A. Report Overview
This Greenfield Capital (billcara.com) report on the Biotechnology industry is written by a registered investment consultant & portfolio manager, not by a scientist. Our objective is to provide education and information to investors who lack the tools to trade successfully in an industry made vitally important to the world by the coronavirus pandemic of 2020. If we want to live through this pandemic — and future ones — where it is possible that hundreds of millions of us could perish because of the lack of diagnostics, vaccines, and therapeutics, then as investors we should be keenly interested in the Biotech industry. News reports state that in just six and a half months, COVID-19, initially called SARS-CoV-2, has killed more people than the number of Americans who die each year from opioid overdose (46,000), traffic accidents (36,500), and gun violence (40,000) combined. But, currently, there is no vaccine for COVID-19, and the treatment options for patients with severe or life-threatening symptoms are limited. As the world struggles to contain the deadly virus, there are, fortunately, over 140 coronavirus vaccines in development. News is breaking every day. At the same time, however, many individuals who are trading in Biotech stocks remain woefully uninformed and are speculating wildly. Some Biotech stocks that have appreciated 100% or more in a few months on hopefulness may have trouble sustaining gains beyond the news peak. Still, for investors who study this industry, there are opportunities right now to buy Biotech stocks that will grow in price well into the future.
B. Which companies are in clinical testing for COVID-19 candidates?
The most important question that investors need to ask are which companies are participating in clinical trials today vs planned, or desired, and which are COVID-19 related? Which are publicly traded? Which are the smaller Biotechs vs larger Pharmaceutical manufacturers? Are the clinical phase Biotechs self-controlled entities or in partnerships?
Here is a list of the COVID-19 related trial organizations, their study candidates and the project status:
|AstraZeneca (NYSE: AZN) / University of Oxford||AZD1222||In phase 2/3 study|
|Moderna (NASDAQ: MRNA)||mRNA-1273||Phase 3 study to begin July 27|
|Sinovac Biotech||CoronaVac||Phase 3 study to begin in July|
|Cansino Biologics / Beijing Inst. of Biotechnology||Ad5-nCoV||In phase 2 study|
|Anhui Zhifei Longcom Biopharm / Inst. of Microbiology||Adjuvanted recombinant protein||In phase 2 study|
|AnGes / Takara Bio / Osaka University||DNA vaccine||In phase 1/2 study.|
|BioNTech (NASDAQ: BNTX) / Pfizer (NYSE:PFE)||BNT162 (Four candidates)||In phase 1/2 study.|
|Bharat Biotech||Whole-virion inactivated vaccine||In phase 1/2 study.|
|Cadila Healthcare||ZyCoV-D||In phase 1/2 study.|
|Clover Pharmaceuticals / GlaxoSmithKline (NYSE: GSK)/ Dynavax||SCB-2019||In phase 1/2 study.|
|CSL / Sequirus / University of Queensland||Molecular clamp stabilized spike protein w/ MF59 adjuvant||In phase 1/2 study.|
|CureVac||CVnCoV||In phase 1/2 study.|
|Genexine Consortium||GX-19||In phase 1/2 study.|
|Gamaleya Research Institute||Gam-COVID-Vac||In phase 1/2 study.|
|Imperial College London||RNA vaccine||In phase 1/2 study.|
|Inovio Pharmaceuticals (NASDAQ: INO)||INO-4800||In phase 1/2 study.|
|Novavax (NASDAQ: NVAX)||NVX‑CoV2373||In phase 1/2 study.|
|Inst. of Medical Biology / Chinese Academy of Med Sci||Inactivated SARS-CoV-2 vaccine||In phase 1/2 study.|
|Medicago / GlaxoSmithKline (NYSE: GSK)/ Dynavax||Plant-derived virus-like particle||In phase 1/2 study.|
|Sinopharm / Beijing Institute of Biological Products||Inactivated SARS-CoV-2 vaccine||In phase 1/2 study.|
|Sinopharm / Wuhan Institute of Biological Products||Inactivated SARS-CoV-2 vaccine||In phase 1/2 study.|
|Vaxine Pty Ltd / Medy-Tox||COVAX-19||In phase 1/2 study.|
|Walvax Biotechnology / People's Lib. Army Academy||ARCoV||In phase 1/2 study.|
Of the 23 COVID-19 vaccine candidates currently in clinical testing, 3 are in phase 3; 2 in China are in phase 2; and 18 are in phase 1 studies. These are the newsmakers that investors need to follow.
C. Investing in Biotechnology stocks
The main method of investing in the Biotech sector is through stocks. As a place to start, when investing in the Biotech sector it is important to understand the difference between Pharmaceutical companies and Biotech companies. For the most part, Biotech companies initiate value through applied research and development while Pharma manufactures and distributes valuable products, some of which it creates and some of which it buys from the Biotech companies. Economically, a research focused Biotech company is a high-risk enterprise, while a Pharmaceutical company is a manager and diversifier of risk.
