Top 14 biotech stocks to watch

There is a variety of biotech stocks for investors to choose from. We have a look at the biggest listed biotech companies and their prospects.

Trader Source: Bloomberg

Largest biotech stocks

Below are 14 of the biggest publicly-listed biotech companies. You can read about how to invest in and analyse the biotech sector before deciding what stocks to add to your portfolio.

  1. Amgen
  2. Gilead Sciences
  3. Celgene
  4. Vertex
  5. Illumina
  6. Biogen
  7. Regeneron
  8. Alexion
  9. Incyte
  10. Biomarin
  11. Mylan
  12. Alkermes
  13. Abcam
  14. Genus

Amgen: a giant not without its share of problems

Amgen is one of the world’s largest biotech companies that already has a suite of approved medicines and treatments. It has eight core products – treating everything from arthritis to anaemia - currently for sale with no single one accounting for more than 22% of total revenue. However, the company does generate a staggering 96% of all revenue from just three wholesale customers: AmerisourceBergen, McKesson and Cardinal Health. This means it may have a varied product portfolio but it's heavily reliant on a handful of customers.

Plus, while overall product sales have continued to grow Amgen has admitted some of its more mature products are facing increased competition, with sales of four of its top seven in decline. The company’s pipeline of new products is therefore significant, with seven products currently undergoing Phase III trials looking to provide treatments for the likes of Alzheimer’s, heart failure and asthma. It has another three products in Phase II trials and 22 more in Phase I.

Amgen has spent $809 million since 2014 on restructuring and yielded $1.9 billion of savings. A $100 invested in Amgen in 2014 would have produced a total return of $192 by the end of 2018, versus just $150 from the S&P 500. The dividend has consistently grown over the years, from $2.44 in 2014 to $5.28 last year, in addition to $17.9 billion worth of shares being repurchased.

Amgen results: 2018 (YoY % change)

Market cap $116 billion
Revenue $23.7 billion 3.3%
Research and development (R&D) spend $3.7 billion 4.9%
R&D spend as % of revenue 15.6%
Pre-tax profit $9.5 billion -0.5%

Gilead Sciences: a new leader tasked with turnaround

The new chief executive of Gilead, Daniel O’Day, took over at the start of March 2019 to turn the company around following several tough years. Both top and bottom lines declined last year, mainly because sales of its hepatitis C products plunged to $3.7 billion from $9.1 billion because of lower prices and volumes as a result of increased competition, although it says sales will stabilise going forward. Gilead has said it could return to growth in 2019, forecasting product sales will be broadly flat at $21.3 billion to $21.8 billion versus $21.7 billion in 2018 but predicting a higher product gross margin of 85%-87% compared to just 77.4% last year (having tightened from 83% in 2017). Sales of its HIV products (its largest franchise) have also continued to grow and should continue that trend following solid starts for new products like Bikarvy.

Gilead is another rare example of a dividend-paying biotech stock, having raised its annual payout to $2.28 last year from $2.08. It currently boasts a higher dividend yield than its rival Amgen, but it has grown its dividend by 47% over the last five years compared to Amgen raising its payout by 84%.

Gilead results: 2018 (YoY % change)

Market cap $81 billion
Revenue $22.1 billion -15%
R&D spend $5 billion 34%
R&D spend as % of revenue 22.6%
Pre-tax profit $7.8 billion -42%

Celgene: about to merge with Bristol-Myers Squibb

Celgene expects to complete its merger with pharmaceutical giant Bristol-Myers Squibb by the end of September this year. The deal, announced in January, will see Celgene shareholders receive $50 in cash and one Bristol-Myers share (plus one tradeable CVR, giving a total equivalent value of $102.43 per share), giving Celgene investors 31% of the new enlarged entity. The pair believe together they can generate $45 billion in free cashflow within three years and deliver $2.5 billion of run-rate cost-savings by 2022. Bristol-Myers has said Celgene will be 40% accretive to its standalone earnings per share in the first full year of ownership.

