Each year, MoneyShow surveys the nation’s most respected and well-known newsletter advisors for their favorite investment ideas for the coming year. From conservative quality blue chips for safe and steady returns to high-growth stocks with massive potential upside, MoneyShow’s Top Picks Report features 100+ investment ideas covering the best stocks and ETFs to buy for 2020.
Here are seven favorites from the pharmaceutical and biotechnology space.
FILE- In this Jan. 3, 2019, file photo specialist Peter Giacchi, right, calls out prices for … [+]
The biotechnology company Amgen (AMGN) — my more speculative favorite for 2020 — sells several different medical treatments. The firms products include the infection-fighting drug Neulasta, migraine treatment Aimovig, cholesterol drug Repatha, rheumatoid arthritis drug Enbrel and kidney therapy Sensipar. Enbrel is its biggest seller, at approximately 25% of sales, followed by Neulasta at 13%.
Amgen has also been active on the M&A front. It recently acquired the rights to Celgene’s Otezla psoriasis drug for $13.4 billion. That product generated around $1.6 billion in sales last year.
Plus, Amgen announced plans to invest $2.7 billion for a 20.5% stake in the Chinese biotechnology firm BeiGene (BGNE). The deal will give Amgen’s cancer drugs greater exposure to the Chinese market. This will also allow the firm to profit if BeiGene’s pipeline of molecularly targeted and immuno-oncology products prove to be effective and ready for commercialization.
Amgen pays a generous quarterly dividend of $1.45 per share. That was good for an indicated yield of 2.7% in December 2019. Further, the shares broke out to a fresh all-time high on heavy volume late last year. And it goes without saying that biotechnology is not an industry affected by the vicissitudes of the U.S. economy. That makes this promising, relatively defensive pharma play a great addition to investor portfolios.
AbbVie, Inc. (ABBV) is a global, research-based biopharmaceutical company; its products are focused on treating conditions such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C virus (HCV) and HIV.
The company is also involved in neurological disorders, such as Parkinson’s disease; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; pain associated with endometriosis; as well as other serious health conditions.
The firm also has a pipeline of promising new medicines in clinical development across such important medical specialties as immunology, oncology and neuroscience, with additional targeted investment in cystic fibrosis and women’s health.
In June 2019, AbbVie entered into a definitive transaction agreement to acquire Allergan plc (AGN). The transaction is expected to close in early 2020 and would create a massive biopharmaceutical company with about $48 billion in combined 2019 revenue.
Management expects that shareholders will see 10% EPS accretion in the first full year of the combination and that the company can achieve annual pre-tax synergies and other cost reductions of over $2 billion by year 3.
The company’s combined net debt of approximately $95 billion will be reduced by $15 to $18 billion by 2021-end, while continuing to support dividend growth and pipeline investment. Historically the shares offer good value when the dividend yield is 4.50%. Based on the current dividend of $4.72 per share, a 4.50% dividend is realized at $105 per share. Trading recently around $88 per share, the stock is about a 20% discount from its historically repetitive area of high yield.
Anavex (AVXL) is a bio-pharmaceutical company that amazingly few know about, but those who do are passionate about. Its lead drug is Anavex 2-73 (A2-73), an orally available drug with a clean safety profile that gives every indication so far of being highly effective against Alzheimer’s disease.
I’ll explain. Though there are 4 drugs approved, none of them really works beyond 6 months. It is currently in a 1-year, 450-patient Phase 2b/3 Alzheimer’s trial that is halfway through enrollment. If successful the company will file for provisional approval.
In an earlier, smaller Phase 2 study, comparable patients in the ADNI data base not taking Anavex 2-73 saw 4 times the deterioration in their Activities of Daily Living (ADL) scores as those protected by the higher dosage of Anavex 2-73 after two years.
In Anavex’s Phase 2a trial the high dosage of A2-73 cohort saw only a 3-point decline in ADL score (a normal score is about 70 or better) as compared to a 25 point decline (8 times the decline) in the low dosage group (that basically did not work so was effectively a placebo) at 148 weeks.
Same story with the Mini Mental State Exam (MMSE) score (perfect is 30, in this realm scores run below 26) where those taking the higher dose of Anavex 2-73 saw a drop of 1.1 in the MMSE score over two years vs. a drop of 4.4 in untreated patients.
This is phenomenal. Nothing on the market today can come even close to this and if the company can prove this in the Australian trial it will be on track to become the lead Alzheimer’s drug in a market that is at least $10 billion worldwide.
Proof of the pudding, 94% of those who have completed the current 1-year trial period are voluntarily continuing to take A2-73, and some (from the earlier Phase 2a trial) have continued for as much as 3 to 4 more years now. Sometimes that speaks louder than the hard data.
In addition, Anavex is currently wrapping up a Phase 2, 120-patient study with A2-73 for Parkinson’s dementia and is working on three Phase 2 trials for Rett Syndrome, a devastating disease that strikes girls in infancy handicapping them severely in almost every function.
Data from these trials are expected in 2020. I could go on for pages. There are no guarantees on Wall Street, but I hope you will agree that the above at least stacks the odds in our favor.
Bristol-Myers Squibb (BMY) is a shining example of value and a top pick for total return. Bristol-Myers Squibb has a number of factors in its favor, not the least of which is solid revenue and earnings growth potential over the next 12 months, an attractive dividend yield of nearly 3%, and a potential kicker in its recent acquisition of Celgene.
