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3 Top Biotech Stocks to Buy in August

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Biotech stocks can make eye-popping moves depending on data from human trials evaluating their drugs, and that makes investing in biotech arguably riskier than investing in other industries. Nevertheless, investors can pocket big profits if they acquire the right biotech stocks at the right time. Although knowing when it makes the most sense to buy biotech stocks can be tough, our Motley Fool contributors are here to help. Read on to learn why they believe this could be a very good time to add Cambrex (NYSE: CBM) , Galapagos (NASDAQ: GLPG) , and Vertex Pharmaceuticals (NASDAQ: VRTX) to portfolios.

Big news fast approaching for this clinical-stage biotech

Todd Campbell (Galapagos): Results from a trial evaluating Galapagos and Gilead Sciences ' (NASDAQ: GILD) filgotinib in rheumatoid arthritis are expected this quarter, and a win could send shares of Galapagos soaring. The rheumatoid arthritis market is one of healthcare's biggest treatment markets, and there's an important need for new treatment options, particularly for people who don't respond well to anti-TNF therapies, including the $18 billion-per-year Humira.

A person holds a paper displaying a dollar sign and the words buy, hold, and sell.

IMAGE SOURCE: GETTY IMAGES.

Hope has been high for filgotinib since Gilead Sciences licensed it from Galapagos in 2016 for $300 million upfront, promises of up to $1.35 billion in milestones, and 20%-plus royalties in most markets. At the time, Gilead Sciences also handed over $425 million in exchange for a 15% equity stake in Galapagos. We'll soon find out if this was money well spent.

Often, drugs like Humira don't play nicely with other medications, and as a result, filgotinib use in those patients could turn it into a blockbuster -- if trials show patients tolerate it well. Good safety and efficacy data would be market-moving for Galapagos because it doesn't have any commercial-stage drugs yet, and recently, there's been some pessimism weighing down its shares after collaboration partner AbbVie decided against moving a once-promising triplet therapy for cystic fibrosis into phase 3 trials.

Admittedly, it's anyone's guess if Galapagos' rheumatoid arthritis trial succeeds, but I think the size of the opportunity makes adding a little Galapagos to a diversified portfolio this month a good idea.

Someone has to make all the medicines that get approved

Chuck Saletta(Cambrex): Biotech investing is a minefield because of all the costs and uncertainties involved in bringing products to market. The research, development, and testing costs can easily exceed $1 billion, with no guarantee of success anywhere along the way. In addition, once a product is approved, there are very strict standards a company must follow in order to manufacture its products. Meeting those standards requires even more upfront and ongoing costs.

That's where Cambrex comes in. Cambrex offers access to its development, manufacturing, and generic active pharmaceutical ingredients to other companies in its industry. Cambrex handles the substantial costs and complexities associated with that end of the business so its partners don't have to. Its partners get access to its expertise -- and the lower overhead costs associated with not having to own their own facilities. Cambrex gets the scale and diversification that come from having multiple partners.

All of that adds up to a business that's generating substantial cash today, and that is expected to continue increasing its profitability by around 15% annualized over the next five or so years. That type of sustained profitability is rare to come by in the minefield that is biotechnology.

That makes Cambrex a company worth considering for a long-term investment, but what makes Cambrex worth considering today is that it's in the process of acquiring Halo Pharmaceuticals. Halo adds to the type and complexity of compounds that Cambrex can produce, making it an even more compelling partner to others in its industry.

A monopoly that has a lot of room to grow

Keith Speights (Vertex Pharmaceuticals): There are only three approved drugs for cystic fibrosis (CF) that target the underlying cause of the disease, and Vertex Pharmaceuticals claims all three of them. The biotech enjoys a monopoly in treating CF that appears to be a durable one. Vertex's primary potential rival, Galapagos, announced disappointing results for an experimental CF drug that raised serious doubts about how effectively it might challenge Vertex in the future.

Vertex has plenty of room to grow in the CF market alone. The company's currently approved drugs target treatment for up to 44,000 CF patients. The biotech is evaluating triple-drug combination therapies in phase 3 studies that should enable it to increase the addressable patient population by 55%.

Vertex expects to submit the first of these triple-drug combos for regulatory approval by mid-2019. Assuming these therapies win approval, that would leave around 7,000 CF patients with genetic mutations for which no approved treatment is available. Vertex partnered with CRISPR Therapeutics (NASDAQ: CRSP) to develop gene-editing therapies for these remaining patients.

Vertex also has its sights set on 10 other indications beyond CF, including pain, beta thalassemia, and sickle cell disease. The company is partnering with CRISPR Therapeutics on the latter two diseases and hopes to soon begin phase 1 clinical trials.

While Vertex stock might look pricey with a forward earnings multiple of 37, it's not as expensive as it appears at first glance. I think this biotech's growth prospects in CF and other areas make it a great pick.

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Chuck Saletta has no position in any of the stocks mentioned. Keith Speights owns shares of Gilead Sciences and Vertex Pharmaceuticals. Todd Campbell owns shares of Gilead Sciences. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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