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Biotech Stocks - Best Biotech Stocks to Buy

Posted on Thursday, November 21st, 2019 by MarketBeat Staff

Biotech Stocks - Best Biotech Stocks to Buy

Biotech stocks are currently a strong sector of the stock market. An aging population with increasing healthcare demands, combined with rapidly growing and improving technology, will likely continue to support the growth of biotech stocks. The biotech industry is highly competitive and incredibly diverse, but a few companies have managed to stand out and make a name for themselves.

Top Biotech Companies in the World

These top biotech companies are also some of the top stocks to watch in the biotech and life sciences space. For those who are interested in learning more about investing in biotech stocks, these companies are a great introduction to the industry.

Biotech Industry

The technical definition of biotechnology is to create products by manipulating living organisms. Biotech firms differ from pharmaceutical companies because the pharma industry deals more with chemicals while the biotech sector uses living organisms. That being said, there are plenty of pharmaceutical companies that crossover into biotech (sometimes referred to as biopharma). The more modern interpretation of this centuries-old art still deals with living organisms but has evolved to incorporate ever more complex organisms.

The birth of this modern version of the biotech industry began in 1973, when Stanley Cohen and Herbert Boyer demonstrated DNA cloning. Modern biotech sciences focus on achieving such goals as creating new drugs or growing crops that are resistant to pests. The modern biotech industry affects our daily lives in a variety of different ways, from the foods we eat to the medicines we receive.

Within the biotech industry, there are two main types of biotech stocks—medical and agricultural. Biotech exists in other areas, but the majority of the biotech industry resides within these two sectors. Though both segments are quite large, medical technology stocks are the stronger area of investment. The medical biotech industry has over $150 billion in revenue annually and research dollars and investments are more common in this area. This is largely because biotech has changed the face of the medical world, but biotechnology has always been a part of agriculture.

The change biotech has had on the agricultural world, though certainly influential, is not nearly as dramatic as it has been on the medical side. That is not to say that biotech has not made some major changes to the agricultural industry. Plant and animal GMOs created by biotechnology are likely the food sources of the future.

The biotechnology industry is a fascinating sector of the stock market. It comes with a large amount of risk, but also a high potential for profit. This industry is highly volatile and many of the technologies being used are highly controversial. On top of the level of volatility created by the nature of the companies and the industry itself, biotechnology stocks can also see volatility based on various regulations and different administrations. For example, if Elizabeth Warren were elected and implemented the promised pricing regulation policies, it could have a very negative impact on big pharma and the biotech industry.

For those interested in learning more about the biotech industry, the following five companies are a great place to get started.

Gilead is a Biotech leader in both HIV and liver diseases. The company has long been a leader in treating rare diseases. In 2014, Gilead released a revolutionary treatment for Hepatitis C. It was a game-changing drug that made billions per year. But competition from AbbVie has caused a price war that has drastically minimized the profits Gilead sees on this drug. Most of Gilead’s profit currently comes largely from HIV drugs, but also has some other drugs in the pipeline that show potential. Though these drugs do have potential, it seems unlikely that these drugs will be entering the market any time soon.

An example of Gilead’s potential—but also the wait that may be in store for many of its drugs—can be seen in the inflammation drug, filgotinib. Filgotinib has the potential to become a massive success. The drug has had three clinical studies, which were a success. However, even though the clinical trial phase went well, the company cannot file for approval in the United States until a safety study of the drug has been completed. The inflammation market is highly competitive, and it is yet to be seen if Gilead has the ability to compete with other companies in this newer area.

Due to Elizabeth Warren’s recent rise in the polls, Gilead’s stock price has dropped, which means it may be an ideal time to buy. The company may also be a good purchasing option for those with a dividend investing strategy since the company pays out dividends. The stock’s 4% dividend yield makes it competitive with other dividend stocks in the biotech industry.

Novo Nordisk is a Danish pharmaceutical company based in Bagsværd, Denmark. By market cap, Novo Nordisk is the 10th largest biotech company in the world. Novo Nordisk produces a variety of different products, but its focus is on diabetes, rare diseases, Alzheimer's disease, obesity, and growth-hormone related disorders. The company’s presence is strongest in the diabetes market, where the company has over a quarter of the total value of the world’s diabetes market. In the modern insulin market, Novo Nordisk has almost half of the total market share. Novo Nordisk currently has many successful products with a strong market share in each drug’s market, but the company also has a few promising drugs in its pipeline. The drugs in Novo Nordisk’s pipeline are largely drugs that would treat obesity-related diseases, including diabetes. Since diabetes care is a strong market, with estimates that almost 600 million people will be diabetic by 2035, Novo Nordisk seems well-positioned to continue growing.