Read more about Bristol-Myers Squibb agreeing to buy Celgene for $74 billion

The enlarged entity says it will have leading positions in oncology and cardiovascular treatments with a top five position in immunology and inflammation treatments. Celgene’s speciality is in treatments for cancer or inflammatory conditions. The figures below are for Celgene as an independent business:

Celgene results: 2018 (YoY % change)

Market cap $62 billion
Revenue $15.3 billion 18%
R&D spend $5.7 billion -4.1%
R&D spend as % of revenue 37.3%
Pre-tax profit $4.8 billion 12%

Vertex: fast-growing with plenty more packed in the pipeline

Vertex in 2018, having carved out a dominate position in treating cystic fibrosis with three products, one of which was only approved last year to help deliver the impressive 40% jump in annual revenue and a profit. Product sales have jumped to over $3 billion from under $500 million in 2014.

Its three existing products treat half of the 75,000-or-so cystic fibrosis patients in North America, Europe and Australia and it expects to release results from the Phase III trial of a new product before the end of 2019 that, if successful, could be the ‘first treatment for the underlying case of cystic fibrosis’ that could benefit up to 90% of patients. Vertex is broadening its portfolio with new products at various stages of the testing process, targeting a new painkiller and medicines to treat sickle-cell disease and alpha-1 antitrypsin deficiency (which is often a trigger of lung cancer).

Vertex does not pay a dividend, but it did repurchase 823,000 shares in 2018 at an average price of $168.88 each.

Vertex results: 2018 (YoY % change)

Market cap $46.8 billion
Revenue $3.05 billion 40%
R&D spend $1.42 billion 6.9%
R&D spend as % of revenue 46.6%
Pre-tax profit $600.2 million swings from $15.7 million loss

Illumina: 20 years of consecutive growth with more to come

Illumina is the global leader in DNA sequencing and array-based analysis for genetic and genomic tests. The company performed well in 2018, delivering its ‘20th year of consecutive growth’ after revenue jumped 21% and net income rose to $850 million from $591 million the year before. However, pre-tax profit fell because a $453 million gain recorded on the deconsolidation of GRAIL – its unit that is developing a blood-based test for early-stage cancer detection using its sequencing technology – recorded in early 2017 was not repeated. Its gross margin also improved to 69% from 66.4%.

The company said it expects revenue to grow by 13%-14% in 2019, with generally accepted accounting principles (GAAP) diluted earnings per share (EPS) of $6.07-$6.17 compared to $5.56 in 2018 (non-GAAP of $6.50-$6.60 versus $5.72 in 2018). Illumina also expects to complete its $1.2 billion acquisition of Pacific Biosciences ($8 cash per share) by the middle of 2019, helping boost the speed and accuracy of its sequencing platforms.

Illumina does not pay a dividend but does repurchase shares, having launched a $150 million buyback in May 2018 that is still yet to be completed. The average price paid so far has been $314.73 per share.

Illumina results: 2018 (YoY % change)

Market cap $44.5 billion
Revenue $2.75 billion 21%
R&D spend $623 million 14%
R&D spend as % of revenue 22.7%
Pre-tax profit $894 million -14%

Biogen: tries to cushion the blow of failed trial with share buyback

Biogen is primarily focused on neurological and neurodegenerative conditions such as multiple sclerosis, Alzheimer’s and dementia, and movement disorders like Parkinson’s. Despite delivering solid progress in 2018 the company’s share price took a major hit earlier this year when it said it had suspended two global Phase III trials of a possible Alzheimer’s therapy that it had been conducting with Japanese partner Eisai.

Not only has it been a major setback for treating the disease as a whole, it also fails to install confidence regarding its outlook. Sales of the company’s best-selling product treating MS have stalled while its second and third best-selling products are in decline. Overall revenue has managed to grow because of new drugs gaining approval, such as Spiranza that treats spinal muscular atrophy. It also managed to offset lower revenue following the spin-off its Haemophilia business in 2017 with higher income from manufacturing third-party drugs and the lower tax rate introduced in the US.

Biogen does not pay a dividend but, following the bad news on its Alzheimer’s treatment trial, launched a fresh $5 billion share buyback. That will be on top of the $3.5 billion buyback launched last year, of which $1.7 billion is still outstanding.

