Three of the best biotech stocks to buy now

Biotechnology firms are benefiting from demand from ageing populations. But as Dr Daniel Koller explains, there’s more to the biotech boom than that.

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week:Dr Daniel Koller, lead manager of BB Biotech, Bellevue Asset Management.

Biotechnology firms are benefiting from rising demand for health-care products from ageing populations, and from increasingly health-conscious emerging markets. But there's more to the biotech boom than that.

The market's enthusiasm for new drugs has boosted biotechs' profits in recent years. This should continue through 2015, and will help firms to invest more in their new product pipelines, enabling them to move from being one-product wonders to becoming diversified, profitable, high-growth businesses.

In 2014, 41 new medicines were approved the second-highest figure since 1996. This should ensure strong momentum in 2015 and beyond. Investors can expect updates on pipeline products throughout the year.

As well as new products, big companies in the industry have many promising new projects and partnerships that they can use to boost sales. Investors should expect further merger and acquisition (M&A) activity in the sector.

In particular, growing pressure from 'biosimilars' essentially copies of existing biotechnology drugs means that pharmaceutical companies are displaying a healthy appetite for acquiring new products, which should keep M&A active this year.

Debates over drug pricing will continue. But targeted discounts and pricing studies should ensure that companies still make fair returns for the risks they take and the investment they have made.

Also, innovative drugs with higher cure rates and fewer side effects ultimately save money for health-care systems so such treatments should continue to enjoy strong pricing power. Antibiotics is one area that has already benefited from regulatory incentives.

It's not just big players such as Celgene and Gilead who could make billions of dollars when their respective cancer and hepatitis C drugs hit peak sales. A handful of mid-cap companies are also due to release key clinical data this year on products that could replace existing treatments.

So although biotech has been the best-performing sector since the financial crisis, we expect further growth in 2015 and beyond. That said, we believe the biggest innovators, with strong product pipelines, will be where the most interesting opportunities can be found.

Radius (Nasdaq: RDUS) is a mid-cap biotech that could introduce a new standard of care for a serious, costly disease severe post-menopausal osteoporosis. This leads to bone fractures that are often life changing and potentially fatal.

Radius's drug, abaloparatide, has been shown to be better than the current treatment. Radius owns 100% of the rights and plans to file for approval this year.

Isis Pharma (Nasdaq: ISIS) has a pipeline of more than 30 compounds based on "antisense" genetic technology. Many of these compounds address diseases with no treatments available. Isis makes good use of its pipeline partnering up with other companies to raise money to develop its drugs, for example.

Incyte's (Nasdaq: INCY) lead product, Jakafi, is on the market for patients with myelofibrosis (a rare bone-marrow cancer) and is well on its way to becoming a $1bn product in the US and Europe.

Following positive data from a Phase II trial on pancreatic cancer patients, we await trials on other solid tumours, which could further expand the market. Other compounds in development include an IDO inhibitor with potential to be part of the multi-billion market for novel immunotherapy agents for cancer.

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