Biotech stocks have performed relatively well compared to the broader market of late. The SPDR S&P Biotech ETF (NYSEARCA:XBI) is up 21% over the past three months compared with a 6% gain for the S&P 500.
Biotech stocks have a reputation for being high-risk investments. The underlying firms spend a ton on research and development with no assurance that their products will reach market.
As a whole, though, the segment’s growth is being driven by government initiatives “aimed at modernization of regulatory framework, improvements in approval processes & reimbursement policies, as well as standardization of clinical studies,” according to Grand View Research. The research firm estimates the global biotechnology market will grow at a compound annual rate of 13.9% through 2030.
With the growth of the industry is all but assured by medical necessity, the trick for investors is choosing the best individual biotech stocks in which to put their capital. The biotech stocks below are established players that are trading at a substantial discount to their fundamentals and long-term outlook.
Vir Biotechnology (VIR)
Vir Biotechnology (NASDAQ:VIR) is a U.S.-based immunology company involved in developing therapeutic products to treat and prevent infectious diseases. Its pipeline includes products for the treatment and prevention of Covid-19, influenza A and HIV. Moreover, it boasts licenses and grant agreements from some of the biggest names in healthcare and philanthropy.
Vir Biotechnology has seen revenue explode over the past four years from less than $3 million in 2017 to $1.1. billion last year. For 2022, analysts are calling for revenue to increase another 28.5% to $1.4 billion. Moreover, profitability metrics remain firmly in the green with roughly 80% return on common equity. Additionally, its levered free cash flow margin for the year is at a spectacular 55.4%.
Much of the company’s revenue growth has been due to investigational monoclonal antibody treatment for Covid-19, Sotrovimab, which it developed in collaboration with GSK (NYSE:GSK). Vir Biotechnology generated $917.2 million in collaboration sales for Sotrovimab last year after the Food and Drug Administration granted it an emergency use authorization in May 2021. While the FDA has since updated its authorization due to the prevalence of the Omicron BA.2 subvariant, the company still has a lot of potential based on its Hepatitis B drugs.
Given this and its stellar pricing metrics, VIR stock is an excellent long-term play.
Exelixis (NASDAQ:EXEL) is mid-cap biotech that’s been in the game for over 25 years. It sports a massive enterprise value of more than $4.2 billion and wrapped the second quarter with $1.5 billion in cash, providing a spectacular operational growth runway.
The firm is known for the Cabozantinib franchise, which continues to perform phenomenally well for the company. The drugs primarily treat advanced medullary thyroid cancer, renal cell carcinoma, and hepatocellular carcinoma. They accounted for nearly 83% of the company’s Q2 sales. Exelixis also boasts a promising early-stage pipeline that involves inhibitors of multiple targets and the latest antibody-drug conjugates.
The firm’s growth and market share retention speak to a bright future for Exelixis. Moreover, its gross margins are at an astounding 96.7%, indicating its strong execution.
BioCryst Pharmaceuticals (BCRX)
BioCryst Pharmaceuticals (NASDAQ:BCRX) is a rare disease specialist with the potential to be a high-growth stock down the road for bargain hunters. Its flagship drug is called Orladeyo, which is used to prevent hereditary angioedema attacks. Orladeyo has proven to be remarkably safe and effective.
In the second quarter, Orladeyo sales more than doubled year over year to $65.2 million, helping boost the company’s total revenue 31% YOY to $65.5 million. So, as you can see, Orladeyo accounts for the vast majority of BioCryst’s sales. Management expects Orladeyo to eventually generate $1 billion in annual sales.
This seems plausible as the drug continues to grow its market share. It was recently approved in Canada, Switzerland and Saudi Arabia. And the company entered a partnership with Pint Pharma to register and promote Orladeyo in Latin America.
BCRX stock trades at just 9.1 times this year’s sales estimate, well below its five-year average, making it an attractive buy at these levels.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.