C.1. The top U.S.-based Biotechnology firms in terms of market capitalization as of July 15, 2020 were:
|VERTEX PHARMACEUTICALS INCORPORATED (XNAS: VRTX)||$76,183,270,000|
|REGENERON PHARMACEUTICALS, INC. (XNAS: REGN)||$65,651,920,000|
|MODERNA, INC. (XNAS: MRNA)||$29,093,220,000|
|SEATTLE GENETICS, INC. (XNAS: SGEN)||$30,021,040,000|
|ROYALTY PHARMA PLC (XNAS: RPRX)||$26,575,750,000|
|ALEXION PHARMACEUTICALS, INC. (XNAS: ALXN)||$23,975,230,000|
|INCYTE CORPORATION (XNAS: INCY)||$22,393,810,000|
|BIOMARIN PHARMACEUTICAL INC. (XNAS: BMRN)||$22,863,200,000|
|ALNYLAM PHARMACEUTICALS, INC. (XNAS: ALNY)||$18,053,020,000|
|BioNTech SE (XNAS: BNTX)||$19,175,360,000|
|SAREPTA THERAPEUTICS, INC. (XNAS: SRPT)||$13,005,400,000|
|NEUROCRINE BIOSCIENCES, INC. (XNAS: NBIX)||$12,176,470,000|
|BIO-TECHNE CORPORATION (XNAS: TECH)||$10,192,930,000|
|IMMUNOMEDICS, INC. (XNAS: IMMU)||$9,386,088,000|
|ACADIA PHARMACEUTICALS INC. (XNAS: ACAD)||$8,372,873,000|
|IONIS PHARMACEUTICALS, INC. (XNAS: IONS)||$8,568,244,000|
C.2. The world’s biggest Pharmaceutical companies, many of which are working on COVID-19 solutions, are:
|JOHNSON & JOHNSON (XNYS: JNJ)||$389,709,200,000|
|Novartis Inc. (XNYS: NVS)||$213,604,000,000|
|MERCK & CO., INC. (XNYS: MRK)||$197,510,900,000|
|PFIZER INC. (XNYS: PFE)||$195,696,800,000|
|ABBVIE INC. (XNYS: ABBV)||$174,242,800,000|
|ELI LILLY AND COMPANY (XNYS: LLY)||$156,743,100,000|
|ASTRAZENECA PLC (XNYS: AZN)||$140,815,200,000|
|AMGEN INC. (XNAS: AMGN)||$148,879,500,000|
|BRISTOL-MYERS SQUIBB COMPANY (XNYS: BMY)||$130,987,100,000|
|Sanofi SA (XNAS: SNY)||$130,330,100,000|
|Novo Nordisk A/S (XNYS: NVO)||$117,290,200,000|
|GLAXOSMITHKLINE PLC (XNYS: GSK)||$101,014,200,000|
|GILEAD SCIENCES, INC. (XNAS: GILD)||$96,825,090,000|
As always, investors should evaluate Biotech companies on a case-by-case basis. This report will provide some background for personal study.
When investing in the Biotech sector, investors should also pay close attention to the US Food and Drug Administration (FDA), which requires that all companies in the sector establish a sufficient body of information to show that their drugs are safe and effective. Doing so requires clinical trials of product testing that typically is done over a series of three phases
As with most other investments, Biotech stock investors must decide on the level of risk that they are prepared to take. For instance, large, established Biotech companies like Vertex and Regeneron with their multibillion-dollar market caps are more likely to manage their way through bad market conditions than the more speculative, newly listed companies with market caps of a hundred million dollars or so.
D. 2H2020 Biotechnology Market Outlook
Despite the massive stock market gains experienced by many of the Biotech names in 2020, individuals who are interested in investing should understand that all these companies must undertake painstaking research and then rely on FDA feedback and approvals. Besides, Biotech companies are just a part of a larger segment of Healthcare called Life Sciences, which includes Pharmaceutical and Medical Device companies.
In terms of the market’s outlook, a report from Global Market Insights published prior to the coronavirus pandemic gave an estimate that the Life Sciences market will reach US$775 billion by the year 2024. Even without having to deal with COVID-19, the whole subject of genetics and gene mapping has literally exploded in recent years. Life Sciences interest has been powered by an aging population, an increase in chronic diseases and rapidly increasing healthcare costs associated with those conditions. Innovative products including growing human organs, plants, and meat in labs will also add to industry revenue.
What is the outlook for the Biotech market?
Biotechnology, while continually presenting investment opportunities, has over the years proven to be a challenging industry for investors. Research, development, and commercialization of a new drug will likely take many years and consume billions of dollars in investment. In fact there are estimates of just 10% of clinical trial drugs ever getting to the commercial market, and some of the drugs that make it are failures in terms of profitability.
So why invest? Well, there are many reasons to invest in Biotech:
1. Doing good for society and for ourselves
In practical terms, there are many industries other than Biotech that require less time to get to understand and where you may rely on common sense and personal experience for help. For some people, however, the profit potential is worth the extra effort, while for others it is simply a matter of doing good for society, of investing in Biotech companies that develop life-saving solutions.
While any of this may be important, we must remember why we invest. We invest for our future.
2. In 2020, Biotech companies are seeking solutions to COVID-19
As all of us know, 2020 is a year unlike any other in our lives. The coronavirus pandemic, resulting in more than 15 million cases and 612,000 deaths worldwide as of this writing, has sent the world into an economic depression that will likely take several years before returning to normal. About 100,000 people are dying monthly from this disease. With the sheltering-in-place guidelines and self-isolation that has been implemented around the world, the travel and tourism industry has been brought to bankruptcy, and with the shutdown of retail stores, restaurants, bars, theaters, arenas, and parks, business owners have experienced dramatic financial losses.
Biotech, however, is not experiencing the same fate. Because Biotech company products are a necessity, any slowdown due to staffing issues and manufacturing interruptions have been short-term.
