3 Precision Medicine Stocks to Buy in January

By Keith Speights Markets Fool.com

Precision medicine. The term might sound futuristic, but the future has arrived.

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The National Institutes of Health defines precision medicine as "an emerging approach for disease treatment and prevention that takes into account individual variability in genes, environment, and lifestyle for each person."For several companies, this approach is already a reality -- and it has created opportunities for investors. Here's why Illumina (NASDAQ: ILMN), Biomarin Pharmaceutical (NASDAQ: BMRN), and Vertex Pharmaceuticals (NASDAQ: VRTX) are great precision medicine stocks to buy in January.

Image source: Getty Images.

Selling shovels

Back in the gold rush days, it was said that the people selling shovels prospered more than the gold miners themselves. Which company is the leader in selling "shovels" for precision medicine? I'd put Illumina at the top of the list.

To tailor healthcare to an individual's genetic makeup, companies need the appropriate tools and technology to make it possible.Illumina develops and markets next-generation sequencing systems that enable researchers to perform genomic analysis quickly and cost effectively.

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Illumina's stock is down more than 30% in 2016 after missing Wall Street's expectations and the company's own forecasts several times during the year. However, I think this steep drop in Illumina's share price presents a buying opportunity for investors with a long-term perspective.

There is at least one major concern that could hold Illumina back, though. It's possible that the incoming Trump administration could cut funding for the National Institutes for Health (NIH), which ranks as the world's top public funding source for biomedical research.

However, one of President-elect Donald Trump's primary advisers, former Speaker of the House Newt Gingrich, has advocated in the past for the NIH's budget to be doubled. If Gingrich retains a great deal of influence over the soon-to-be president, Illumina could prosper like the gold rush shovel sellers of yesteryear.

Possible takeover target

Biomarin has four products on the market in the U.S. that fit in the category of precision medicine. The biotech's top-selling drug Vimizim treats rare genetic disorderMorquio A syndrome. Kuvan is the first and only drug approved in the U.S. for treating another rare genetic disease, phenylketonuria (PKU). Naglazyme and Aldurazyme treat different types of mucopolysaccharidosis (MPS), an often-fatal genetic disorder.

More precision medicines could be on the way. Biomarin expects a Food and Drug Administration decision by April 27, 2017, for Brineura in treatingCLN2 disease, an extremely rare genetic neurological disorder that occurs in children. The biotech also has a late-stage study underway evaluating pegvaliase in treating PKU.

Biomarin's stock is down nearly 20% this year. However, that decline masks a major rebound for Biomarin after its announcement in January that the FDA had turned down approval of Kyndrisa in treatingDuchenne muscular dystrophy.

In a survey conducted by Evercore ISI, biotech industry observers ranked Biomarin as the third most likely buyout target over the next year. With quite a few larger biopharmaceutical companies sitting on a plenty of cash, I wouldn't be surprised if Biomarin indeed does find itself an acquisition candidate in 2017.

Ready to rebound

Vertex could be a poster child for precision medicine. The company currently has two products on the market. Orkambi is approved for treating cystic fibrosis (CF) in patients age six years and older who are homozygous for the F508del mutation in the CFTR gene. Kalydeco is also approved for treating CF, but inpatients age two years and older who have one of nine specific mutations in the CFTR gene.

There's good news and bad for Vertex. The bad news is that its stock price has been clobbered in 2016, with shares down more than 40%. Patient compliance rates for Orkambi were lower than expected, impacting revenue. Kalydeco failed to win FDA approval earlier in the year for treating CF patients with anothermutation in the CFTR gene. Vertex canceled a late-stage clinical study in August of experimental drug VX-661 in combination with Kalydeco.

What's the good news? Vertex's stock should be primed for a rebound. Despite some challenges in 2016, the biotech could be in store for better days ahead. Vertex is still finalizing reimbursement agreements for Orkambi with several European countries and recently completed an agreement with Germany.

The company also recently announced positive results from a late-stage study of Orkambi in treating CF patients ages six through 11 who have two copies of theF508delmutation.Vertex will submit for regulatory approval in Europe in the first half of 2017 based on these results.

Precision medicine's future

I wouldn't worry too much about the fate of President Barack Obama's Precision Medicine Initiative announced in his 2015 State of the Union address. Bipartisan support for precision medicine dates back to the George W. Bush presidency.

Even if the federal government tightens purse strings on funding precision medicine, the push to develop new drugs using the approach won't go away. There's too much potential to ignore. Regardless of what happens in Washington, D.C., the future of precision medicine looks bright.

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The author(s) may have a position in any stocks mentioned.

Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Illumina. The Motley Fool recommends BioMarin Pharmaceutical and Vertex Pharmaceuticals. 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.