Tthis is no denying that 2021 has been a tough yr for a lot of biotech shares. The shares of fairly just a few huge and small biotech corporations alike are set to complete the yr in damaging territory. However these disappointing performances will not essentially lengthen into the long run.
We requested three Motley Idiot contributors to choose biotech shares that sank in 2021 however may soar in 2022. Here is why they selected Axsome Therapeutics (NASDAQ: AXSM), Novartis (NYSE: NVS), and Vertex Prescription drugs (NASDAQ: VRTX).
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Lengthy-term catalysts abound for this biotech
Prosper Junior Bakiny (Axsome Therapeutics): Shares of Axsome Therapeutics have dropped by greater than 50% this yr. The corporate has needed to take care of numerous setbacks. Most notably, the regulatory assessment of Axsome Therapeutics’ lead pipeline candidate, AXS-05, was delayed. The Meals and Drug Administration (FDA) was supposed to finish its assessment of the potential remedy for main depressive dysfunction in late August.
However the company discovered deficiencies in Axsome Therapeutics’ software. Because of this, the FDA has but to approve the drug. Whereas this difficulty damage Axsome Therapeutics’ inventory efficiency, the long run seems to be brilliant for the corporate. AXS-05 proved efficient at decreasing the signs of despair in a late-stage research.
The necessity for a drugs like AXS-05 has solely elevated because of the pandemic, with the variety of folks affected by signs of despair almost quadrupling to 80 million because the outbreak began. AXS-05’s delayed assessment is not ultimate, to say the least. However given the strong outcomes it delivered in scientific trials and the dire want for despair therapies, it seems to be more likely to hit the market ultimately.
However Axsome Therapeutics can also be creating a number of different medicines. These embody AXS-07, a possible therapy for migraines, and AXS-12 and AXS-14, geared toward treating narcolepsy and fibromyalgia, respectively. The corporate estimates the potential annual gross sales of those medicines to be between $4 billion and $9 billion.
In the meantime, Axsome Therapeutics’ market cap of $1.4 billion is at the moment lower than half of the low finish of those projections. That offers Axsome Therapeutics an incredible upside potential. Naturally, dangers are concerned; the corporate may run into extra regulatory roadblocks for AXS-05 or another pipeline candidate.
However on the flip aspect, if Axsome Therapeutics begins racking up regulatory approvals for its therapies, its shares will soar subsequent yr and past. Whereas I would not suggest going all-in on this firm — it would be greatest to provoke a small place, for now — 2022 may show to be a significantly better yr for the biotech.
Able to take off
David Jagielski (Novartis): Buyers have been shifting away from high-priced progress shares and into extra value-oriented investments in current weeks. One inventory that has benefited from that’s healthcare firm Novartis, which is up over 5% up to now month whereas the S&P 500 has fallen 2%. The drugmaker’s shares are nonetheless down 9% yr thus far. But when the shift to worth shares continues, Novartis might proceed climbing into subsequent yr.
The enterprise itself is in strong form. Novartis posted a revenue of $9.8 billion on gross sales of $52.4 billion over the trailing 12 months, good for a revenue margin of just below 19%. It has additionally generated a boatload of cash, with free money stream throughout that point coming in at $12.2 billion. And the corporate is getting much more money into its financials after promoting its stake in drugmaker Roche for $20.7 billion. On account of this windfall of money, the corporate is planning to purchase again as much as $15 billion value of its shares by the top of 2023.
Money is king, and Novartis is producing loads of it as of late. That can give the corporate a number of flexibility shifting ahead ought to it need to pursue an acquisition or put money into increasing its enterprise in different methods. Novartis initiatives that by way of new merchandise and approvals its enterprise can proceed rising gross sales by not less than 4% per yr till 2026.
At present, the inventory trades at 20 occasions earnings. That is a deal provided that the common healthcare inventory within the Well being Care Choose Sector SPDR Fund trades at a a number of of greater than 25. And Novartis’ dividend yield of three.8% makes the inventory much more enticing to long-term buyers. The common inventory on the S&P 500 pays a dividend that yields just one.3%. I am assured that as buyers focus extra on worth subsequent yr, Novartis may develop into a extra standard inventory to personal.
This monopoly is enjoying some new video games
Keith Speights (Vertex Prescription drugs): Vertex’s share value dropped near 25% yr thus far by early October. The biotech inventory has since made a strong comeback, however it’s nonetheless down 6%.
The corporate has loved a digital monopoly in treating the underlying explanation for cystic fibrosis (CF) for years. Vertex nonetheless has progress potential within the international CF market. Nevertheless, buyers have been anxious for the drugmaker to efficiently broaden into new therapeutic areas. Though Vertex has skilled some failures up to now with these efforts, it seems to be in a robust place to department out past CF now.
Vertex and CRISPR Therapeutics anticipate to file for regulatory approvals of CTX001 in late 2022. CTX001 is a promising CRISPR gene-editing remedy that would successfully remedy transfusion-dependent beta-thalassemia and sickle cell illness.
Along with this partnered program, Vertex is advancing its internally developed candidate VX-147 into pivotal research early subsequent yr focusing on APOL1-mediated kidney illness. The corporate reported positive results from a phase 2 study evaluating the experimental drug earlier this month. Over 100,000 folks within the U.S. and Europe have APOL1-mediated kidney illness. That is an even bigger market than CF for Vertex to focus on.
CTX001, VX-147, and continued momentum for the CF franchise are more likely to be the first progress drivers for Vertex within the close to time period. Over the long run, although, the corporate may have further winners from its pipeline. Vertex additionally has a hefty money stockpile to make use of in making acquisitions and licensing offers.
This has been a disappointing yr for the massive biotech inventory. However I believe 2022 might be a cheerful new yr for Vertex shareholders.
10 shares we like higher than Axsome Therapeutics
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David Jagielski has no place in any of the shares talked about. Keith Speights owns Well being Care SPDR and Vertex Prescription drugs. Prosper Junior Bakiny owns Vertex Prescription drugs. The Motley Idiot owns and recommends Axsome Therapeutics, CRISPR Therapeutics, and Vertex Prescription drugs. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.