3. An aging population that is getting wealthier and wants to live better, longer
Growing old and encountering illness and disabilities is a fact of life. As the world population grows at a tremendous rate, so do the numbers of elderly people. The world population has increased from 1 billion in 1800 to 1.6 billion in 1900 to 6.1 billion in 2000 and 7.8 billion today. By the year 2100, the global population is forecast to be ~11 billion, so in addition to total population growth, the older demographic is also growing rapidly. This is a demographic that is also growing its wealth and its desire for improved lifestyle. Demand for Biotech products will not diminish.
4. The industry’s huge growth potential
The growth potential of Biotech for the foreseeable future is truly staggering. Medical science today is advancing at an incredible pace with new discoveries happening every week. Often, when companies develop and commercialize a new drug, their annual revenues can amount to billions. Consequently, there will always be steady investment of risk capital.
While most Biotech companies are not currently profitable, and despite many examples of spectacular failures, the historical growth of the industry is good. In fact, the Biotech & Pharmaceutical industry has been outperforming the S&P 500 with 10-year annual returns that are double. With the 2020 pandemic, the entire industry outlook is enormously positive and points to continuous growth in the double digits.
5. Biotech stocks often ‘beat the market’ and outperform the Pharmaceuticals as they are this year
The market is always looking for high-growth companies, and this year Biotech companies have substantially outperformed the general market, and Pharmaceuticals. In recent years, companies involved in genetic research have led the way. This year, as the coronavirus outbreak has expanded from Asia to Europe and the Americas, turning into a worldwide crisis, Biotech companies developing treatments or vaccines, diagnostics and other products to fight the pandemic have seen their stocks soar. Pharmaceutical stocks, however, have not shared that same good fortune this year. But at least they have fared as well as or slightly better than the general market. Following the market downturn in February and March, the iShares US Pharmaceuticals ETF (NYSE: IHE) has lagged the performance of the iShares Nasdaq Biotechnology Index ETF (NASDAQ: IBB). But from the beginning of the year, the Biotech IBB ETF gained +21.2% while the Pharma IHE ETF gained a modest +1.2%. Major investors are buying Biotechs in every market weakness.
|The Big Biotech& Pharma ETFs||Total Assets ($MM)||Jul 20 Price||Dec 31 Price||Mar 31 Price||June 30 Price||52-W Low||52-W High||Perf MTD %||Perf from Q1 %||Perf YTD %|
|iShares Nasdaq Biotech (IBB)||$9,521,329,176||$145.80||$120.33||$107.63||$134.68||$92.15||$146.53||8.3||35.5||21.2|
|iShares US Pharma ETF (IHE)||$346,048,909||$160.95||$159.04||$134.30||$153.88||$115.53||$165.70||4.6||19.8||1.2|
E. Stocks to watchIt is obviously premature to forecast an end to COVID-19, and we all hope that it happens sooner than later, but it isn’t too late right now to be adding Biotech stocks to your portfolio. Based on the performance of the biggest cap ETFs for Biotech and Pharma, already in 20 days this month, the price appreciation is up +8.0% and +4.5% respectively. Should the market stumble, however, the lower entry prices will be that much more attractive. Also, because of the huge cash positions of the Big Pharma companies, and their need to build a pipeline of products that cover the world’s health needs, considerable takeover activity is likely to happen soon.
Among the most successful of the Biotech companies in 2020, there are 24 on my lengthy study list that had +25% gains or more from Jan. 1 through July 20. Of these, there are 12 that had YTD gains surpassing +140%.
These are: VXRT +4420%, NVAX +3373%, CODX +2032%, INO +669%, APT +530%, IBIO +505%, MRNA +323%, VIR +311%, COCP +344%, BMRA +299%, BNTX +160%, and TBIO +140% YTD. Most of these have a connection to COVID-19. Biggest gainer was VXRT, which had a 52-week range of $0.25 to $17.49, and which is up 44 times so far in 2020. In second place, NVAX has a 52W range of $3.54 and $144.54 and is up over 34 times. However, NVAX has by far the biggest one-year return.
To put these results into perspective, starting 2020 with an identical % invested in each of the 24 Biotechs on this list would have resulted in a gain at July 20 of +564%.
|Jul 20 Price||Dec 31 Price||Mar 31 Price||June 30 Price||52-W Low||52-W High||Perf MTD %||Perf from Q1 %||Perf YTD %||b.e.t.a.|
Vaxart (NASDAQ: VXRT) and Novavax (NASDAQ: NVAX) are reported by some analysts to be NO further ahead of several other Biotechs in the race to produce a vaccine for COVID-19; however, as noted their stock performance this year is literally off the charts.These stock market gains are the stuff of which dreams are made. So, let’s see what is going on in this group of 24 Biotechs that I study. Note that not all these companies are focused on COVID-19. I listed the companies in order of YTD 2020 stock performance:
According to a July 18 article in The Motley Fool, “Vaxart’s COVID-19 vaccine candidate hasn’t advanced beyond preclinical testing yet. The company announced on May 20 that it had selected its lead coronavirus vaccine candidate, and signed deals with Emergent Biosolutions and Kindred Biosciences to manufacture the vaccine. Vaxart hopes to begin a phase 1 study this year, possibly before the end of the summer. Vaxart hasn’t landed such lucrative deals so far. However, its COVID-19 vaccine was selected by Operation Warp Speed to be part of a challenge study in nonhuman primates… (Their) coronavirus vaccine candidate has one key differentiating factor, though. While most vaccines (including Novavax’s NVX-CoV2373) are administered via injection, Vaxart’s candidate is taken orally as a tablet. This means that Vaxart’s vaccine candidate is stable at room temperatures, which could be a big plus in large-scale vaccination efforts.
