What a brutal past few days it's been for biotech stocks. A simple tweet last week from presidential hopeful Hillary Clinton has caused biotech investors to get in a tizzy, and they've been selling off biotechs of all different sizes ever since.
However, when a sector is sold off for reasons that have nothing to do with results from the companies themselves, we Fools tend to look through the carnage for high-quality names that are suddenly trading at a discount. We asked our team of Motley Fool contributors to pick a biotech stock that's been beaten down recently and might be a great buying opportunity. Read on to see if you agree with their suggestions.
: While biotech stocks of all stripes have been sold off hard recently, biotech stocks that are still in the high-risk clinical stage have really taken a nosedive. One name in particular, bluebird bio , is down more than 52% from its recent 52-week high of just a few months ago, and it has really caught my eye recently.
Bluebird bio is a gene therapy company that's attempting to develop potential cures for a handful of rare diseases, and the early results for two diseases in particular look quite promising. The first is beta-thalassemia, an an inherited blood disorder that causes severe anemia. In the U.S. and Europe, about 15,000 patients have the disease, and in clinical testing, bluebird's LentiGlobin therapy has produced some stunning results and offer hope to patients suffering from this potentially fatal disease.
The second disease that LentiGlobin also may be a cure for is severe sickle cell disease, another blood disorder that's far more common than beta-thalassemia, with about 150,000 patients affected in the U.S. and Europe alone.
As LentiGlobin could be a potential cure for these two diseases, the company should be able to charge a huge premium for the treatment regardless of the political rhetoric of the day. Peak sales estimates for LentiGlobin are currently pegged around $4 billion, but there's plenty of upside to that number if the therapy proves effective against both disorders.
With $936 million in cash on its balance sheet, the company believes it should be able to fund its operation through 2018, which means it won't be needing to raise cash with its stock price at a depressed level. If LentiGlobin can make it through the regulatory approval process, bluebird's stock could easily be a multibagger from here, and I think more daring investors should give it a look.
Sean Williams : Hillary Clinton's prescription-drug reform proposal has been like a wrecking ball for the biotechnology sector over the past week and change. While some traders are pouting over the spilt milk, long-term investors are on the lookout for great deals. If you're one such investor, then I'd suggest taking note of the major haircut in Horizon Pharma stock.
Horizon Pharma is looking to transform itself through a serious of acquisitions into a highly profitable and formidable biotech company. It acquired Hyperion Therapeutics for a little more than $1 billion and is taking a $3 billion offer for DepoMed hostile in an effort to gain hold of a portfolio of pain and nervous system disorder products. Based blindly on profitability forecasts, Wall Street anticipates Horizon's EPS will nearly triple between 2014 and 2018 to $2.63 per share, with its sales expected to quadruple to $1.2 billion.
But it's what's under the hood that's even more impressive than its growth predictions. Horizon has two big factors working in its favor. First, its product portfolio is well diversified, with a nice mix of primary care, specialty care, and orphan products. Its orphan drugs (especially Ravicti and Buphenyl, which it acquired when it bought Hyperion) are key to its success, since they're protected from generic competition and often bear hefty price tags.
Secondly, Horizon moved its corporate headquarters to Ireland last year, after it acquired Vidara Therapeutics. The importance of this move is that Ireland has far lower corporate tax rates than the U.S., meaning it'll allow Horizon to keep more of its gross profit, ultimately boosting its bottom line and potentially giving it the firepower needed to seek out more earnings-accretive transactions.
Horizon has the makings of a mini- Valeant Pharmaceuticals , and I'd encourage investors with a long timeframe and high risk tolerance to take a closer look at the company.
The good news about the broad sell-off in biotech is that some unique opportunities are opening up for long-term investors. While my colleagues' picks, bluebird bio and Horizon Pharma, have more explosive potential to the upside, Gilead Sciences is a big cap that's starting to look like a total steal.
At today's price, Gilead trades at just over 8 times 2016 earnings estimates, and those earnings are likely to keep growing based on the company's strong pipeline and successful track record of developing groundbreaking drugs. Gilead held $14.7 billion in cash at the end of last quarter. Despite that massive war chest, and CEO John Martin's fabulous track record of creating value with Gilead's cash through acquisitions, the market keeps pricing Gilead for disaster, rather than what is much more likely -- another smart acquisition.
In addition, concerns over Gilead Sciences' supposedly waning share of the hep-C market look far overblown. Stellar data just came out from phase 3 studies for Gilead's new combo hep-C therapy. The pan-genotype therapy combines Gilead's NS5A inhibitor velpatasvir with Sovaldi, and the results were nothing short of incredible. The treatment provides a durable cure for 98% of patients and is likely to become the standard of care for genotypes 2 through 6.
The company has also taken a shareholder-friendly approach recently, authorizing a $15 billion share repurchase and instituting a quarterly dividend. A bear market in biotech? Bring it. As the dust settles, those who don't follow the herd should find a bonanza of opportunities to profit.
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The article 3 Biotech Stocks That Have Been Unfairly Beaten Down originally appeared on Fool.com.
Brian Feroldi owns shares of Gilead Sciences. Cheryl Swanson has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. The Motley Fool owns and recommends Gilead Sciences and Valeant Pharmaceuticals. The Motley Fool recommends Bluebird Bio. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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