Three winners of the long-term biotech boom

The biotechnology sector has been instrumental in bringing Covid-19 under control. It was not the traditional large pharmaceutical vaccine specialists that led the way, but the innovative biotech firms such as BioNTech and Moderna. These companies have turned a much-discussed idea – vaccines based on RNA, a new approach – into a product and have manufactured millions of doses. That has led to valuations of some of the innovative small-cap companies accelerating to eye-wateringly high levels.

It is easy to get caught up in the hype of investing in stocks with rapidly rising share prices. However, we rely on fundamental analysis in making our investment decisions and look out for companies that boast a compelling roster of innovative products. We also ensure that these companies have experienced managers to help the business deliver long-term growth. We also seek out stocks that are fairly valued and we do not chase overhyped small-cap biotechs. In our opinion, these three stocks have good pipelines, strong management teams and fair valuations.

Orphan diseases: a high-growth niche

The experienced management team at Horizon Therapeutics (Nasdaq: HZNP) has turned the company into a high-growth “orphan disease” specialist. Orphan diseases affect a small number of patients, but still command good pricing power and favourable patent protections.

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One of the company’s current drugs is Tepezza, used to treat a rare condition called thyroid eye disease. The launch of this drug has been very successful, with peak sales estimated to exceed $3bn. In February 2021, in order to maintain its pipeline of new drugs, the company bought another orphan-disease company called Viela Bio.

Tackling multiple maladies

Alnylam Pharmaceuticals (Nasdaq: ALNY) has developed an RNA-platform technology that can regulate the production of various protein cells to help treat a number of different diseases. There are currently four drugs approved, which help to treat diseases caused by genetic mutations, in addition to a broad, growing, and therapeutically diversified pipeline of projects with the potential for high sales.

The company is adapting this technology to treat a range of other diseases. Some of these conditions are also caused by genetic abnormalities, while more common ailments such as hepatitis B and hypertension will also be tackled.

Shifting from HIV to cancer

Gilead Sciences (Nasdaq: GILD) is a mature biotech that built its business on HIV treatments. In 2011 it acquired Pharmasset, which had a pipeline drug to treat and cure hepatitis-C infections. The hepatitis-C franchise became hugely successful, generating peak sales of $10bn. But its growth rate dwindled soon after, as patients left treatment once they were cured.

Since then, a new management team has refocused the company on oncology by acquiring Immunomedics for $21bn. The jury is still out as to whether this acquisition will be considered a success; it depends on the data from a large breast-cancer study expected to be made public later in 2021. Gilead Sciences has not taken part in the recent market rally as it is considered defensive, so it is trading on a relatively low-price earnings (p/e) multiple.

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Marek Poszepczynski has been lead portfolio manager of International Biotechnology Trust (IBT) since 2021.

Having managed IBT since 2013, Marek has over 15 years of life sciences sector experience, including roles at Handelsbanken and Karolinska Development AB. He holds MScs in Biochemistry and Business Management from the Royal Institute of Technology, Stockholm.