Novavax has received phenomenal funding and has significant partners to start large-scale manufacturing of its NVX-CoV2373 COVID-19 nanoparticle vaccine at the appropriate time. Behind Novavax is Sanofi, which is one of the world’s few large vaccine manufacturers. Sanofi has support from GlaxoSmithKline, another large vaccine player. In the July 18 Motley Fool article, the authors stated that “Novavax appears to be well ahead of Vaxart in terms of clinical progress for its COVID-19 program. The Biotech initiated a phase ½ clinical study for NVX‑CoV2373 in late May. It plans to announce preliminary results from the phase 1 portion of the study later this month. In addition to its lead in clinical progress, Novavax ranks as the winner so far in securing funding for its COVID-19 vaccine program. The Coalition for Epidemic Preparedness Innovations (CEPI) awarded Novavax up to $388 million for the development and production of NVX-CoV2373. Novavax won a $60 million contract with the U.S. Department of Defense. Most importantly, it’s receiving $1.6 billion in funding from Operation Warp Speed, the U.S. government’s initiative to accelerate the development of COVID-19 vaccine candidates.
Co-Diagnostics (NASDAQ: CODX) is a molecular diagnostics company that has a coronavirus related solution in the form of its Logix Smart COVID-19 test. The record number of COVID-19 cases reported over the last few days will result in a sustained and growing need for the Co-diagnostics’ test kit. This week, the Wall Street Journal reported that “the US COVID-19 testing system is reaching the brink as growing demand has surpassed what the nation’s labs can handle, resulting in supply shortages and backlogs.” On the downside, there are several class action lawyers preparing a case for investors who have lost money in the stock this year due to extreme volatility, which seems at odds when the stock his up +1961% YTD, which is the 3rd best performance in my study list of 24 Biotechs.
Inovio Pharmaceuticals (NASDAQ: INO) is reported to have one of the four top candidates for a COVID-19 vaccine. In phase 1 trials, 34 out of 36 participants who received INO-4800 developed an immune response. However, the Motley Fool also opined, “it is not known what percentage of patients developed neutralizing antibodies. Without this metric, no definitive efficacy claims can be drawn.” Nonetheless, the stock is up +95% in the past month and +720% over six months.
Alpha Pro Tech (NASDAQ: APT) develops, makes, and sells disposable and limited-use protective apparel products for the industrial, clean room, medical and dental markets. Because of the coronavirus pandemic, demand is through the rook. The company joined the Russell 2000 and Russell 3000 indexes on June 29, which sent its shares soaring. The stock is up +48% in the past month and +488% over six months.
iBio, Inc (NASDAQ: IBIO) has two COVID-19 vaccine candidates, IBIO-200 and IBIO-201, and expects to deliver preclinical data on them in the next quarter. The company joined the Russell 2000 and Russell 3000 indexes on June 29, which sent its shares soaring. Without any clinical evidence of efficacy, the stock price is up +151% in the past month and +1565% over six months. On July 17 and again on July 20, the day this report was completed, iBIO shares soared again.
Moderna (NASDAQ: MRNA) appears to be succeeding with their mRNA-1273 investigational vaccine. On July 14, the company reported 100% success in a Phase 1 and 2 clinical trial, and a phase 3 trial is scheduled to start July 27.
Vir Biotech (NASDAQ: VIR) products prevent and treat virus diseases like hepatitis B, influenza A, human immunodeficiency, and TB. They hope their S309 SARS-COV-2 antibody product may even become a COVID-19 vaccine. In May the company published preclinical data in the journal Nature on the S309 monoclonal antibody that appears to target the novel coronavirus. According to a report in The Motley Fool, “The S309 antibody was originally isolated from a patient who recovered from severe acute respiratory syndrome (SARS) in 2003, but it appears that the structure of coronavirus responsible for SARS is close enough to that of the coronavirus that causes COVID-19 that the antibody can bind to both.” Vir is developing two treatments – VIR-7831 and VIR-7832 – based on the S309 antibody in collaboration with GlaxoSmithKline (NYSE: GSK). VIR-7831 was engineered to last longer in the body, while VIR-7832 includes that change plus one that may give it the ability to function as a T-cell vaccine.
Cocrystal Pharma (NASDAQ: COCP) appears to be succeeding after many years of trying. At the end of May, COCP closed at $0.97, and then on June 7, the stock jumped to $1.07. As of July 17, the stock closed at $1.95 for the 9th biggest YTD gain of this group of 24 Biotechs, up +293%.
Biomerica (NASDAQ: BMRA) offers a 10-minute test for coronavirus exposure utilizing blood from a finger prick can be performed anywhere by trained professionals, e.g. airports, schools, work, doctor’s office. The company shipped samples of this COVID-19 test to multiple Ministries of Health and government agencies through distributors in the Middle East, Europe, and other countries. The price point of this single-use, disposable product as low as $10 per patient. The company also has filed a provisional patent on rapid test technology to identify multiple coronavirus strains including the strain responsible for COVID-19.
BioNTech (NASDAQ: BNTX) is the Moderna of Germany & Europe. Well-financed immunotherapy pioneer of novel therapies for cancer with 4 COVID-19 candidates. In partnership with Pfizer (NYSE: PFE) the company has reported promising data from BNT162b1, one of four COVID-19 vaccine trials underway. Whenever good results are reported by these and other players, the market responds enthusiastically with higher stock prices. However, given that COVID-19 vaccines are being developed for potentially billions of people, the competition is intense, and commercial success is not assured.
