what to know about the advantages and drawbacks of investing in this company.
- Gilead Sciences has been put into the spotlight because its antiviral drug remdesivir recently gained attention for treating severe cases of the Covid-19 virus.
- The company also has promising arthritis news: late-stage results for the drug filgotinib to treat rheumatoid arthritis have been good, so there’s a real chance that the drug will gain approval from the Food and Drug Administration (FDA). This could result in huge sales for the company in the near future.
- Gilead Sciences is still the leading pharmaceutical player in the fight against HIV.
- Its dividend yields over 3.5 percent, as Motley Fool reports. It has enhanced its dividend payout by 58 percent since 2015.
- The company is committed to research and development, and spent almost $9 billion on these in 2019 alone.
- Despite the recent attention for remdesivir that the company has gained, it’s worth bearing in mind that its performance with Hepatitis C drugs has been lacklustre for many years, with sales declining.
- Despite the above, the company does have over half a dozen pharmaceutical products that are currently in the late-stage testing process. This makes investing in its bio stock less risky.
- During the first quarter of 2020, Gilead had revenue of $5.5 billion, which means that the company has had a 5.1 percent year-over-year increase, as Motley Fool reports.
With promising pharmaceuticals in the pipeline that could result in massive sales, as well as its contribution to fighting the Covid-19 pandemic, Gilead Sciences is definitely worth investing in.
With a $105.8 billion market cap, as of April 2020, the company is set to expand, making it a solid investment. The company’s price per one share in stock is $72.33.
Runner Up: Vertex Pharmaceuticals
Vertex Pharmaceuticals is a biotechnology company that develops drugs to treat cystic fibrosis. But, is it worth investing in? Here’s what you need to know.
- The company’s treatment for cystic fibrosis, known as Trikafta, has already shown tremendous potential. It was approved in 2012 but was approved again in 2019 by the FDA. This is important because Trikafta is different from other drugs as it can treat up to 90 percent of patients.
- The company has recently acquired Semma Therapeutics, which could be highly profitable for them because Semma is trying to find a cure for Type 1 Diabetes, a health condition that caused 1.6 million deaths as a direct result of it in 2016, as the World Health Organization reports.
- One of the things to look for when choosing what companies to invest in is collaboration of that company with others as this adds security to the investment process while also showing that the company is expanding. Vertex Pharmaceuticals is collaborating with CRISPR Therapeutics to develop CTX001, a treatment that has already shown promise for treating sickle cell disease and other rare blood disorders. Although this therapy that makes use of gene editing is still in the early testing stage, it could help Vertex to achieve much more growth if it gets approved by the FDA.
- Based on recent reports via Seeking Alpha, the company’s earnings are expected to increase by 64 percent, and this is especially surprising considering that the company has not been involved in developing a COVID-19 vaccine.
- One of things to bear in mind before you invest in the company is that it falls a bit short as compared to other biotech companies when it comes to valuation. For example, as Motley Fool reports, Alexion comes out on top in this case because its shares trade at less than 10 times their expected earnings. Vertex stocks, on the other hand, trade at more than 33 times their expected earnings.
The company has a history of growth. Its three-year revenue growth rate has been +44.53 percent, and its three-year earnings growth rate has been +378.72 percent, as Investopedia reports. This shows that there’s definite potential for long-term investment, making Vertex one of the best biotech companies to invest in this year.
Vertex has proven its ability to produce good levels of cash flow without letting its debt get out of hand, making it a good choice for shareholders. It’s current stock price is $279.40.
Now that we’ve looked at the top two biotech companies to invest in, let’s check out three alternatives that are also worth considering.
Alternative 1: Axsome Therapeutics
Another biotech company that’s developing treatments for diseases that don’t get enough attention is Axsome Therapeutics. This is a pre-commercial stage company that finds new therapies to manage disorders affecting the central nervous system, for which there are currently limited treatment options.
It’s one of those companies that sometimes fall under the radar, but then surprise you. Let’s check out Axsome’s benefits.
- In 2018, the company had a market cap of less than $100 million. By the end of 2019, Axsome was valued at almost $4 billion.
- Currently, Axsome has some promising candidates in the pipeline, which could lead to massive growth. All of its candidates are currently in phase 2 or later stages of development, and two of its drug candidates are set to be submitted to the FDA for approval by the end of 2020. These include treatments for migraines and narcolepsy.
