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It is the nature of biotech stocks to go through cycles of hype and deflation. Developing new drugs and treatments is an exceedingly complex process, which makes it difficult to discern its commercial end-point. However, patient stock traders understand that medical breakthroughs represent only one side of the equation.
Top Biotech Stocks Right Now
The coronavirus pandemic revitalized the biotech sector with companies competing with each other to be the first to deliver a vaccine or an effective symptom-alleviating treatment. Moreover, the US government tightened its relationship with the sector, encouraging the expedited approval process and promising mass deployment of the vaccine.
On the periphery of this frenzy, many biotech companies linger with their niche products and lean business models only waiting to be discovered as undervalued. On the other end, more system-oriented biotech companies are achieving great medical leaps.
Knowing how to invest your money requires taking advantage of certain opportunities. Here, we have two of the best biotech stocks representing each of the aforementioned approaches. While these aren’t biotech penny stocks, they still have plenty of upside potential.
Alexion Pharmaceuticals (NASDAQ:ALXN)
Covering a small market related to rare genetic disorders, Alexion might not be the first biotech stock choice for most investors. Nonetheless, this also means the company has inherently adapted itself to operating efficiently. The following indicators seem to point in that direction.
The choice to tackle rare diseases automatically curtails the company’s growth potential. Among such rare disorders, Alexion Pharmaceuticals provides a drug dealing with hypophosphatasia (HPP). This genetic disorder, affecting the development of bones and teeth, occurs one per 100,000 live births, while one per 200 people is a potential carrier.
When we take a closer look at Alexion’s operations, it is handling its market positioning quite well:
- Increased trailing-12-month (TTM) revenue number by almost 60%.
- Free cash flow growth by 172.5% in the last couple of years.
- Increased normalized TTM per share (EPS) increased by 260% in the same period.
- Lower TTM P/E (price-to-earnings) ratio of 9.9 compared to biotech’s 77.6 average, which is good for investors as they can spend less for each slice of the company’s earrings.
- Price-to-book (P/B) value at 2.2 for Q2 2020 compared to 6.2 industry average, also good for investors as each share is cheaper than the industry’s average.
As of today, Alexion continues to rise and will likely keep rising until the above ratios align with the industry average.
With a $7 billion market cap, Mesoblast is on a path to develop a whole new methodology of treating inflammatory diseases. Its intra-cellular therapies revolve around activating multiple cytokines (in charge of the body’s inflammatory immune response) via surface receptors. As a result, this significantly boosts the body’s anti-inflammatory response.
Mesoblast’s core drug is Ryoncil (remestemcel-L), extracted from bone marrow. Ryoncil was designed to suppress the body’s immune response to bone-marrow transplants, called graft-versus-host disease (GvHD). On September 30 this year, the FDA will determine the drug’s fate, but we already have an inkling on what that fate may be.
Another closely related drug, Temcell, has already been approved in Japan to deal with GvHD. Temcell is the culprit for Mesoblast’s skyrocketing revenue for the last fiscal year, accounting for $31.5 million, which is an impressive 113% YOY growth. However, Mesoblast’s prospects are even shinier.
The FDA had already conferred Ryoncil with a compassionate-use status for treating inflammatory complications with children who are infected with COVID-19. Mesoblast currently holds $150 million free cash. It is a rare instance when we see so many indicators for almost-certain drug approval, and that similar drug already generating results and profits in another developed nation.
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