When evaluating biotech stocks, many key indicators that work for other industries - e.g. price-to-earnings ratio, profit margin, revenue-per-share - often don't apply.
investing in biotech
Editor's Note: We're sharing this Private Briefing with you because it contains a pick that's put Bill's readers up as much as 444% since he first recommended the stock...
Shares of blood-cancer drugmaker Pharmacyclics Inc. rocketed as much as 22% last Tuesday after the company exhilarated investors by forecasting that sales of its key drug would double this year.
We weren't surprised by this, of course.
But even more important was that Private Briefing readers weren't, either.
In a Private Briefing report back in early December, we said the Pharmacyclics blood-cancer drug Imbruvica (ibrutinib) was well on its way to becoming the blockbuster we predicted when we first recommended shares of the Sunnyvale, Calif.-based biotech back in April 2012.
That "call" was right on target.
Late last Monday, after the close of trading, Pharmacyclics said net-product revenue for Imbruvica for full-year 2014 would come in at $492 million. That would include sales of about $185 million in the fourth quarter alone - a hefty "sequential" (quarter-to-quarter) jump of 31%.
But here's the real stunner: For 2015, the company is looking at sales to more than double and reach $1 billion.
For those who want the actual numbers, that's a gain of 103%.
Imbruvica, you see, is shaping up to be the very blockbuster we told you it would be.
And that bodes well for Pharmacyclics shares.
Today I want to reintroduce you to a biotech stock that Wall Street has been pricing as though it were dead money.
This biotech company recently filed a stellar earnings report. But those earnings were slightly off analyst expectations, and the share price dipped.
There are more than 1,000 biotech companies in North America alone. They cover a wide range of sectors including pharmaceuticals, biologics, generics, and medical devices.
But finding the right stocks in such a broad industry is no easy task.
That's why we've targeted the best biotech ETF to buy now. It offers investors an excellent way to play the entire industry, without having to pick a specific sector.
It's a common thought that investing in biotech stocks is just too risky for the average investor - but that's not the case.
It's true that biotechnology stocks can be very volatile - especially when companies have developmental drugs going through clinical trials - so they aren't the right stocks for every investor. But when investors are able to limit risk, they can find their portfolio's biggest profits from biotech.
Money Morning's BioScience Investment Strategist Ernie Tremblay recommends investors use this one simple strategy when investing in biotech.
Some analysts feel that the biotech sector's recent tumble is evidence of the biotech bubble bursting.
But they're wrong; the market is simply in a period of adjustment.
The premise behind the bubble idea is that biotech companies as a group are overvalued, that their market caps aren't supported by performance. In other words, that their perceived value is all smoke and mirrors.
How do single-day stock gains of 40%, 50%, 75%, even a 100% or more sound? If you're anything like me they sound pretty darn great.
Those kinds of gains happen almost every day, but the mainstream financial media would much rather focus on recent stories such as: FB jumps 14% on increased mobile revenue, GOOG rockets ahead 13% on higher top line, or TSLA up 8% on higher than expected sales of the Model S.
Small-cap biotech stocks can deliver triple-digit gains – or they can crash if clinical trial results disappoint.
When you're evaluating a biotech, or even a full-fledged pharmaceutical company, you'll want to look at its product pipeline, upcoming catalysts, and financial indicators.
But the most important asset it possesses, the heartbeat that drives everything else, is its intellectual property (patent) portfolio...
That's what will make it attractive for acquisition, merger, or licensing deals.
And it's what protects its products from marauding generic drug manufacturers, who will produce copycat therapies and sell them at cutthroat prices.
For a drug development company, that spells disaster.
That follows a 60%-plus return last year, far outpacing the 30% gain of the broader market. Some 81 biotech companies saw share prices more than double in 2013.
Anyone who's very familiar with the bioscience/pharmaceutical sector will tell you investing in experimental drugs can be an object lesson in volatility.
As the drugs progress toward FDA approval or denial, the stock prices of the companies backing them can be in for the same volatile ride.
A stock's surge or decline is often premised on general assumptions about the likelihood of FDA approval.
But within specific bioscience sectors, that likelihood varies... widely.
That's why I wanted to navigate through some types of drugs that generate a lot of enthusiasm but often crash before delivery.
What a year so far for biotech stock profits...
Another consolidation in the active biotech sector came Tuesday when Cadence Pharmaceuticals Inc. (Nasdaq: CADX) agreed to be acquired by Mallinckrodt plc (NYSE: MNK) in a $1.3 billion deal. The move sent CADX up 26%.
Under terms of the deal, Dublin, Ireland-based Mallinckrodt will pay $14 in cash for each share of San Diego, Calif.-headquartered Cadence. That's a 26% premium to Monday's closing price and a 32% premium to the stock's average 30-day trading price.
This could be the biggest year ever for investing in biotech takeover targets - all due to the patent cliff.
The "patent cliff" refers to the sharp revenue drop a pharmaceutical company faces when the patent on one of its drugs expires. At that point, other drug companies can begin replicating name-brand drugs, cutting into the billions of dollars in revenue that large-cap pharmaceutical companies are used to.
IPO Calendar 2014: This year is forecast to be a record year for initial public offerings (IPOs).
Over the January to March period, some 250 to 300 new issues will launch, according to professional services firm EY - a number not seen since the start of the 2008 financial crisis.
And biotech companies are the hottest issues to date.
Since 2000, no two-week period saw more than six new biotech issues - until now.
If there's one sector that's primed for explosive growth right now, it's biotechnology.
Its position as a new market leader in the tech sector cannot be overstated. Clearly, investing in biotech is an idea few can afford to ignore.
Genentech, the first biotech company, was formed in 1973 and was the first to go public in 1980, which launched the biotech sector.
Though the sector is only 33 years old, humans have been using varying forms of biotech for thousands of years, before anyone was investing in anything.
Biotech stocks are soaring in 2013 as major innovations in healthcare have offered enormous breakthroughs on once-untreatable diseases and conditions.
But for years, it was tricky to invest in some of today's best biotech companies given their volatility and uncertainty in the industry. For the better part of five years, some of today's leading biotech stocks remained essentially flat.
For some time, it was best to stick to large-scale pharmaceutical companies with a strong yield and avoid mass speculation in hit-or-miss penny stocks.
Well, not any more. Shares of the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) - which tracks industry returns - are up a staggering 42% since the beginning of the year, and the health/biotech industry has the highest returns of any sector for the year.
And you haven't seen anything yet...
With one of the most exciting biotech companies now joining the NYSE and another setting its focus on an uplisting, we're seeing major changes in the biotech industry and investment. And there are companies poised to become the best biotech stocks you can find right now.