Translate Bio (NASDAQ: TBIO) is a messenger RNA (mRNA) therapeutics company that has a collaboration and license agreement with Sanofi to develop mRNA vaccines for up to 5 infectious disease pathogens plus COVID-19. The company signed that timely partnership agreement with Sanofi in June 2018. They hope to be in clinical trials around the end of this year. Sanofi is partnering with the U.S. government’s Biomedical Advanced Research and Development Authority (BARDA) to select the COVID-19 strain sequence used in the design of the vaccine candidate. The company is also developing MRT5005 for the treatment of cystic fibrosis and MRT5201 for the treatment of ornithine transcarbamylase deficiency.
Fate Therapeutics (NASDAQ: FATE) announced that the FDA has cleared its Investigational New Drug (IND) application for pipeline candidate, FT819. FT819 is an off-the-shelf allogeneic chimeric antigen receptor (CAR) T-cell therapy targeting CD19+ malignancies. It has been derived from a clonal master induced pluripotent stem cell (iPSC) line. Fate plans to initiate a phase 1 study on FT819 for the treatment of patients with relapsed/refractory B-cell malignancies, including chronic lymphocytic leukemia (CLL), acute lymphoblastic leukemia (ALL) and non-Hodgkin lymphoma (NHL). The study will assess its safety and clinical activity in up to 297 adult patients across these three types of B-cell malignancies.
Regeneron Pharmaceuticals (NASDAQ: REGN) is working on a dual antibody COVID-19 therapeutic product called REGN-COV2 in phase 1 and 2 clinical trials with Moderna in conjunction with the U.S. Department of Health and Human Services and the National Institutes of Health. This month, the company began the phase 3 portion of a study treating healthy people who have had close exposure to COVID-19.
Allogene Therapeutics (NASDAQ: ALLO) is developing allogeneic chimeric antigen receptor T cell (AlloCAR T) therapies for cancer. Shares soared in May after the company disclosed positive initial data from its ALLO-501 CD19 allogeneic CAR T, showing both activity and a tolerable safety profile. Preclinical findings were published in June showing the potential for ALLO-819, an investigational AlloCAR T therapy targeting FLT3 as a novel treatment for acute myeloid leukemia (AML). There was also a major financing of about $550 million at that time.
CRISPR Therapeutics (NASDAQ: CRSP) develops its products using Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/CRISPR-associated protein 9 (Cas9), a promising gene editing technology that allows for precise directed changes to genomic DNA. It has a portfolio of therapeutic programs in a range of disease areas, including hemoglobinopathies, oncology, regenerative medicine, and rare diseases. The company’s lead product candidate is CTX001, an ex vivo CRISPR gene-edited therapy for treating patients suffering from transfusion-dependent beta thalassemia or severe sickle cell disease in which a patient’s hematopoietic stem cells are engineered to produce high levels of fetal hemoglobin in red blood cells. Its TDT trial updates are outstanding. It is also developing CTX110, a donor-derived gene-edited allogeneic CAR-T therapy targeting cluster of differentiation 19 positive malignancies. In addition, the company is developing allogeneic CAR-T programs comprising CTX120 targeting B-cell maturation antigen for the treatment of multiple myeloma; and CTX130 for the treatment of solid tumors and hematologic malignancies.
BioMarin Pharmaceutical (NASDAQ: BMRN) products include Aldurazyme to treat mucopolysaccharidosis I, a genetic disease; Brineura for the treatment of late infantile neuronal ceroid lipofuscinosis type 2, a form of Batten disease; and Kuvan, a proprietary synthetic oral form of 6R-BH4 that is used to treat patients with phenylketonuria (PKU), an inherited metabolic disease. The company’s commercial products also comprise Naglazyme, a recombinant form of N-acetylgalactosamine 4-sulfatase for patients with mucopolysaccharidosis VI; Palynziq, a PEGylated recombinant phenylalanine ammonia lyase enzyme for adult patients with PKU; and Vimizim, an enzyme replacement therapy for the treatment of mucopolysaccharidosis IV Type A, a lysosomal storage disorder. Its clinical and pre-clinical product pipeline includes valoctocogene roxaparvovec, an adeno associated virus vector, which is in Phase III clinical trial for the treatment of patients with severe hemophilia A; vosoritide, a peptide therapeutic that is in Phase III clinical trial for the treatment of achondroplasia, a form of disproportionate short stature in humans; and BMN 307, an AAV5 mediated gene therapy to normalize blood phenylalanine concentration levels in patients with phenylketonuria.
Intellia Therapeutics (NASDAQ: NTLA) is another genome editing company that focuses on the development of therapeutics using a relatively new biological tool known as the Clustered, Regularly Interspaced Short Palindromic Repeats/CRISPR associated 9 (CRISPR/Cas9) system. The company develops in vivo programs focusing on liver diseases, including transthyretin amyloidosis and hereditary angioedema, as well as other research programs comprising primary hyperoxaluria Type 1, alpha-1 antitrypsin deficiency, and Hemophilia B. The company signed a licensing and collaboration agreement with Regeneron in 2016.
