5 Biotech Stocks Worth Adding to Your Portfolio in 2024
As we near the end of the ongoing reporting cycle in the biotech sector, the picture is pretty ho-hum. The bigwigs in the sector have already reported and the results have been mostly mixed. Nonetheless, the outlook provided by most of these companies is encouraging, indicating bright prospects driven by new drug approvals and positive pipeline updates. The macroeconomic environment, however, remains uncertain and growth might be sluggish.
Nonetheless, companies in this volatile biotech industry continue to be in the spotlight as pharma/biotech goliaths are looking to bolster their product portfolios and pipelines through collaborations and buyouts amid generic competition for legacy drugs. Given the continuous need for innovative medical treatments, irrespective of the state of the economy, an investment in the biotech industry can be worth it, notwithstanding the inherent volatility and uncertain macroeconomic environment.
Biotech companies like BioMarin Pharmaceutical (BMRN – Free Report) , Blueprint Medicines (BPMC – Free Report) , Immunovant (IMVT – Free Report) , Kymera Therapeutics (KYMR – Free Report) and Ligand Pharmaceuticals (LGND – Free Report) are poised to outperform the volatile sector.
Industry Description
The Zacks Biomedical and Genetics industry includes biopharmaceutical and biotechnology companies that develop high-profile drugs using path-breaking technology. These biologically processed drugs, which address virology, neuroscience, metabolism and rare diseases, are manufactured using live organisms.
As technology becomes paramount to improving global health, the main goal of biotech companies is to use innovative technology to create breakthrough treatments. Quite a few companies in this space are developing vaccines using modern technology. Given the dynamic and evolving nature of technology, the sector is perceived to be riskier than the large-cap pharma or drug industry.
4 Trends Shaping the Future of the Biotech Industry
Innovation, Execution Hold the Key: As only a few companies in this industry have approved drugs in their portfolio, the focus is primarily on the performance of high-profile drugs and pipeline development. Most companies spend millions and billions to create a drug with path-breaking technology, which results in significant research and development expenditure. Sometimes, modern treatments might come with side effects, which surface with time and the uptake might fail to meet the expectations. Hence, it takes several years before a biotech company turns profitable.
Additionally, successful commercialization is the key to higher drug uptake, as smaller biotechs generally lack the funds and expertise to reach the targeted population. This, in turn, prompts collaboration deals with either pharma or biotech bigwigs, wherein sales are shared or royalties are received.
Moreover, it may take quite a few years for any newly-approved drug to contribute significantly to its company’s top line.
M&A in Spotlight: Consolidation has always taken the center stage in the biotech industry. This is because leading pharma/biotech companies look to diversify their revenue base in the face of dwindling sales of their high-profile drugs. Acquisitions also make sense as developing a drug/technology from scratch is not just a costly but also a risky affair. After a lull of almost two years, pharma and pharma/biotech bigwigs are now looking to bolster their portfolios.
The influx of cash from big pharma/biotech companies further propels the biotech sector. Gilead Sciences recently acquired CymaBay Therapeutics to strengthen its liver disease portfolio. Bristol Myers acquired oncology-focused company Mirati Therapeutics, Karuna Therapeutics and RayzeBio. Vertex Pharmaceuticals is all set to acquire Alpine Immune Sciences.
While oncology and immuno-oncology are the key focus areas, treatments for obesity, rare diseases and gene-editing companies also hold potential, making them lucrative investment areas. An attractive pipeline candidate is the key lure for these companies.
Cost synergies in research and development are added benefits, as quite a few smaller biotech companies are using innovative technologies to develop drugs and treatments.
New Drug Approvals Boost Prospects: New drug approvals saw a surge in 2023 and the momentum continues. With increasing R&D spending in 2024 and most companies looking to diversify, new drug approvals are likely to see an acceleration going forward.
Pipeline Setbacks & Competition Hurt: Pipeline setbacks are key deterrents for biotech companies, given the exorbitant cost of developing drugs using expensive technology. Most drugs/therapies take years to gain a regulatory nod. An unfavorable outcome from a crucial trial on a promising candidate is a huge setback, particularly for smaller biotechs, which are mostly one-trick ponies.
The leading biotechs face other headwinds, including declining sales of high-profile drugs due to intensifying competition.
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