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The biotech industry could be described as the stock market's roulette wheel. While nearly 90% of all biotech stocks are losing money and the vast majority of clinical trials will end in failure, a clinical win could result in investors getting a return many times over on their original investments.
For instance, Pharmacyclics, which is now part of AbbVie, was valued at just $0.57 per share during the depths of the Great Recession. However, Pharmacyclics, in combination with Johnson & Johnson'spharmaceutical subsidiary Janssen, developed the blood cancer blockbuster Imbruvica. Between this 2009 low and the $21 billion buyout of Pharmacyclics by AbbVie, investors relished a 45,700% return. It's the allure of these returns that draws investors to the biotech industry.
The fastest growing profitable biotech stocks
However, deciding which biotech stocks to buy is the tough part because the odds are generally stacked against investors. This is where focusing on the fastest growing biotech stocks could come in handy. By selecting profitable biotech stocks with exceptional estimated EPS growth, you may be able to avoid having your investment wiped out by poor clinical trial results.
Here are a handful of the fastest growing profitable biotech stocks you may want to consider for your own portfolio.
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Supernus Pharmaceuticals Inc.
In terms of profit growth, investors would be hard-pressed to find a company with more impressive prospects than small-cap Supernus Pharmaceuticals (NASDAQ: SUPN). Supernus, which focuses on developing drugs for nervous system disorders, has two Food and Drug Administration (FDA)-approved therapies currently on pharmacy shelves: Trokendi XR and Oxtellar XR.
As announced in the company's second-quarter earnings release, product prescriptions written jumped nearly 39%, to 123,758, with net product sales increasing 46.9%, to $50.3 million. You'd be wise to take note that product sales handily outpaced prescription growth by 8%, which would imply that Supernus is having little issue passing along higher prices to consumers. It's been roughly three years since these products were launched, and based on current sales growth, the president and CEO of Supernus, Jack Khattar, believes combined sales of both drugs could exceed $500 million annually.
Another exciting development was the announcement in August that Trokendi XR had been granted a tentative approval for its supplemental new drug application bid to expand its label to include the prophylaxis of migraine headaches in adults. Trokendi XR has met all of its safety, efficacy, and quality standards, but it's subject to pediatric exclusivity, which expires on March 28, 2017. Once this date passes, Supernus should be able to ramp up sales of Trokendi XR.
Supernus' pipeline is intriguing, as well, with the company enrolling in late-stage trials for SPN-810, a therapy aimed at treating impulsive aggression in children ages 6 to 12 with ADHD. If everything goes as planned in late-stage studies, SPN-810 could be launched in 2019.
Following $0.28 in reported full-year EPS in 2015, Wall Street is forecasting $2.56 in full-year EPS for Supernus by 2019.
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Pacira Pharmaceuticals Inc.
Another biotech small-cap making waves is Pacira Pharmaceuticals (NASDAQ: PCRX), which provides pharmaceutical products for acute care hospitals and ambulatory surgery centers.
Nearly all of Pacira's revenue derives from Exparel, an injectable medication given to postsurgical patients that's geared at controlling pain. During the latest quarter, Exparel net product sales rose 15% from the prior-year period, to $65.8 million. Sales growth has slowed recently, which has weighed on Pacira's once high-flying share price.Nonetheless, as a non-opioid postsurgical analgesic, Exparel presents a viable treatment option for elderly, obese, and sleep apneic patients who may otherwise have concerns taking an opioid-based analgesic.
According to a company presentation offered in August, the market opportunity for Exparel is enormous, with 28 million potential soft-tissue patients, 14 million orthopedic patients, and some 35 million oral surgery patients, who may benefit from Exparel. It's worth noting that Exparel for oral surgery launched last month, so it's quite possible Pacira could see a reacceleration of sales growth in the coming quarters. Exparel's label expansion opportunities also include studies into total knee arthroplasty, select spinal surgeries, and nerve block.
Most importantly, last December, Pacira and the FDA came to a favorable agreement after the FDA had looked to limit Exparel's approved indications via a 2014 Warning Letter. The FDA wound up reaffirming the broad use of Exparel, which could aid in the reversal of its recent sales slowdown.
Should Exparel continue to win new label indications, Pacira should see its bottom-line expand rapidly. Following $0.95 in full-year EPS in 2015, Pacira is on track to deliver $4.31 in full-year EPS by 2019.
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Among a larger class of biotech companies, few are increasing their top- and bottom-lines as rapidly as Incyte (NASDAQ: INCY), which has benefited from the rapid growth of Jakafi, the only drug approved by the FDA to treat myelofibrosis, as well as from recent M&A.
The vast majority of Incyte's current sales comes from Jakafi and its licensing deal with Novartisfor Jakavi, as Jakafi is known in overseas markets, which produces royalty revenue for the company. During Q2, Jakafi's net product revenue soared 46%, to $208 million, with Incyte pushing its full-year sales forecast higher to a fresh range of $825 million to $835 million. Royalty revenue also rose 49%, to $26 million in the quarter.
The one factor investors should monitor closely here is that Jakafi merely lessens the symptoms caused by myelofibrosis -- it doesn't slow progression of the disease. An experimental drug known as imetelstat is currently being developed by Geron,with the aid of Johnson & Johnson, to treat myelofibrosis, and it has demonstrated clinical responses in early trials. If it were to make it to market in a few years, Jakafi could become obsolete, and a good chunk of Incyte's sales could quickly disappear.
M&A activity is a separate source of excitement for Incyte investors. In May, Incyte announced that it was acquiring Ariad Pharmaceuticals' (NASDAQ: ARIA) European operations and in-licensing blood cancer drug Iclusig in Europe and other select countries. The deal cost Incyte $140 million in upfront cash, and it'll be required to pay Ariad tiered royalties ranging from 32% to 50% depending on the country. However, it's expected to be accretive to Incyte's bottom line by 2018.
Incyte also has a very impressive pipeline, complete with cancer immunotherapies, JAK inhibitors designed to treat inflammation, and more than a dozen proof-of-concept experimental cancer therapies.Having produced a minuscule $0.03 full-year profit in 2015, Incyte is on track, according to Wall Street's projections, to generate $2.44 in full-year EPS by fiscal 2019.
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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.
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