BioCryst Pharmaceuticals (NASDAQ: BCRX) is a small and relatively unknown Biotech company for oral and small-molecule medicines. The company markets peramivir injection, an intravenous neuraminidase inhibitor, for the treatment of acute uncomplicated influenza, and PERAMIFLU names; and Mundesine, an oral purine nucleoside phosphorylase inhibitor for peripheral T-cell lymphoma. It is also developing BCX7353, an oral serine protease inhibitor and oral dose formulation that is in Phase III clinical trials to treat hereditary angioedema; BCX9930, an oral factor D inhibitor, which is in Phase I clinical trials for mediated diseases; BCX9250, an oral activin receptor-like kinase-2 inhibitors that is in preclinical trials to treat fibrodysplasia ossificans progressive; and Galidesivir, an RNA dependent-RNA polymerase inhibitor, which is in Phase I clinical trials to treat various RNA viruses, including Marburg, Yellow Fever, Ebola, and Zika. The Motley Fool opined, “If galidesivir lives up to the hype, it could be a powerful antiviral drug that’s effective against COVID-19 as well as a plethora of other viral diseases, making it a momentous medical breakthrough akin to penicillin’s impact on bacterial diseases. Unfortunately, given the company’s difficulty in finding proof of the drug’s efficacy in humans for any single indication over the course of more than seven years of active development, it seems unlikely that galidesivir will be a hit.”
Alnylam Pharmaceuticals (NASDAQ: ALNY) products involve ribonucleic acid interference (RNAi) therapeutics. The company’s pipeline of investigational RNAi therapeutics focuses on genetic medicines, cardio-metabolic diseases, hepatic infectious diseases, and central nervous system/ocular diseases. Its marketed products include ONPATTRO (patisiran), a lipid complex injection for the treatment of the polyneuropathy of hereditary transthyretin-mediated amyloidosis in adults; and GIVLAARI for the treatment of adults with acute hepatic porphyria (AHP). In addition, the company is developing givosiran for the treatment of patients with AHP; lumasiran for the treatment of primary hyperoxaluria type 1, or PH1; patisiran for the treatment of transthyretin amyloidosis, or ATTR amyloidosis, with cardiomyopathy; and vutrisiran for the treatment of ATTR amyloidosis. The company has strategic alliances with Sanofi and Regeneron and a collaboration with Vir Biotechnology to advance RNAi therapeutics for the treatment of coronavirus infection, including COVID-19.
Vertex Pharmaceuticals (NASDAQ: VRTX) markets SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO to treat patients with cystic fibrosis who have specific mutations in their cystic fibrosis transmembrane conductance regulator gene; and TRIKAFTA for the treatment of patients with CF 12 years of age or older who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator, or CFTR, gene. The Boston-headquartered company so dominates the CF market that both revenues and earnings are huge and soaring. Revenue jumped +77% year over year in 1Q2020 to $1.52 billion, and earnings soared +124% to $603 million. The company’s revenues for the year will be in the $5.5 billion range. Its cash position is a massive $4.2 billion, so acquisitions are likely.
Adaptive Biotechnologies (NASDAQ: ADPT) sells the immunoSEQ research service and kit that is used to answer research questions, as well as to discover new prognostic and diagnostic signals. It also provides clonoSEQ diagnostic tests, which include immunosequencing services for use in the detection and monitoring of minimal residual disease in patients with select blood cancers. In addition, the company offers a pipeline of clinical products and services that are used for the diagnosing, monitoring, and treatment of cancer, autoimmune conditions, and infectious diseases. The company has strategic collaborations with Genentech, Inc. for commercializing neoantigen directed T cell therapies for the treatment of a range of cancers; Microsoft to develop diagnostic tests for the early detection of various diseases from a single blood test; and Amgen to develop a therapeutic to prevent or treat COVID-19.
Sarepta Therapeutics (NASDAQ: SRPT) offers RNA-targeted therapeutics, gene therapy, and other genetic therapeutics for the treatment of rare diseases. The company offers EXONDYS 51 injection to treat duchenne muscular dystrophy (DMD) in patients who have a confirmed mutation of the DMD gene that is amenable to exon 51 skipping; and VYONDYS 53 for the treatment of DMD in patients who have a confirmed mutation of the DMD gene that is amenable to exon 53 skipping. It also developing Casimersen, a product candidate that uses phosphorodiamidate morpholino oligomer (PMO) chemistry and exon-skipping technology to skip exon 45 of the DMD gene; SRP-5051, a peptide conjugated PMO that binds exon 51 of dystrophin pre-mRNA; SRP-9001, a DMD micro-dystrophin gene therapy program; SRP-9003, a limb-girdle muscular dystrophies gene therapy program; and LYS-SAF 302 to treat mucopolysaccharidosis type IIIA.
Karuna Therapeutics (NASDAQ: KRTX) is developing novel therapies to address disabling neuropsychiatric disorders and pain. Its lead product candidate is KarXT, an oral modulator that has completed Phase II clinical trial for the treatment of acute psychosis in patients with schizophrenia; and in Phase Ib clinical trial for the treatment of central nervous system disorders, such as negative and cognitive symptoms of schizophrenia and psychosis, Alzheimer’s, and pain, as well as for the treatment of dementia-related psychosis.