- Working on treatments for depression is something that Axsome Therapeutics has been involved in, and this is a smart move because the COVID-19 pandemic has caused an increase in global depression, with stats showing that the number of people reporting symptoms of depression being more than what was the norm historically, as Healthline reports. The company has already had success with its drug to treat depression, called AXS-05, which is set to treat major depressive disorder.
- The company has promising liquidity data, with a Quick Ratio of 1.41 and a matching Current Ratio. This reveals that investing in the company is less risky than others.
- Axsome Therapeutics’ biotech stock performance has been a bit unpredictable, but this is something that the pharmaceutical industry has been dealing with due to the COVID-19 pandemic.
- The company has institutions on its share registry, and they own more than half of the company. This is important because it shows that the company has credibility in the investment community.
- When polled, nine investment analysts said that it’s a good idea to purchase stock in Axsome Therapeutics, as CNN Business reports. What’s most important about this is that this rating has not changed in the last three months.
If you want to purchase stock in Axsome Therapeutics, you’ll have to pay around $75 for one share of stock. It’s clear to see that there are good reasons to do so.
Alternative 2: BioReference Laboratories
BioReference Laboratories is a clinical lab company that provides lab testing services that are used in the diagnosis, evaluation, and treatment of various diseases. It’s part of OPKO Health. Here are some things to consider if you want to invest in this company.
- It has quite an interesting history. In 2015, for example, the company grabbed news headlines because its shares increased by more than 30 percent after it announced that it was being acquired by OPKO Health, in a deal that was worth $1.47 billion.
- BioReference Labs is the third largest full-service clinical lab. It has nearly 400 employees in its sales and marketing department alone, and has approximately 275 patient service centers. It’s set to grow because it has been committed to improving its top and bottom lines. It’s also got a medical staff of over 120 MD, PhD, and other professional scientists and clinicians.
- Recently, the company has been profiled a lot for its participation in the COVID-19 pandemic. Earlier in 2020, shares soared after OPKO Health made the announcement that BioReference Laboratories would accept specimens for testing COVID-19 from clinics and healthcare providers throughout the U.S.
- Its recent acquisition of COVID-19 testing for all NFL teams has caused OPKO Health shares to soar.
- Its prominent role during the COVID-19 pandemic has been such a big factor in its growth. It releases COVID-19 test results within 72 hours and gives priority to front-line healthcare workers who can receive results within 24 hours. In addition, it processes up to 70,000 PCR tests (used to determine the presence of an antigen) every day.
- The company has many strengths. These include having robust revenue growth as well as reasonable debt levels. Its revenue growth has been better than the industry average, and over the last year its revenue has risen by 15.2 percent. In addition, growth in its revenue has improved its earnings per share, as The Street reports.
- One of the possible drawbacks associated with BioReference Labs is actually something that OPKO Health needs to be careful about: it’s been known to use its debt in potentially risky ways.
- Experts are advising investors to hold onto their OPKO stocks. The company has a market capitalization of $1.11 billion and is set to improve its earnings by 10 percent by the end of the year, as Yahoo Finance reports.
- BioReference Labs has a Quick Ratio of 1.97. This shows that the company can deal with its short-term liquidity requirements effectively.
The company currently has a gross profit margin of 45.36 percent. In addition, its net profit margin is 3.17 percent, which is higher than the average of the industry.
Shares in OPKO Health are viable investments, as its stock has gained 60.9 percent in the last year, as Yahoo Finance reports. BioReference Labs’ stock price is currently $9.80.
Alternative 3: Adverum Biotechnologies
Adverum Biotechnologies is a California-based biotechnology and clinical stage gene therapy company. It focuses on finding treatments for serious ocular and other rare diseases. Here’s what to know about the company that’s valued at $1.42 billion.
- Adverum Biotechnologies has been making the news lately for one of its drug developments that could potentially treat wet macular degeneration. This is an eye disease that’s considered to be the leading cause of blindness in patients over the age of 60. The company has completed its patient dosing in Phase 1 clinical trials of the drug.
- Linked to the above, the company is developing its novel gene therapy candidate, known as ADVM-022. This is a once-off intravitreal injection that could treat wet macular degeneration. It also has the benefit of treating diabetic macular edema.
- Since it’s a once-off injection, ADVM-022 has to be set at a high price, but will investors pay for it as a long-term solution? That said, the candidate could become a multi-billion market for anti-VEGF (Anti-vascular endothelial growth factor therapy) medicine, as Motley Fool reports.