Biogen results: 2018 (YoY % change)

Market cap $42.8 billion
Revenue $13.5 billion 9.6%
R&D spend $2.6 billion 15%
R&D spend as % of revenue 19.3%
Pre-tax profit $5.9 billion 15%

Regeneron: heavily reliant on EYLEA and its international partners

Regeneron currently has seven approved products for sale, but it makes the vast majority of its revenue from just one product named EYLEA, an eye injection treatment for certain retinal diseases. Regeneron is wholly-responsible for sales of EYLEA in the US, which accounts for 63% of its total revenue.

Sales of EYLEA outside of the US is managed by its partner Bayer, which generates over $1 billion in annual revenue for Regeneron, as does a separate deal with Sanofi which markets EYLEA as Zaltrap for the treatment of metastatic colorectal cancer (and other treatments). Its US sales are heavily reliant on AmerisourceBergen and McKesson, which generated 92% of its revenue last year.

Regeneron does not pay a dividend and did not repurchase any shares in 2018.

Regeneron results: 2018 (YoY % change)

Market cap $42 billion
Revenue $6.7 billion 15%
R&D spend $2.2 billion 5.3%
R&D spend as % of revenue 32.8%
Pre-tax profit $2.6 billion 15%

Alexion: from ultra-rare to rare

Alexion is a world leader in ‘complement biology’ – which involves therapies that enhance the ability of antibodies in the immune system. It currently has four therapies treating five very rare diseases that impact a tiny group of patients but is moving from ‘ultra-rare diseases to rare diseases’, which will broaden the use for its products from just 10,000 patients in the US to over 230,000. Although revenue jumped 16% in 2018 it was the second consecutive year of lower pre-tax profit as operating costs rose at a faster pace than revenue and because of R&D acquisition.

However, the company is expecting revenue and profitability to improve in 2019. Revenue is forecast to rise to $4.66 billion from $4.13 billion last year with an operating margin of 54.5% versus 53%. That should push non-GAAP EPS to $9.20 in 2019 from just $7.92 in 2018.

Alexion does not pay a dividend but is still operating a buyback programme launched way back in 2012, of which there is still over $450 million outstanding.

Alexion results: 2018 (YoY % change)

Market cap $28.9 billion
Revenue $4.1 billion 16%
R&D spend $730.4 million -17%
R&D spend as % of revenue 17.8%
Pre-tax profit $242.2 million -56%

Incyte: financials growing but pipeline dealt a blow in 2018

Incyte has grown significantly since its first product, Jakafi, was approved to treat myelofibrosis in 2011 and then polycythemia vera in 2014. The treatment still accounts for the clear majority of Incyte’s revenue and grew 22% in 2018. Its second-biggest revenue driver is from royalties it earns from partners selling the same drug but under the brand name Jakavi, which rose 28% last year. Royalties from its newest revenue-generating product, Olumiant, soared 360% last year after being approved in the US following EU approval being granted in 2017.

It was a mixed year for Incyte in 2018. Financial results were largely positive as it booked top and bottom line growth, but its pipeline was dealt a blow after its Phase III trial together with Merck looking to create a first-line treatment of patients with advanced or metastatic melanoma did not yield the expected results. The company said it was ‘disappointed’ and highlights the need for a diversified portfolio. Incyte does not pay a dividend or buyback shares.

Incyte results: 2018 (YoY % change)

Market cap $18.1 billion
Revenue $1.9 billion 23%
R&D spend $2 billion -9.7%
R&D spend as % of revenue 105%
Pre-tax profit $115.3 million swings from $312.3 million loss

Biomarin: delivering top-line growth but still stuck in the red

Biomarin targets some of the rarest of diseases with products trying to treat conditions that can affect fewer than 1000 people worldwide. It has six revenue-generating products that give it a diversified income, although three products accounted for over 80% of total sales last year. Still, Biomarin grew revenue for every single one of its products while adding Palynziq after being approved in the US, with Europe hopefully to follow shortly. It is also expecting to release the results from its Phase III Vosoritide study trial (to help children with achondroplasia) before the end of 2019.

The rarity of the diseases Biomarin targets means it is particularly reliant on government subsidies to cover the cost of these expensive treatments. The firm said government ordering patterns caused quarter-to-quarter volatility in revenue last year.

Biomarin expects revenue in 2019 to rise to $1.68 billion to $1.75 billion with slightly higher R&D costs. Still, it expects to report a net loss of $45 million to $85 million compared to the $77.2 million loss booked in 2018.