Bristol-Myers Squibb is a leading provider of pharmaceuticals. Leading brands include Opdivo, Eliquis, Plavix, Orencia, and Yervoy. Revenues will grow sharply with the addition of Celgene. The addition of Celgene will push annual revenues over $40 billion and give the combined company the number one position in oncology and cardiovascular drugs.
Bristol-Myers Squibb shares trade for just 10 times the 2020 earnings estimate, so investors aren’t paying much for the expected growth. The company is taking on a big chunk of debt to pay for the Celgene deal. Despite the increased debt load, the company just raised its dividend approximately 10%, indicating the firm is fairly confident in its future.
The stock traded in the low $70s in 2018 and was a $77 stock as recently as 2016. I think expected appreciation in the 10%-15% range plus a nearly 3% dividend yield sets up for a nice total return in 2020. I expect these shares to outperform the market over the next year. Please note Bristol-Myers Squibb offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company.
Vertex Pharmaceuticals (VRTX) is a great company, and after a couple of years of choppy action, it appears the buyers are finally beginning to flex their muscles. The company has made hay with cystic fibrosis (CF) treatments, with approvals of individual drugs (it has three on the market today) and combination therapies gradually expanding the share of the CF market it addresses—sales growth has been steady and earnings are following the same upward path.
But what’s brought in the buyers was news that the FDA approved (five months early) Vertex’s triple combination CF treatment — long story short, the combo will greatly expand the number of CF patients the company can serve, and the selling price it’s targeting was higher than many analysts expected.
Bottom line, management hiked revenue guidance after the approval (now looking for a 22% bump in revenues in 2019) and analysts are looking for a very solid 2020 (sales up 26%, earnings up 39%) as the triple combo product gains acceptance, with another round of excellent growth in 2021. All told, earnings are expected to basically double from 2019 to 2021.
The firm has some other early-stage research going on — it eventually wants to diversify away from just CF products — but there’s no question the cystic fibrosis business is going to drive perception in the quarters ahead. Technically, the stock broke out of a two-year dead period in October and looks like it is going to be one of the stock market’s liquid leaders for 2020.
MannKind (MNKD) has a proprietary drug delivery platform called Technosphere that allows it to deliver a wide variety of drugs to the body through the lungs rather than via pills or injections (thus allowing for an often much faster onset of action).
The company’s lead product is Afrezza (inhalable insulin), and it is already approved by the FDA for use by both type 1 and type 2 diabetics. Though still quite small relative other mealtime insulins, sales of Afrezza have been growing steadily for the past couple of years,
Doctors need to see results in a small group of patients before they’ll start expanding use of the new therapy into the rest of their practice, and the reality is that this “trial” period often takes 12-18 months when it comes to managing diabetes.
And, given the manner in which new ways of managing diabetes have been adopted in the past, I believe the odds are good that 2020 will be the year that Afrezza finally starts to gain some meaningful traction in the marketplace.
Along with Afrezza, MannKind is also developing a Technosphere-based version of treprostinil (along with another undisclosed molecule) with its partner United Therapeutics (UTHR). It also has an agreement in place with privately-held Receptor Life Sciences (RLS) under which RLS is developing cannabis-based products utilizing the Technosphere platform.
And though they are not yet licensed to partners, MannKind is also working on inhalable versions of a number of interesting compounds, most notably epinephrine (for anaphylactic shock), sumatriptan (migraines), and tadalafil (erectile dysfunction).
Thanks to a very aggressive group of short sellers who have flooded the market with 40 million “extra” shares over the years, MannKind’s market cap has been beaten down just over half of what it was when the company first came public back in 2004. While it remains to be seen how things will actually play I do find it encouraging that all of those short sales represent pent up buying demand when short sellers eventually close out their trades.
I’ve liked the action in “Big Pharma” for some time; in my view, pharmaceutical giant Pfizer (PFE) has very positive potential for the new year, New drugs are finally coming on line and hitting revenue and earnings streams and because there are more of them likely to come in what seem to be increasingly encouraging pipelines throughout the sector.
Pfizer lost patent exclusivity for its blockbuster nerve pain drug Lyrica and the stock tanked. But the stock has quietly made a comeback in late 2019 due to its market dominance for blood thinners with Eliquis, its blockbuster cancer drug Inlyta, a broadening set of indications for Xtandi, its prostate cancer treatment, and steady performance for its arthritis drug Xeljans which has recently won extended FDA approval for treatment indications in ulcerative colitis.
Moreover, Pfizer may be sitting on a couple of stealth blockbusters. One is Vyndaquel which treats what used to be considered a rare form of heart failure which may be a more common ailment than previously known and which insurance companies are actually paying for without too much trouble leading to initial sales being well above expectations.
The other potential blockbuster is in a partnership with Eli Lilly (LLY) has the potential to reduce opioid use significantly in the treatment of low back pain. The drug, Tanezumab, is a monoclonal antibody that blocks a substance called nerve growth factor, which has been found to be a key component in spine pain.
If this medication is approved, there is no major competition. And if it is effective, it will likely change the whole chronic pain industry. The drawback is related to a statistically significant potential for users to have damage to bones while under treatment.
There is still room for gains in the healthcare sector and I expect that barring a major market event, the stocks that have lagged in 2019 could be upside surprises in 2020. The Big Pharma stocks are starting to gather steam but there is still time to buy them before they take off.
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