- The company has recently appointed a new vice president, Thomas Kochy. He’s backed by 10 years of experience in the ophthalmology franchise at another biotech company called Genentech and he’s got leadership, sales management, and product marketing skills that will surely benefit the company.
If you’re interested in investing in Adverum, now’s the time to do it. You’ll have to pay $17.66 for one stock. The company is considered to be a buy at the moment by nine analysts, as Marketing Sentinel reports. In addition to this, the biotech company has a growth rate of 21.78 percent, the site adds.
Investment Into Biotech FAQ
After reviewing five biotech companies that you should invest your hard-earned money in, let’s consider some important questions surrounding biotech company investments.
Four Major Steps For Biotechs In Developing New Drugs
The amount of drugs and therapies that a biotech company is in the process of developing is an important marker of its potential growth as well as investment potential.
A company that has more than one product in the pipelines and more than one currently in clinical trials is seen to be a safer investment as compared to companies that only have one product.
This is because products often fail, but at least if there’s more than one in the works the company can still make a profit.
When it comes to developing new drugs, the process is quite a long one, filled with many phases. The main phases are the following:
Phase 1: Identifying And Developing A Drug
Pharmaceutical companies spend millions on researching, identifying, and then developing drugs. This funding can originate from various sources, such as the government, or it can take the form of grants.
Phase 2: Preclinical Research Stage
When a drug has been identified as being a potential treatment for an illness, it has to move through preclinical trials.
These trials are a preliminary phase of testing the drug, and they involve testing the drug on animals. The focus is on identifying any safety concerns with the drug. Preclinical trials will research the following:
- How the drug is absorbed and metabolized by the body.
- The best dosage of the drug and its most effective way of being administered.
- Drug side effects and adverse effects.
- The drug’s effects on members of the population according to race, gender, and other factors.
- The drug’s interaction with other medications and treatments.
- How effective the drug is when compared to similar drugs.
Phase 3: Clinical Research Phase
When we hear that drug companies are currently in the clinical trial phase, this means that human trials of the medicine are being conducted. This is definitely the most important step of the development of a drug.
The FDA has standards that need to be met in clinical trials, such as selection criteria for people who are being tested.
To make matters a bit more complicated, this stage of drug development contains three phases. These are:
- Phase 1: This is the healthy volunteer study, forming part of the first time that the drug is being tested on humans. Fewer than 100 volunteers will be tested to assess the safety of the drug, as well as study its absorption, metabolic, elimination, and side effects. This helps researchers to find the safest dosage for the drug.
- Phase 2: During Phase 2, an extra 100 to 500 patients will be assessed for drug safety and how effective it is. These patients might be given placebos or standard drugs that were previously used in treatment of the condition for which the new drug is being developed. This phase also involves studying the best dose strength, side effects, adverse effects, and risks of the drug.
- Phase 3: involves a bigger study. Between 1,000 and 5,000 patients will be enrolled in the study, and this phase enables the medication to be labelled as well as given instructions so that it can be used correctly. This phase involves extensive collaboration and organization.
Phase 4: The FDA Reviews The Drug
The FDA is one of the main regulatory bodies of the drug market. It sets high standards for companies to follow before drugs can be approved. This is a long process: in the U.S., drug development testing in the first three phases can take up to 15 years before they get approved.
When this phase is reached, drug companies will submit research and findings to be reviewed by the FDA.
There are many reasons why a drug could fail. These include the following:
- Toxicity. If the drug has high levels of toxicity for humans and animals during trials, then it will have many safety concerns that don’t make it a viable drug to continue developing.
- Effectiveness. If there’s not enough evidence to prove that the drug is an effective treatment, then it will likely be rejected by the FDA.
- Unsatisfactory drug performance. If this drug performs what it intended to do but it doesn’t do so extensively, the FDA might reject it because other drugs that are being developed are showing more success.
Phase 5: Post-Market Monitoring Of The Drug
There’s also a fifth, and final stage. This one is the most important: it’s when the FDA conducts safety monitoring. The FDA needs to monitor advertisements of the drug to ensure accuracy and that patients aren’t being misled.
Any patient complaints or problems linked to the drug will also have to be examined. The FDA has the power to insist on drug warnings and even limit sales of it. During this stage, the FDA will conduct inspections of the manufacturing process of the drug, while also being involved in patent protection.
