Three biotech stocks to buy now

A professional investor tells us where he'd put his money. This week: Daniel Koller of BB Biotech selects three biotech plays.

Investors have a vast array of markets and sectors to choose from, but biotechnology is one of the most fascinating and promising. The market has expanded by 560% in a decade and is expected to grow by around 10% a year over the next ten years. And an investment in biotechnology isn't just an opportunity to profit personally: you are also helping to fund cutting-edge science and bring forward the discovery of cures or treatments that have so far eluded the medical establishment.

Biotech companies are becoming more innovative in the battle against major physical and psychological disorders. New cell-therapy programmes (whereby healthy cells , such as T-cells capable of fighting cancer, are injected into patients) look particularly encouraging.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Pessimists, however, point to the highly charged political debate over drug prices and drug reimbursement programmes.At issue is the amount the insurer pays for the drug (depending on the type of drug, the insurer will pay the pharmacist or drug manufacturer directly). They think the cost of such programmes will stifle biotech companies' creativity, profitability and viability as insurers keen to save money baulk at the price of new treatments.

Solid pricing power

But biotechs' creativity, profitability and viability are consistent with high prices. If the drugs work, the firm has pricing power. If you look at biotech companies active in, say, cancer treatment, they have more leeway in setting prices as long as the products they bring to the market deliver superior medical benefits. Currently the unmet medical need in many cancer patients remains worryingly high. So companies whose drugs work best will be more competitive in the marketplace. This will rightly give them more flexibility in setting their prices.

On that note, consider Celgene (Nasdaq: CELG), which develops innovative cancer treatments. Analysts and medics keep a close eye on clinical data from Celgene and its partner Bluebird Bio when it comes to cell therapy in patients with bone-marrow cancer. This has been classified as "breakthrough therapy designation" by the US Food and Drug Administration, fast-tracking development of the new drug.

At the forefront of innovation

Biotech firms often experiment with brand-new technology. Akcea Therapeutics (Nasdaq: AKCA) works to transform the treatment of serious and rare diseases by making use of "RNA targeted" antisense technology, which essentially "turns off" a mutated gene. This is a notable breakthrough.

Sage Therapeutics (Nasdaq: SAGE) has made significant progress with a new drug to treat major depressive disorders and other problems with the central nervous system. It has now achieved the all-important phase III trial status (meaning a treatment is tested on a large sample of people). The US Food and Drug Administration has now approved expedited development for the drug, which could prove to be a major landmark in the treatment of depression.

These firms' innovations should prove lucrative despite the complex backdrop for medical funding. The future is as exciting for investors as it is hopeful for patients.