Biotech IPOs Are Getting the Headlines - Here's Where You'll Find the Profits

For many investors in 2019, the name of the game is speculation.

Of course, it has also been a huge year for initial public offerings - and IPOs and speculation often go hand in hand.

As we look ahead to the second half of 2019, IPOs will be one of the biggest focuses, and we expect the biotech IPOs to take center stage.

In the last week of June, three new biotech IPOs rocked the market and had investors scurrying to get in on the action.

BridgeBio Pharma Inc. (NASDAQ: BBIO) gained 62%, Adaptive Biotechnologies Corp. (NASDAQ: ADPT) jumped more than 100%, and Morphic Holding Inc. (NASDAQ: MORF) popped 35%.

Investors are betting big on niche companies bringing new drugs to market.

They may be right.

Nothing is more rewarding than a new drug gaining approval by the FDA.

Such news often adds 50% or more to the market capitalization of the company owning the patent.

With so many diseases begging for a cure, the biotech space is the perfect feeding ground for speculation.

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It is also the perfect feeding ground for risk.

What happens when a drug isn't approved?

Usually, the stock drops hard.

At the moment, the market is favoring rampant speculation and turning a blind eye to risk.

It sure looks good for investors at the initial offering, but is it such a good thing for those buying today?

Whenever the market chases, it is usually too late.

At some point, the party is going to end, and speculation ends in a bust.

This is simply too risky of an investment strategy for us.

Instead of chasing speculative stocks, investors ought to focus on fundamentals.

That is especially true in the biotech space.

Most companies doing drug research actually lose money.

Those losses can be massive. They can even bankrupt a company before a drug ever comes to market.

There's an alternative for those looking to invest in biotech, but who don't want all that risk: the Money Morning Stock VQScore™.

Believe it or not, there are biotech companies that are very profitable.

That cash flow fuels research for new discoveries.

It's always far better to invest in a known quantity with an equal chance of hitting it big on a new drug than to bet it all on the unproven pipeline of a young startup.

That's where our biotech stock comes in. It has all the upside of the new biotech IPOs with hardly any of the risk of speculative investing.

Forget Biotech IPOs - This Stock Has the Profits Without the Risk

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At the top of the VQScore rankings this week is Ligand Pharmaceuticals Inc. (NASDAQ: LGND).

It's a biotech pharmaceutical company that is very profitable.

More importantly, those profits are growing, which is what caught the attention of VQScore.

Ligand is a biotech research drug company that focuses on cancer and other debilitating diseases.

Nearly 10% of its portfolio of drugs is already on the market.

As a result, the company is poised to make $3.26 per share in profits this year.

Analysts expect that number to grow by 16% the following year.

Given the profits and solid growth, investors have bid up shares to trade for 35 times current-year estimates.

That may seem like a big number at first, but it isn't for a biotech company.

As mentioned previously, those red-hot IPOs coming to market now are losing money, and none have the portfolio diversification that Ligand offers.

Almost half of the pipeline at Ligand is in phase 1, 2, or 3.

That doesn't guarantee that a drug will actually make it to market, but it sure helps improve the odds.

Ligand has a history of beating earnings estimates as well, meaning the fundamentals are probably better than the market currently assumes.

The opportunity at Ligand comes to us thanks to weakness in the pharma space on worries of increased regulations with respect to drug prices.

Last fall, Ligand stock traded for $274 per share.

Today's price is more than 50% less than that amount.

Clearly, something else is awry.

That "something else" was a report in January from noted short seller, Citron. It set a price target of $35 per share on the stock.

The primary argument by Citron is a claim that most of the company's profit comes from one drug that soon will be losing its patent.

But isn't that the whole point of why we want to buy Ligand?

Of course drugs will come off patent at some point, but Ligand has a deep bench that will replace those lost patents and beyond.

Sure, buying the stock at $275 per share may not be a great idea with such future risk of lost patents with no guarantee of new drugs to replace lost income, but at $117 per share, it is a far different story.

Compared to the high-flying IPOs, I would take Ligand all day, even with the risk of losing revenue from a lost patent.

Such is the nature of biotech.

It's all about the pipeline, and Ligand's pipeline is deep.

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