Ready to Get In on Biotech? Check Out These 3 Stocks

By Markets Fool.com

Thereare plenty of reasons for investors to avoid the biotechnology sector altogether. The majority of companies from the industry are unprofitable, forcing them to constantly raise additional capital. Bringing a new drug through the regulatory approval process is incredibly difficult, so shareholders face long odds of success. Even if a drug does manage to win approval, it can still be a huge challenge to get providers and payers on board.

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And yet, despite all of those negatives, it can be a mistake to write off the sector entirely. After all, if you buy the right biotech stocks, the returns can be life-changing.

Image source: Getty Images.

With that in mind, we asked a team of Fools to highlight a biotech stock that they think is a good choice for investors who are new to the industry. Read on to see why they chose ACADIA Pharmaceuticals (NASDAQ: ACAD), Celldex Therapeutics (NASDAQ: CLDX), and Neurocrine Biosciences (NASDAQ: NBIX).

Off to a fast start

Brian Feroldi(ACADIA Pharmaceuticals): I'm a conservative investor, so I like to buy biotech stocks only after they've brought a new drug to market. If that strategy appeals to you, then I'd recommend that you give ACADIA Pharmaceuticals a closer look.

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ACADIA recently crossed the finish line with its first drug -- Nuplazid -- which is approved to treat Parkinson's disease psychosis, or PDP. This condition affects roughly 40% of the 1 million patients in the U.S. who suffer from Parkinson's disease. PDP causes patients to hallucinate and become delusional, which greatly increases the cost and complexity of their care.

Image source: ACADIA Pharmaceuticals.

Up untilNuplazid was launched a few months ago, physicians didn't really have any effective treatment options. That fact gave Nuplazid automatic demand, so sales were strong right out of the gate. During its first full quarter on the market, sales hit $5.2 million, which was far above the $2.9 million that Wall Street had expected. That's a terrific start, suggesting that ACADIA has a real winner on its hands.

While growth in PDP will likely remain strong for years to come, ACADIA believes that Nuplazid's label could eventually be expanded to include other disease states, too. The drug is already in trials as a potential treatment for Alzheimer's disease psychosis and schizophrenia. If those trials pan out, then Nuplazid's addressable market could greatly expand from here.

ACADIA is far from risk-free, but Nuplazid holds real promise to grow into a blockbuster drug over time. That makes this stock a great choice for new investors who want to take their first step into the biotech industry.

A lot for a little

Cory Renauer(Celldex Therapeutics):If you're looking to get in on biotech, then you'd be hard-pressed to find a stock with more potential bang for your buck than Celldex Therapeutics. Its market cap turned south earlier this year after its brain cancer candidate, Rintega, performed in line with previous studies but failed to outperform the current standard of care in a head-to-head comparison.

The shocking failure led to a market beatdown, and at recent prices, the company's market cap is just $480.6 million. With a nearly debt-free balance sheet that boasted cash, cash equivalents, and marketable securities totaling $203.2 million at the end of September, this is one of the cheapest biotech stocks you can buy right now.

Image source: Getty Images.

Despite its modest price tag, the company has a development pipeline stuffed with targeted cancer therapies. Industry peers 10 times its size would be thrilled to have five separate candidates in nine self-sponsored clinical trials, plus two more sponsored by the National Cancer Institute. Once a planned acquisition of privately held Kolltan Pharmaceuticals is completed, the company will add several more clinical-stage candidates to its roster.

Celldex is currently enrolling a cross section of difficult-to-treat breast cancer patients with tumors that express glycoprotein NMB on their surface. Once the treatment candidate glembatumumab vedotin, or glemba, binds to this target, it releases a lethal dose of chemo inside the tumor cell.

In a previous study, glemba significantly outperformed standard chemo in a similar group of patients, and repeating the success would probably lead to an approval. I think glemba alone justifies Celldex's market cap, and its other candidates are icing on the cake. With so much to look forward to, and at such a low price, this is a great stock for newbies and experienced biotech investors alike.

Poised for a big 2017

Cheryl Swanson(Neurocrine Biosciences): Snagging yourself a biotech winner starts with finding a stock whose lead drugs have blockbuster potential, and it doesn't hurt if they've mostly proved themselves in clinical trials. Neurocrine Biosciences fits the bill on both counts. The $4.75 billion market cap biotech's drug valbenazine has been tagged with the FDA's breakthrough designation and is up for approval on April 11, 2017. Valbenazine should achieve first-to-market advantage for tardive dyskinesia, a debilitating condition affecting the nervous system, over rival med SD-809 from Teva Pharmaceutical(NYSE: TEVA). With no approved products and decades of pent-up demand, that indication alone gives it blockbuster potential. But valbenazine is also being tested in Tourette's syndrome, a condition that involves involuntary movements or sounds. With data due to be released by the end of 2016, Tourette's could give the drug another $2 billion market in the developed world.

So why is Neurocrine flat for the year? Blame the sectorwide funk and the fact that Wall Street also seems to doubt whether Neurocrine can hold off Teva's much larger sales force. However, valbenazine should easily beat SD-809 to market.

Neurocrine has another budding blockbuster in partnership with big pharma AbbVie (NYSE: ABBV). AbbVie plans to file a new drug application for elagolix in 2017. The first approval target is endometriosis, but elagolix has a further indication in uterine fibroids. Endometriosis is a primary cause of infertility, with analysts projecting a $2.6 billion market for the indication by 2022. Better yet, investors can expect AbbVie to do the heavy lifting for elagolix's launch, while Neurocrine is well-prepared to handle the neurological drug's commercialization, with $353 million in cash or cash equivalents, which, at the current burn rate, should last at least 18 months. Be forewarned this is a high-risk stock, but if Neurocrine can get these drugs across the finish line, then in my view, it's a steal.

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Brian Feroldi has no position in any stocks mentioned. Cheryl Swanson has no position in any stocks mentioned. Cory Renauer has no position in any stocks mentioned. The Motley Fool recommends Celldex Therapeutics and Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.