We hold three biotech stocks in our growth portfolio — Biogen (BIIB), Bioverativ (BIVV) and Regeneron Pharmaceuticals (REGN) — and we continue to strongly recommend all three, suggests growth stock expert Stephen Leeb, editor of The Complete Investor.
All three of our biotechs have franchises that look intact and growing. That, along with drugs in the pipelines, promises potentially explosive growth, in double digits and for Regeneron possibly up into the high teens. Each has a modest P/E of below 2 and a strong balance sheet.
For Bioverativ and Regeneron there’s an added kicker. Since both currently pay taxes rates of at least 30 percent, they could get a nice boost if corporate taxes are lowered.
Valuation metrics can tell you only so much. What counts most are the drug profiles of each company. Biogen’s franchise is in multiple sclerosis.
In the last few years, revenue growth for the company has slowed as its MS franchise has become increasingly saturated. But we expect growth will pick up as new applications for current drugs like Tysabri come into focus.
Tysabri, which treats MS, potentially could treat strokes, adding to revenue growth. Further out in the pipeline are drugs for some types of palsy and encephalopathy. Even one approval would likely send revenues and earnings growth several percentage points higher than current expectations. Anything above that could be a home run.
Meanwhile, the company has a projected free cash flow yield above 7 percent. That leaves a lot of money for research and perhaps acquisitions. Even more significant than this cash is the company’s strong pipeline. It includes possible treatments for Parkinson’s, which clearly would have blockbuster potential if they pan out. Ditto for drugs in development for Alzheimer’s. We’re buyers.
Bioverativ got hit by the news that Swiss drug company Roche won approval for a drug that will compete with Bioverativ’s hemophilia franchise. While Bioverativ shares dropped sharply, the approval wasn’t surprising. It will be at least six to nine months before the market sees how competitive the Roche entry will be.
Meanwhile, the market has overlooked likely approval fairly soon of a new Bioverativ drug that will be the only treatment for “cold agglutinin” disease (CAD). This devastating autoimmune blood disease results in a so-far untreatable type of anemia in which antibodies overwhelm red blood cells.
Symptoms can range from chronic weakness to life-threatening conditions. We expect any erosion in Bioverativ’s hemophilia franchise will be more than made up for its being the sole provider of a CAD treatment.
Regeneron — which is developing treatments for both cholesterol and immuno-oncology — has the best technology of any biotech company in the world. For one thing, a remarkable 100 percent of the drugs it markets, along with those now in its pipeline, have been developed in-house. That’s testimony to the strength of the company’s proprietary technologies.
Yet another mark of its exceptional technologies: its drugs have very few side effects. That’s a sign of how disease-specific and symptom-specific they are. Regeneron, with growth in the high teens achievable, is trading at a PEG of 1.4, numbers that are way out of whack. At its current price, the stock remains our favorite biotech idea.
Stephen Leeb is editor of The Complete Investor.
About MoneyShow.com: Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.