Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Dr Daniel Koller, head of BB Biotech, Bellevue Asset Management.
The biotechnology sector has reached a certain level of maturity. In the early years, the only companies that investors had to choose from were highly speculative punts in small unproven start-ups. These days there is a wide range of profitable and well-run biotech companies to invest in.
Most of them are headquartered in the US and listed on the tech-focused Nasdaq stock exchange.
These companies have made great progress in clinical research and development over the past ten years. This is often overlooked by European investors, who are not as bullish on the biotech sector as their peers in the US.
And it’s not just large companies in the sector that are forging ahead – new drugs are being successfully developed by mid-cap companies too, another sign of how the sector has grown up.
Innovation remains the driver of biotech success, and the industry is in a class of its own when it comes to growth momentum – demand for its products and services remains strong.
These days, in order to receive marketing approval from regulators, drug candidates must prove that, as well as addressing a clinical need, they can also provide tangible benefits for the healthcare system.
But this selective stance isn’t jeopardising the industry’s success. On the contrary, it’s making this sector even stronger, as can be seen in the record number of medical drugs and technologies currently moving through the research-and-development pipelines of biotech companies.
Share prices are rising along with sector revenues, but with profits growing so fast, the valuation multiples for biotech stocks have remained attractive despite the sector’s stellar stock-market performance.
We see interesting investment opportunities in some of the most mature and innovative biotech firms, such as the three stocks I’ve highlighted here.
Celgene (Nasdaq: CELG) specialises in the development of new drugs for cancer and inflammatory diseases. It is the market leader in treatments for multiple myeloma (a form of cancer), and is known as one of the biotech sector’s most innovative and focused companies, with several potential new drugs in the pipeline.
It already has three cancer drugs on the market – Revlimid, Pomalyst and Abraxane. This year, Celgene also expects the US regulator, the Food and Drug Administration (FDA), to approve Apremilast, a treatment for a type of inflammatory arthritis.
Gilead (Nasdaq: GILD) develops drugs for infectious diseases such as HIV, and both hepatitis B and hepatitis C, as well as a number of other diseases.
The company recently launched Sovaldi, a newly approved drug for hepatitis C which is expected to revolutionise the treatment of this disease, with cure rates above 90%. This is expected to be one of the pharmaceutical industry’s largest drug launches to date.
Isis Pharmaceuticals (Nasdaq: ISIS) is a leader in antisense technology, which inhibits protein production at the genetic level – put simply, it turns problematic genes ‘off’. Isis has more than 25 drugs in clinical development, most of which are being developed in partnerships with large pharmaceutical companies.
In 2013, the company launched its first product, Kynamro, for the treatment of the heritable high cholesterol disease, homozygous familial hypercholesterolemia.