The COVID-19 pandemic has made a huge impact on pharmaceutical companies. As we’ve seen in our reviews of biotech companies you should invest in, their participation in and positive contribution to developing COVID-19 treatments or vaccines has enabled them to grow.
There’s a global race underway to find a vaccine for this virus, and some biotech companies have also been involved.
In China, for example, biotech company CanSino Biologics and the medical research branch of the People’s Liberation Army began trials for COVID-19 vaccines in March 2020 and these were approved a few months later for use by military personnel.
In other news, U.S. biotech company Novavax has started trials for a vaccine candidate in Australia.
In order to get a vaccine approved, pharmaceutical companies have to go through many stages of development.
These differ a bit when compared to the drug development phases we outlined in the previous section. Vaccines need to go through the following phases to ensure that they’re effective against the virus they’re trying to block while not causing other problems. The stages of vaccine development are:
The Exploratory Stage
This is when companies identify a substance that can be used to fight bacteria or a virus, and lab research is conducted. This stage can last between two to four years.
The Preclinical Stage
Once researchers have found a promising way to vaccinate against an illness or virus, such as Covid-19, they then test this vaccine on animals. This stage can last between one and two years.
The sad truth is that many vaccines don’t move past the preclinical stage. If, however, the tests are considered to be successful and the FDA approves them, then the vaccine can move onto the next phase of development.
The Clinical Development Stage
This stage is when human tests of the vaccine begin, and it has three important phases.
- Phase 1: This phase involves testing the vaccine on fewer than 100 people. It can last one to two years.
- Phase 2: This phase can take a minimum of two years to complete. It involves testing the vaccine on a few hundred people. The focus is on checking if the vaccine works at certain therapeutic doses, and also to check for any side effects.
- Phase 3: This is the phase with the longest duration – usually up to three or four years – and it tests the vaccine on thousands of people, usually across different countries and geographical regions. The people will receive the vaccine or a control (such as a placebo or a vaccine that’s already licensed). This is a way for scientists to determine if the vaccine that’s being developed is safe and effective. The focus is also on ensuring that the vaccine has long-term safety, which is why this phase can take so long.
The clinical phase of vaccine development can last up to 15 years as a whole, but sometimes even more. Only one-third of vaccines survive the process from Phase 1 all the way to getting approved, as WebMD reports.
When the vaccine has made it through the clinical trial stage, the FDA and Centers for Disease Control and Prevention will review the research and see if they want to approve it.
Once the vaccine is approved, it will enter the manufacturing stage. During this time, the FDA is still overlooking the entire process, such as by reviewing and approving drug labels and conducting factory inspections.
During this stage, the production of the drug is still monitored closely by government agencies as well as scientists. This is done to ensure that the people who receive the vaccine are not having their health compromised.
- The Use Of Adaptive Trials For COVID-19
With the development of a COVID-19 vaccine, time is of the essence. We can’t afford to wait 15 or more years for the vaccine to make it through all the trials and enter production.
The use of what’s known as adaptive trials is underway in the race to find a COVID-19 vaccine. These types of trials basically get adjusted as they go. Generally, researchers will draw up a plan and stick to it throughout the phases of the vaccine trial.
But, by adjusting the plan when new findings surface, this can help trials to move faster.
Examples of changes that researchers might make during the development of vaccines include expanding the trial so that new components can be studied or the inclusion of more participants to check for differences between the vaccine and control groups in a faster way.
Another way in which scientists can get a vaccine developed and approved faster is by decreasing the time between the vaccine phases. An example would be if a vaccine is in Phase 2 of the clinical trial and instead of waiting for it to be completed, scientists begin Phase 3.
The danger with doing this, however, is that safety concerns and red flags might not be seen immediately – one would have to wait until much later. However, this type of approach does have benefits, such as by saving time.
Is CRISPR the Future and should you invest?
Much talk has been made about CRISPR, but in case you don’t know what it’s all about, here’s a quick rundown.
CRISPER is gene-editing technology that stands for Clustered Regularly Interspaced Short Palindromic Repeats. It’s being used as a way to hopefully cure genetic diseases in future.
To edit genes, the technology makes use of enzymes known as Cas9, Cas3, and Cas13. There’s also Cpf1, which is an enzyme that’s derived from bacteria which can also be used to cut DNA so that it can be modified.
Some of the reasons why CRISPR is causing such a stir is because it’s been said to be simpler and cheaper than other types of gene-editing technology.