In 2019, Novo Nordisk has seen some growth in its stock price, but it has not kept pace with the S&P 500. This lagging growth has been caused mainly by a dip in revenue in its insulin products, that was the result of insurance companies pushing back about the price of Novo Nordisk’s insulin product prices. Since Novo Nordisk has products unrelated to insulin, including many promising products in its pipeline, this need not necessarily deter long-term investors from buying Novo Nordisk stock.

Sanofi is a French pharmaceutical company that is headquartered in Paris, France. Sanofi has historically been a strong presence in cardiovascular diseases and diabetes. Though Sanofi’s revenue comes less from vaccines, it is known for creating high quality vaccines and has been doing so for decades. Sanofi is now attempting to enter the gene therapy market. Gene therapy is a highly competitive market, and in order for Sanofi to succeed in that area, it would have to compete against companies that already have experience in the gene therapy market. Sanofi hopes that its experience in vaccines will translate to gene therapy and allow it to compete with companies that have a more established presence in gene therapy.

Sanofi also made changes to its Research and Development (R&D) approach. In early 2019, Sanofi decided that it would only continue its R&D efforts on drugs that it believed had the potential for clinical approval as best in class therapies. Any therapy that did not meet this approval bar was cut. Only time will tell if this new approach pays off for the company or not. The recent changes and developments occurring at Sanofi mean that buying Sanofi stock at this time may involve more risk than usual. But if the plan for the company works as expected, then purchasing stock in the company now could lead to high returns down the road.

Allergan is an Irish pharmaceutical company, but the majority of its sales (about 80%) come from the United States. Allergan produces treatments in a few different sectors, including a drug to treat dry eyes called Restasis, but the company is best known for making Botox. In June of 2019, it was announced that AbbVie (ABBV) would be purchasing Allergan for $63 billion. The deal is expected to be completed in early 2020, but Allergan will continue to be publicly traded until then.

AbbVie’s purchase of Allergan is a way for AbbVie to diversify, which it will need to do since its biggest drug, Humira, will soon be losing its patent protection. When the deal was announced, Wall Street reacted by sending Allergan stock skyrocketing, while AbbVie stock took a hit. There is still time for those who are interested in investing in Allergan to do so. There is some risk to investing now, but there is also the potential to make a decent profit in a rather short amount of time, which may be appealing to some biotech investors.

Vertex is focused largely on producing treatments for cystic fibrosis. Vertex offers four cystic fibrosis treatments. The most recent of these four drugs, Trikafta, gained approval in October of 2019. The other three drugs Vertex offers have seen strong growth recently. In the third quarter of 2019, the sales of the three drugs increased by 21%.

According to Investor’s Business Daily, Vertex ranks number 2 out of nearly 600 biotech companies. Over the past five years, Vertex’s profit growth rate has been 111%. This means it has historically been an incredibly fast-growing stock. Vertex has also partnered with Crispr Therapeutics to explore the potential of gene editing as a form of treatment for muscular dystrophy. Vertex is also exploring gene editing through the acquisition of Exonics Therapeutics. The drugs currently in Vertex’s pipeline include therapy for sickle cell anemia that is based on gene editing.

Top Biotech ETF

In such a complex industry, it can be difficult to know which stocks to buy. Instead of picking individual biotech stocks to buy yourself, you may instead want to consider investing in a biotech ETF. An exchange-traded fund (ETF) can be a great way to start investing in the biotech industry. An ETF is a fund you’ll find trading on stock exchanges, like a stock, but is made up of multiple securities. This means that you can invest in some of the best biotech stocks with one investment. The following are some of the top ETFs that track companies in the biotech sector.

  • SPDR S&P Biotech ETF (XBI)
  • iShares Nasdaq Biotechnology ETF (IBB)
  • ALPS Medical Breakthroughs ETF (SBIO)

Why Should I Invest in Biotech Stocks?

The biotech industry is growing quickly and offers many different types of stocks. Whether you’re looking to invest in the most active stocks, the best growth stocks or the biggest stock gainers, the biotech industry has something to offer. Biotech stock can be highly volatile, but the top biotech stocks to watch could also offer a high return on investment.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Gilead Sciences (GILD)$65.77flat3.83%10.69Buy$79.36
Novo Nordisk A/S (NVO)$57.25flat1.12%22.72Hold$181.58
Sanofi (SNY)$49.79flat2.33%15.91Buy$52.00
Allergan (AGN)$188.34flat1.57%11.28Hold$175.90
Vertex Pharmaceuticals (VRTX)$218.98flatN/A77.38Buy$219.07

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