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2 Top Biotech Stocks to Buy for the Long Haul and 1 to Sell

Government initiatives to expand domestic biotech production and research and rising private investments in advancing technologies are expected to boost the industry’s prospects. While we believe biotech stocks Vertex Pharmaceuticals (VRTX) and Biogen (BIIB) could be ideal investments for the long run, fundamentally weak Timber Pharmaceuticals (TMBR) might be best avoided. Read more...

President Joe Biden is launching a new initiative to encourage biotech production and research in the U.S. to boost domestic industry. The official said that the administration was aiming to expand domestic biomanufacturing capacity as other countries, especially China, have been aggressively investing in the sector, posing risks to U.S. leadership and competitiveness.

Moreover, the modern research domain, led by the remarkable advancement of genetic biology, is boosting industry growth. Also, the Covid-19 outbreak has encouraged organizations to invest in research & development for the future crisis, which is expected to support the growth. The global industrial biotechnology market is expected to grow at a CAGR of 15.6% during 2022-2029.

Given this backdrop, biotech stocks Vertex Pharmaceuticals Incorporated (VRTX) and Biogen Inc. (BIIB) might be solid buys now. However, we believe fundamentally weak Timber Pharmaceuticals, Inc. (TMBR) might be best avoided.

Stocks to Buy:

Vertex Pharmaceuticals Incorporated (VRTX)

VRTX is a biotechnology company that develops and commercializes therapies for treating cystic fibrosis. The company sells its products primarily to specialty pharmacies and distributors in the United States, as well as specialty distributors, retail chains, hospitals, and clinics internationally.

On September 27, VRTX and CRISPR Therapeutics (CRSP) announced that the FDA granted exagamglogene autotemcel (exa-cel) a rolling review for the potential treatment of sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT). Exa-cel is being investigated in multiple ongoing clinical trials as a potential one-time therapy for patients with either SCD or TDT.

Moreover, on September 2, VRTX announced that the U.S. Food and Drug Administration (FDA) approved the expanded use of ORKAMBI to include children with cystic fibrosis from ages 12 to 24 months who are homozygous for the F508del mutation in the cystic fibrosis transmembrane conductance regulator gene. This might drive up the revenues of the company in the near term.

VRTX’s total revenues increased 18.3% year-over-year to $2.20 billion for the fiscal second quarter ended June 30, 2022. Its non-GAAP operating income improved 1,571.8% from the year-ago value to $1.18 billion, while its non-GAAP net income rose 2,049% year-over-year to $930.50 million. The company’s non-GAAP EPS came in at $3.60, indicating a 2,017.6% improvement year-over-year.

The consensus EPS estimate of $14.20 for the fiscal year 2022 represents a 9.1% improvement year-over-year. The consensus revenue estimate of $8.77 billion for the same year represents a 15.8% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.

Over the past nine months, the stock has gained 65% to close the last trading session at $295.23. It has gained 34.4% year-to-date.

VRTX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Quality and a B for Value and Sentiment. Within the Biotech industry, it is ranked first among 387 stocks.

In addition to the POWR Ratings grades just highlighted, click here to see VRTX ratings for Growth, Momentum, and Stability.

Biogen Inc. (BIIB)

BIIB develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases. Additionally, it has collaboration and license agreements with Acorda Therapeutics, Inc., Alkermes Pharma Ireland Limited, Denali Therapeutics Inc., Eisai Co., Ltd., Genentech, Inc., Neurimmune SubOne AG, and Ionis Pharmaceuticals, Inc.

On October 3, BIIB and Denali Therapeutics Inc. (DNLI) announced that dosing has begun in the global Phase 3 LIGHTHOUSE study to compare the efficacy and safety profile of BIIB122 (DNL151) to placebo in approximately 400 participants with Parkinson’s disease and a confirmed pathogenic mutation in the leucine-rich repeat kinase 2 (LRRK2) gene. The initiation of the Phase 3 LIGHTHOUSE study marks an important milestone in the BIIB122 development program.

On September 30, BIIB announced that the European Medicines Agency (EMA) had accepted the Marketing Authorization Application (MAA) for BIIB800, a biosimilar candidate referencing RoACTEMRA1 (tocilizumab), an anti-interleukin-6 receptor monoclonal antibody. This acceptance means BIIB can now offer broader patient access to an affordable and important new biosimilar treatment option in Europe.

During the fiscal second quarter ended June 30, 2022, BIIB’s total revenue came in at $2.59 billion. Its total cost and expenses declined 39.8% year-over-year to $1.32 million. The company’s net income increased 135.9% from the year-ago value to $1.06 billion, while its EPS grew 142.1% from the prior-year quarter to $7.24.

BIIB’s EPS is expected to grow 3.8% in the fiscal fourth quarter ending December to $3.52. Its revenue is expected to be $2.42 billion.

The stock has gained 21.7% over the past month to close the last trading session at 257.89.

It is no surprise that BIIB has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Value and Quality and a B for Sentiment. It is ranked #2 in the same industry.

To see additional POWR Ratings for Growth, Momentum, and Stability for BIIB, click here.

Stock to Avoid:

Timber Pharmaceuticals, Inc. (TMBR)

TMBR is a clinical-stage biopharmaceutical company that focuses on developing and commercializing treatments for rare and orphan dermatologic diseases. The company’s lead product candidates include TMB-001 and TMB-002.

In August 2022, TMBR received a deficiency letter from NYSE American LLC (“NYSE American” or the “Exchange”), which stated that the company was not in compliance with the continued listing standards.

TMBR’s total operating expenses increased 180.2% year-over-year to $9.40 million for the fiscal second quarter that ended June 30. Its loss from operations rose 216.9% from the prior-year quarter to $9.40 million. The company’s net loss grew 220.1% year-over-year to $9.50 million, while its net loss per share was up 87.5% year-over-year to $0.15. Analysts expect EPS to remain negative $0.04 for the fiscal third quarter ended September 2022.

The stock has declined 88.4% over the past year to close the last trading session at $0.088. It has plunged 76.8% year-to-date.

TMBR’s POWR Ratings reflect its bleak prospects. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. Also, it has an F grade for Quality and a D for Momentum, Stability, and Sentiment. It is ranked #480 in the same industry.

Click here to see additional ratings of TMBR for Growth and Value.

VRTX shares were trading at $292.52 per share on Monday morning, down $2.71 (-0.92%). Year-to-date, VRTX has gained 33.21%, versus a -23.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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