- Amgen proven performer with an expansive pipeline
- Inovio Pharmaceuticals Investment in the future of medicine
- Investing in biotech companies also carries substantial risk
The appeal of investing in biotechnology (i.e. biotech) companies is understandable. When one of these companies brings a drug or therapeutic treatment to market, it has an immediate positive impact on revenue and earnings. And that combination begins a cycle that includes analysts upgrades and stock price growth.
There are other benefits to investing in biotech companies. For example, once these products hit the market, the company generally has patent protection. This means that it can keep out generic competition for several years. In the best-case scenario, the revenue and earnings from these successful products is the fuel that allows the company to bring other products to market.
This was the case with AbbVie (NYSE: ABBV) which brought the rheumatoid arthritis treatment Humira to market. Even as the patent protection on Humira is expiring, the company is beginning to see revenue growth from new products such as Skyrizi and Rinvoq.
Plus, the process of bringing their drugs to market is an extensive one that creates a wide moat. That was the case for a company like Moderna (NASDAQ: MRNA). The company saw its stock jump when it’s Covid-19 vaccine candidate received an Emergency Use Authorization (EUA) from the U.S. Food & Drug Administration in 2020.
However, investing in biotech companies also carries substantial risk. One of the largest risks is that a company may never bring a product to market. Moving a drug/therapeutic candidate through the clinical trial stage is a lengthy, expensive process. And there’s no guarantee that companies will be successful.
This article highlights two biotech companies that offer different opportunities depending on your investment style.
A Proven Performer with an Expansive Pipeline
If you’re an investor looking for solid defensive stocks with the chance for a bit of growth, Amgen (NASDAQ: AMGN) is one for your watch list. The company has several products already in market. The two that may carry the most name recognition are Enbril and Otezla which are used to treat inflammatory diseases. The company has a deep pipeline of products that are in various stages of clinical trials.
AMGN stock trades at a price-to-earnings (P/E) ratio of over 20x earnings. That's slightly above the sector average of 17x earnings. However, the company is expected to post single-digit revenue and earnings growth over the next five years so the P/E ratio doesn’t seem out of line.
Plus, investors have the benefit of a dividend that currently pays out $7.76 per share on an annual basis. That factors to a current dividend ratio of 3.15%. And the dividend is supported by strong free cash flow which provides support for the idea that Amgen is likely to continue to increase its dividend which it has done in each of the last 11 years.
A Speculative Investment in the Future of Medicine
In contrast to Amgen, Inovio Pharmaceuticals (NASDAQ: INO) does not yet have a product on the market. And although it has several products in clinical trials, the company is several years away from generating revenue, let alone become a profitable company.
And that is reflected in the INO stock price. The company got a boost during the pandemic (more on that in a second), but has largely been trading in the penny stock range (i.e. below $5 per share). And the stock is down over 50% in 2022, lagging the broader market.
That being said, Inovio is about the future. The company is working to develop a portfolio of DNA-based therapeutic treatments. It’s important that this is described accurately so I’d encourage you to hear about this straight from the company should you be interested in investing. However, a couple of easy-to-understand benefits are the speed at which medicines could be designed and manufactured and the ability to ship and store them at room temperatures.
As mentioned above, the company was part of the race to develop a Covid-19 vaccine. The company is still trying to bring its candidate, INO-4800 to market. And the company recently undertook several cost-cutting measures to remain funded into 2024. However, that also implies that it could be years away from generating meaningful revenue and even further away from generating a profit. But if you have some speculative money with time on your side, INO stock may merit a closer look.
Before you consider AbbVie, you'll want to hear this.
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