There are many CRISPR stocks that you can invest in. These include Editas Medicine, CRISPR Therapeutics, and Intellia Therapeutics, which are all biotech companies that are using CRISPR to develop treatments that could change our health and wellbeing forever.
That said, the picture isn’t all rosy. The use of gene-editing medical innovations such as CRISPR do pose some dangers.
Recently, various studies have found that tweaking cells could cause nasty consequences – CRISPR could cause cells in the body to be unable to fight cancer. As with any new scientific innovation, there will be issues to overcome.
That said, there are some good reasons why you should invest in CRISPR. Here are important things to know about it, via a report by Ark Invest.
- It has a $75 billion annual global revenue potential for targeting and treating 10,000 monogenic diseases.
- It’s not just the medical world that can benefit from CRISPR but also agriculture – it could result in a $585 trillion increase in calorie production to feed an additional 800 million people by 2025.
- This technology could grow the global agricultural industry by $170 billion by 2025.
In addition to the above, many companies are using CRISPR technology and they’re being financed for it in large quantities. This means that smart investors can reap substantial and massive rewards, as Forbes reports.
CRISPR isn’t technology that will happen someday – it’s already happening now.
For example, researchers from the University of Wisconsin are developing a CRISPR antibiotic to treat super-resistant bugs, and biotech companies Kite Pharmaceuticals and Juno Therapeutics are working on engineering human cells with CRISPR technology to find a way to treat leukaemia.
Safest investment based on type (colors of biotech)
The four main types of biotechnology are medical (red), industrial (white), and environmental (green). Which one is the safest to invest in?
According to a report in Nature Biotechnology, investing in environmental technology carries a huge risk because payback times tend to be long.
However, the report goes on to add that investment money will flow wherever reasonable returns on it can be expected. Science-based regulations need to be instilled and followed to create more confidence in investors.
When it comes to industrial biotechnology, the same report shows that the sector still has a young finance and investment community. While larger companies are investing in industrial biotechnology startups, there is a large need for private investors to jump on board, therefore awareness needs to be raised.
While the sector is attracting more attention, such as because it produces many useful products that benefit the nutrition, wellness, and pharmaceutical industries, it is still not attracting as much investment as other types of biotechnology, such as medical biotech.
While investing in biotech companies is always risky, medical biotechnology is booming, making it some of the best biotech stocks.
The biotechnology industry has achieved a lot in business and therapeutics, but medical biotech has taken a large chunk of the attention.
As Health Affairs reports, one-third of all biotech products that were sold during the 2000s were marketed by pharmaceutical companies. Conduct an internet search for the most successful biotech companies and you’ll see a range of medical companies come up.
Knowing how to invest is important, though, and can help to minimize risks. For example, you should look for biotech companies that have strong and well-known partners, or ones that are financially stable, so that they can handle the setbacks that can (and often will) occur in the industry.
Stability of Biotech investment
One of the biggest concerns you might have when investing in biotech companies is how safe and stable they are. Here’s what you should know before you go ahead and invest.
- You need to be a risk taker. As we’ve seen in previous sections of this article, drug companies have to go through long periods of drug development before their drugs can enter the market. Even then, there’s no guarantee the drugs will be a success. If you want to invest in a biotech company, make sure that you’re prepared to wait for the drugs to be developed and understand that biotech stocks can be potentially volatile. However, being wise about the type of biotech company you choose is important here. For example, choosing a company that has multiple drug developments in the pipeline can help to increase the chance of its success.
- Understand how biotech stocks trade. Biotech stocks trade according to data related to drugs, such as clinical trial failures and competition. This is what can make them so volatile: if they don’t meet their expected endpoint, the stock can fizzle, but if they do, then the stocks can soar.
- Know the value of collaboration. Some biotech companies can’t always handle the setbacks they encounter along the way, which is why it’s important to choose biotech companies to invest in that are collaborating with other companies, preferably big-name companies with a solid history of growth.
- Consider the company’s focus. Some biotech companies will be focused on trying to find cures and treatments for lesser-known diseases. While this might sound less exciting than a company that’s dealing with a bigger disease, it can be more profitable. This is because there will be fewer patients and a smaller market that results in a higher price for the treatments.
If you’re interested in investing in biotechnology but you’re not sure where to start, consider the five biotech companies we’ve outlined in this guide. Now that you’ve checked out their pros, cons, and other features, you’ll be in a better position to choose the one that’s the most valuable for you.