Biomarin results: 2018 (YoY % change

Market cap $15.6 billion
Revenue $1.5 billion 14%
R&D spend $696.3 million 14%
R&D spend as % of revenue 46.4%
Pre-tax profit $142.7 million vs $35.9 million loss

Mylan: the generic mass marketer

Mylan has over 7,500 marketed products around the world, including antiretroviral therapies on which more than 40% of people being treated for HIV/AIDS globally depend. It is more geographically diverse than its peers, relying on North America for only 42% of sales with Europe contributing 34% and the rest of the world 24%.

The company has a swathe of generic treatments (when companies make their own version of mature drugs developed by others after exclusive rights expire). It said the poor results in 2018 were partly down to lower-than-expected uptake of its generic treatment for multiple sclerosis, Copaxone. It was also dealt a blow when its generic version of Advair, the asthma inhaler, failed to secure approval.

Mylan shares were hit after its 2018 annual results disappointed investors, as did its guidance for 2019. Mylan is expecting revenue this year to be between $11.5 billion to $12.5 billion and adjusted EPS of $3.80 to $4.80, below analyst consensus expectations of $5.04 but higher than the $4.58 reported in 2018.

Mylan results: 2018 (YoY % change)

Market cap $14.6 billion
Revenue $11.4 billion -4%
R&D spend $704.5 million -10%
R&D spend as % of revenue 6.2%
Pre-tax profit $298.4 million -67%

Alkermes: targeting mental health and addiction

Alkermes is an Irish-based firm with a portfolio of treatments for central nervous system diseases, including disorders like schizophrenia, depression, addiction, multiple sclerosis and oncology. It has three proprietary products sold in the US, two of which treat schizophrenia and another treating alcohol and opioid dependence (the last of which is also sold in Russia through partner Cilag GmbH). These are also licensed out to other firms which use them to make their own treatments, with Janssen Pharmaceuticals one of its largest partners.

Financials headed in the right direction in 2018 with double-digit revenue growth helping Alkermes narrow its annual loss.

Alkermes results: 2018 (YoY % change)

Market cap $5.2 billion
Revenue $1.1 billion 21%
R&D spend $425.4 million 3%
R&D spend as % of revenue 38.7%
Pre-tax profit $127 million vs $143.3 million loss

Abcam: maintaining growth but margins tightening

Abcam is a London-listed company that produces antibodies mostly used for research purposes and protein-analysis tools.

Below are Abcam’s annual results for the 12 months to the end of June 2018. It has since released interim results that showed an acceleration in revenue growth of 11% to £124.7 million but a slowdown in ore-tax profit growth of only 2.7% to £33.7 million. The interim dividend was raised 3.55p from 3.42p the year before. Its annual payout in the last financial year was lifted to 8.58p from 7.355p.

Abcam has said it aims to keep on its ‘low double-digit growth trajectory with attractive margins’ and said its annual adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) margin will be around 35% in 2019 compared to 35.6% in the first half, down from 38.0% the year before.

Abcam results: year to June 2018 (YoY % change)

Market cap £2.2 billion
Revenue £233.2 billion 7.4%
R&D spend £16 million -14%
R&D spend as % of revenue 69%
Pre-tax profit £69.1 million 33%

Genus: a profitable, dividend-paying animal genetics company

Genus is a world-leading animal genetic improvement company that supplies ‘genetically elite’ breeding animals, semen and embryos to pork, beef and milk producers.

Below are the annual results for Genus in the year to the end of June 2018. It has since released interim results that showed revenue remained flat year on year at $238.8 million and that it swung to a £6.8 million loss from a £14.3 million profit. The loss was mainly caused by a large pension charge that, without, would have seen it make a profit. pre-tax profit remained flat at an adjusted level at £29.2 million. Genus raised its interim dividend by 10% to 8.9p. The fairly resilient results follow the breakout of African Swine Fever in China, which knocked 3% off revenue.

Genus results: year to June 2018 (YoY % change)

Market cap £1.5 billion
Revenue £470.3 billion 2%
R&D spend £45.5 million 13%
R&D spend as % of revenue 9.7%
Pre-tax profit £7.8 million -81%

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