F. Among the Pharmaceutical manufacturing companies involved in the race to provide pandemic solutions are:
AstraZeneca Plc (NYSE: AZN) was provided $1.2 billion in drug development by the U.S. government in exchange for locking in a delivery of around 300 million doses for fall 2020. The UK company also signed a contract with France, Germany, Italy, and the Netherlands for up to 400 million doses of its potential vaccine. It has also partnered with non-profits to ensure distribution to developing countries. The Motley Fool has reported, “AstraZeneca (NYSE: AZN) and Oxford University are developing their own version of a vaccine that encodes SARS-CoV-2’s S-protein. The vaccine is labeled AZD1222 and is made from a weakened version of the common cold virus. The company has already announced that not only did AZD1222 produce antibodies when given to trial participants, but it also led to the development of killer T-cells against SARS-CoV-2. The vaccine is currently in phase 3.” Results from a Phase ½ clinical trial at five sites in the UK evaluating the safety and immunogenicity of Oxford University’s chimpanzee adenovirus-vectored COVID-19 vaccine candidate ChAdOx1 nCoV-19 [dubbed AZD1222 at licensee AstraZeneca in 1077 healthy volunteers showed a positive effect.
Gilead Sciences (NASDAQ: GILD) is the manufacturer of Remdesivir, a broad-spectrum antiviral medication that is presently authorized for emergency use to treat patients with serious COVID-19. But this drug is in short supply, difficult to manufacture, and must be given intravenously (IV).
Johnson & Johnson (NYSE: JNJ) is the largest Big Pharma company. Although the company has a global distribution network, the Biotech component is a small part of the whole revenue base. The Dow medical giant announced it will start late-stage trials in September for its COVID-19 vaccine, ahead of schedule.
Sanofi SA (NASDAQ: SNY) sells conventional flu vaccines and is now working on a protein subunit version of the SARS-CoV-2 vaccine. That vaccine will be slow to market but is potentially the easiest to scale using tried and true methods. Sanofi’s hydroxychloroquine, which was promoted heavily by Trump, was found to be no benefit, and posed a higher degree of death among 368 patients in the VA system that were hospitalized with COVID-19.
G. Investing in ETFs vs Stocks
Biotech companies have made up some of the top performing and most exciting stocks in recent years. The largest companies like Biogen (NASDAQ: BIIB) seem to be perennial favorites for investors, but there are always up-and-coming companies entering the field as well. On the other hand, though, while a successful trial result of a new product or a research breakthrough can send stock prices to the moon, Biotech companies are by no means guaranteed to succeed. For this reason, many investors looking to capitalize on Biotech investment potential have turned to Exchange-Traded Funds (ETFs).
For the newbie investor, an ETF (Exchange Traded Fund) is a security that tracks an index, a commodity, bonds, or a basket of stocks. An ETF is a risk diversifier like a Mutual Fund, but unlike a Mutual Fund, an ETF trades like a common stock on a stock exchange and experiences price changes throughout the day as these instruments are bought and sold. ETFs have dominated the investment landscape for many years, in large part because they offer investors a low-cost, quick, and simple means of diversifying their holdings. Below, we will examine which Biotech ETFs might have a place for investors. First, though, we will take a closer look at what the Biotech sector is.
Biotechnology is an industry that combines science and technology to develop innovative products and services that focus on healthcare but may also address agriculture and the environment in which case they are better known as Life Sciences companies. The Biotech segment of the larger Life Sciences industry covers a wide variety of technologies, many of which involve the use of biological processes such as recombinant DNA technology, molecular biology, genetic engineering, and genomics.
Depending on size, some of these companies have many products at various stages of development, ranging from initial feasibility all the way to phase 3 clinical trials. If manufacturing and distribution is involved, the company is generally referred to as a Pharmaceutical company. But, it it is strictly doing product research and development, it is a Biotech company.
Because of extremely high research and development costs coupled with nominal revenue during the years of development, many smaller Biotechnology companies must partner with larger companies to complete product development and commercialize the drug. While the smaller companies have long been dominated by larger companies, it is also true that a smaller company may have the potential on its own to successfully produce a product that would significantly increase its own valuation.
When considering investing in Biotech, earnings, revenue, dividends, or other financial data usually does not tell much of a story. Typically debt is extremely low, so these companies are unlikely to go bankrupt like the wave of cannabis companies that financed with debt. But the development of a drug and gaining final Food and Drug Administration (FDA) approval takes time and patience. A lot can go wrong. A Biotech industry ETF on the other hand offers exposure to the industry but frees the investor from having to do extensive fundamental research.
By owning an ETF, investors get the diversification of a fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average Mutual Fund. When buying and selling many ETFs, the broker may waive commission costs that investors would pay on a stock order.
However, Biotech industry ETFs may trade close to the net asset value of the many stock holdings but are more likely to be more volatile than the broader equities market.
For Biotechnology, there are several indices that can be followed, including the S&P Biotech Select Industry Index (INDEXSP: SPSIBI), the NYSEARCA Biotechnology Index (NYSE: BTK) and the NASDAQ Biotechnology Index (NASDAQ: NBI).
The four largest ETFs in the Biotech industry are, listed by the size of market cap: the iShares NASDAQ Biotechnology ETF (NASDAQ: IBB); SPDR S&P Biotech (NYSE: XBI); First Trust NYSE Arca Biotech (NYSE: FBT); and ARK Genomic Revolution (AMEX: ARKG). Note that the Assets Under Management in the table below are substantially lower than the market caps.
