Investing in the biotech industry can be a risky business. In most instances, the deck is stacked against a company succeeding. The vast majority of preclinical studies will fail to reach human trials, and there's no guarantee that a compound in clinical trials will reach pharmacy shelves. Not surprisingly, about 9 in 10 biotech stocks are currently losing money, and some simply may not survive.
However, if you do manage to pick a drug developer that brings exciting, game-changing therapies to market, your investment could increase many times over. A good example is Pharmacyclics, which is now under the ownership of AbbVie. Pharmacyclics wound up developing blood cancer drug Imbruvica, ultimately leading to a 45,700% price appreciation from its Great Recession lows to its buyout price just a few years later. Every investors' goal is to snag a rocket like Pharmacyclics, and the best way to do that is to look for high-growth companies in the biotech industry.
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Based on Wall Street's consensus estimates, the following four biotech stocks offer some of the highest growth today.
One of the highest-growth biotech stocks is Vertex Pharmaceuticals (NASDAQ: VRTX), which is primarily focused on bringing life-changing cystic fibrosis medications to market. Wall Street's consensus predicts growth from $1.7 billion in full-year sales to $4.1 billion between 2016 and 2020, with EPS growing by a compound annual rate of 68% in the same four-year period.
Vertex's two Food and Drug Administration-approved products are Orkambi and Kalydeco, which grew by a respective 32% and 5% during the second quarter. Vertex also has an additional six combination studies in midstage or late-stage clinical studies for cystic fibrosis (CF). Considering that there are so many CF mutations, Vertex has benefited from a lack of competition and exceptional pricing power. Though the company runs the risk of losing some of its pricing power should President Trump be successful in passing drug-pricing reforms, all other aspects of its business point to continued growth.
While Vertex Pharmaceuticals predominantly relies on a single indication, Corcept Therapeutics (NASDAQ: CORT) is currently a one-trick pony with Cushing's syndrome drug Korlym. Wall Street is forecasting that Corcept's annual revenue will explode from $81 million in 2016 to $241 million by 2020, with annual EPS growth averaging 73% over that time frame.
Corcept is exceptionally cheap based on its PEG ratio, but this has a lot to do with its single-drug reliance. The good news for Corcept is Korlym has perhaps $300 million in peak annual sales potential, and it's being tested in a number of other indications, including breast cancer in combination with a chemotherapeutic agent, muscular dystrophy, and Alzheimer's disease. Nevertheless, it wouldn't be a shock to see Corcept go shopping in order to diversify its product portfolio, given its nearly $62 million in net cash and the potential for $25 million in annual free cash flow.
Burgeoning large-cap biotech stock Incyte (NASDAQ: INCY) is another one of the fastest-growing companies within the industry. Jakafi, a drug designed to treat the symptoms associated with myelofibrosis, has been the root cause of its growth. Incyte upped its full-year sales forecast for Jakafi to a range of $1.09 billion to $1.12 billion following its second-quarter report. Between 2016 and 2020, Wall Street expects sales to grow from about $1.1 billion to $2.6 billion, with compound annual profit growth of 53%.
Looking ahead, much of Incyte's growth could come from its oncology pipeline -- more specifically, IDO-1 inhibitor epacadostat, which is being tested in a variety of midstage and late-stage combination studies in non-small cell lung cancer (NSCLC), head and neck cancer, bladder cancer, and a host of other tumor types. Epacadostat has been particularly impressive in combination with Merck's (NYSE: MRK) Keytruda, where an objective response rate of 35% was observed in previous NSCLC and bladder cancer studies. With Merck's Keytruda producing an objective response rate of 20% or less as a monotherapy, this combination approach is turning heads.
Cancer drug developer Exelixis (NASDAQ: EXEL), which has seen its share price more than quintuple over the trailing-two-year period, is another one of the highest-growth stocks in biotech. Thanks to lead drug Cabometyx, Wall Street is expecting Exelixis' annual sales to leap from $191 million to $1.1 billion over the next four years, with full-year EPS catapulting from a loss of $0.28 to a profit of $1.57 between 2016 and 2020.
Cabometyx's "trifecta" in second-line renal cell carcinoma (RCC) has been big for the company, with the drug leading to a statistically significant improvement in progression-free survival, median overall survival, and response rate. It's also recently impressed investors with its Cabosun clinical results in first-line RCC, which could easily lead to an expanded label. All eyes are now turned to the Celestial trial featuring Cabometyx as a treatment for advanced hepatocellular carcinoma. With an independent data monitoring committee giving Exelixis the green light to continue its pivotal stage study during a recent interim analysis, the sky is seemingly the limit for Exelixis' lead drug.
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