If Regeneron Pharmaceuticals (NASDAQ: REGN), Incyte Corporation (NASDAQ: INCY), and AbbVie Inc. (NYSE: ABBV) aren't on your list of stocks to consider buying this month, you might want to add them. These three Motley Fool contributors think new approvals could help drive Regeneron Pharmaceuticals and Incyte higher and that AbbVie has become a top stock on sale. Are these stocks worth including in your portfolio? Read on to find out.
This biopharma stock has big news coming
The company is best known for its multibillion-dollar blockbuster vision drug, Eylea, but over the past few years, it's won a slate of FDA approvals that are diversifying it into cardiovascular and autoimmune disease.
Its cholesterol-lowering drug, Praluent, got off to a disappointing start, but it's been picking up the pace since an outcomes study earlier this year showed it can reduce the risk of heart attack and stroke. In the second quarter, Praluent's sales grew 59% year over year to $73.5 million.
Demand for its eczema drug, Dupixent, has been strong from the get-go, and it's on track to become a blockbuster. Its sales were $209.2 million in Q2, up from $29 million in the same quarter last year.
Growing sales from those drugs are welcome, but I think it makes sense to buy Regeneron now because of near-term catalysts that could spark a rally. On Sept. 28, it won the FDA OK for Libtayo, the first approved treatment for advanced cutaneous squamous cell carcinoma, the second-most-common skin cancer. Roughly 7,000 Americans die annually because of this cancer, so this drug could begin adding meaningfully to sales soon.
On Oct. 20, the FDA is expected to weigh in on whether to expand Dupixent's use to include asthma patients. If approved, that could provide an additional bump-up for its sales. Furthermore, the FDA plans to decide next year if Praluent's outcomes study data can be included on its label and whether Eylea can be used in diabetic retinopathy (DR), an indication that could increase its addressable market by a few million patients in the United States. Because these catalysts could add meaningfully to Regeneron's financial performance, I think this is a good time to buy shares.
Current products + pipeline = reasonable risk/reward trade-off
Chuck Saletta (Incyte Corporation): In the high-risk world of biotech investing, it's incredibly hard to pick winners among the dozens of companies whose compounds are still in the research phase. With three approved products already in the market, Incyte has real revenues coming in that can support its operations and enable it to continue to invest in its pipeline.
On average, analysts expect Incyte to deliver $1.15 per share in profits in 2018 and $2.29 per share in 2019, levels that indicate continued demand for its treatments. That gives the company ample runway to continue clinical trials to hopefully bring more of its pipeline to market and discover even more new compounds.
Incyte's primary focus is cancer therapies. Its pipeline includes expanding its Ruxolitinib compound to treat graft vs. host disease, a potentially fatal side effect that affects people who receive stem cell transplants as part of other therapies. Results from published trials look strong, and it's often more straightforward to expand the scope of approved compounds than it is to get brand-new ones approved. That plus the rest of its pipeline provides reasons to believe Incyte's growth can continue.
At a forward price-to-earnings ratio of around 30, the market is expecting Incyte to deliver in 2018, 2019, and beyond. With solid existing revenues and a pipeline that looks promising, it looks like a reasonable risk/reward trade-off in an industry known for wild volatility and high risk.
Too cheap to ignore
Brian Feroldi (AbbVie): Biotech giant AbbVie hasn't gotten any love from the market recently. Shares have pulled back more than 20% from their recent high. The plunge has pulled the company's valuation to the point that shares currently trade for less than 11 times forward earnings. That's dirt cheap for a cash-gushing giant.
What's with all the doom and gloom? One answer is that AbbVie was recently on the receiving end of a short-attack. Another problem is that FDA Commissioner Scott Gottlieb recently stated that he wants to make it easier for biosimilars to come to market. If he's successful, then sales growth of AbbVie cash cow Humira might slow (or even head in reverse).
While this situation is certainly worth monitoring, I think it's likely that the current pessimism is overblown for a few reasons.
First, doctors tend to remain brand loyal to biologic drugs even after biosimilar competition comes to market. When combined with the drug's patent protection through 2023 in the U.S., Humira will likely remain a ridiculously profitable drug for years to come.
Second, the rest of AbbVie's stable is performing well. Drugs like Imbruvica and Mavyret are pumping out billions in annual sales. Newly launched Orilissa and Venclexta are also expected to turn into top sellers eventually.
Third, AbbVie's pipeline has a number of promising compounds in it that could help offset the eventual decline in Humira sales.
When these factors are combined, market watchers project that AbbVie's profits will grow in excess of 15% annually over the next five years. Adding a dividend yield of 4% to the picture only sweetens the pie further.
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Brian Feroldi has no position in any of the stocks mentioned. Chuck Saletta has no position in any of the stocks mentioned. Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.