IBB, the largest, started on February 5, 2001, and tracks about 209 Biotech holdings, with the top three weighted at over 7 percent each. Its Biotech holdings include Amgen (NASDAQ: AMGN), Vertex Pharmaceuticals (NASDAQ: VRTX); Gilead Sciences (NASDAQ: GILD); Regeneron Pharma (NASDAQ: REGN), and Illumina (NASDAQ: ILMN), with weightings of 8.38%, 7.55%, 7.42%, 6.42%, and 5.88% respectively. IBB represents that about 80% of its assets are focused directly in the Biotech space, with the remainder divided among Pharmaceuticals companies and secondary companies that provide tools and services for the industry.
The second biggest Biotech ETF is the SPDR S&P Biotech ETF (NYSE: XBI), which launched on February 6, 2006, and tracks 134 Biotech holdings in its portfolio. The top three weighted companies are Novavax (NASDAQ: NVAX); Inovio (NASDAQ: IVO); and Invitae (NASDAQ: NVTA), with weightings of 2.87%, 1.93%, and 1.88% respectively.
A much smaller Biotech ETF, and the one I personally favor, perhaps because there are only 41 holdings and typically newer and more up-and-coming companies, is the GlobalX Genome & Biotech ETF (NASDAQ: GNOM). The largest four holdings are Invitae (NASDAQ: NVTA); CRISPR (NASDAQ: CRSP); Sarepta (NASDAQ: SRPT; and (NASDDAQ: BMRN), with weightings of 5.69%, 5.47%, 4.65%, and 4.34% respectively. It invests 76.9% in Biotech, 19.1% in Healthcare Equipment, and 4.0% in Pharma.
For many investors, the prospect of gaining exposure to a relatively wide pool of Biotech names is enticing. The larger the basket, the better protected one may be against potential failure of any single company. Biotech ETFs are a great way to achieve this risk diversity.
|Jul 20 Price||Dec 31 Price||Mar 31 Price||June 30 Price||52-W Low||52-W High||Perf MTD %||Perf from Q1 %||Perf YTD %||b.e.t.a.|
H. Bill Cara’s Actual Biotech TradesAs you can see, the average YTD % performance of these 15 ETFs has been +24.7% through July 20, while the performance since March 31 has been +47.9%. To put these ETF results into perspective, starting 2020 with an identical % invested in each of the 24 Biotechs on the stocks list would have resulted in a YTD gain at July 20 of +563% and a gain of +169% from March 31 to July 20. One of the reasons is that these ETFs track indexes or have invested in Biotech stocks that are part of what we refer to as “the living dead”, as their plans have not come to fruition, and perhaps many of their key staff have moved on while the remaining ones in management have been unable to raise new capital. So, I believe that investors who take the time to study the Biotech market in depth and invest in the best opportunities would experience superior results.
Actual trades will always differ from the hypothetical Model. Of 9 orders that my Greenfield Capital submitted to the market over a six-week period in June and July, there were 8 that resulted in verified trades. 100% were successful and the verified performance over an average of 20.75 calendar days was +23.24%
|2020-01-06 09:33:00||Order filled at average fill price of $49.80|
|06/25/2020 2:16 pm||Order closed at market at average fill price of $57.20||24|
|2020-01-06 09:34:00||Order filled at average fill price of $31.95|
|2020-06-07 11:12:00||Order closed at market at average fill price of $37.49||36|
|2020-01-06 09:39:00||Order filled at average fill price of $61.43|
|07/15/2020 9:41 am||Order closed at market at average fill price of $83.71||45|
|06/15/2020 9:30 am||Order filled at average fill price of $59.46|
|06/23/2020 11:37 am||Order closed at market at average fill price of $79.88||8|
|06/29/2020 9:30 am||Order filled at average fill price of $37.92|
|Motley Fool articles on Biotechnology||Order closed at market at average fill price of $47.84||9|
|06/29/2020 3:09 pm||Order filled at average fill price of $59.60|
|07/15/2020 9:44 am||Order closed at market at average fill price of $64.20||16|
|06/30/2020 3:09 pm||Order submitted to brokerage: Entry Price to $28.50. Order not filled|
|06/30/2020 3:25 pm||Order filled at average fill price of $18.04|
|07/15/2020 9:41 am||Order closed at market at average fill price of $18.99||15|
|2020-02-07 13:07:00||Order filled at average fill price of $7.50|
|07/15/2020 9:41 am||Order closed at market at average fill price of $15.44||13|
|Portfolio Gain +23.24%||Days held||20.8|
I. The Bill Cara Biotech Model Portfolio
J. Food for thought
The Motley Fool had good articles on both Crispr and Gene therapy stocks in the past couple of years that do a good job of explaining both therapies that have progressed in quantum leaps recently. More and more Biotech companies, such as Sarepta Therapeutics (NASDAQ: SRPT), are using the combination of Crispr with the traditional gene therapy. Crispr will be the backbone of regenerative medicine in the future. Crispr offshoots that use different Cas methods are ‘Prime’ and ‘Base’ Editing, which originated from the Broad Institute access and its associated scientists.
Investors should know that Editas Medicine, Inc. (NASDAQ: EDIT), CRISPR Therapeutics (NASDAQ: CRSP), and Intellia Therapeutics (NASDAQ: NTLA) all have the foundational patents, access and capability that should lead to all Crispr expansion. The industry’s future will most likely be a combination of gene therapy and Crispr technology for the 10,000-single cell (monogenic) diseases such as Duchenne muscular dystrophy (DMD), Sickle Cell and Transfusion-Dependent β-Thalassaemia (TDT). Readers might also consider the potential of Crispr technologies and gene therapy such as the Talen technology used at bluebird bio (NASDAQ: BLUE), which has been one of my investments.