Experts Talk Hot Biotech Stocks at Barron's Breakfast

The conversation came at a pivotal moment for the sector, as biotech stocks stage a comeback following a weak year.

The conversation came at a pivotal moment for the sector, as biotech stocks stage a comeback following a weak year.

On Tuesday morning, Barron’s senior managing editor Lauren Rublin sat down with Gbola Amusa, head of health-care research at the investment bank Chardan, and Catherine Wood, CEO of ARK Investment Management, for a conversation about where to invest in the biotech sector.

They spoke in front of a sold-out breakfast audience at Barron’s editorial offices on Sixth Avenue in Manhattan. The event was part of Barron’s live event series, and comes a month after the magazine published its Future of Biotech Roundtable, also hosted by Rublin.

The conversation came at a pivotal moment for the sector, as biotech stocks stage a comeback following a weak year. The iShares Nasdaq Biotechnology ETF (ticker: IBB), which tracks the sector, is up 12.2% in 2019, lagging well behind the S&P 500, up 23.2%. But the sector has surged in October, with the iShares Nasdaq Biotechnology ETF up 8.5% so far this month while the S&P 500 is up just 2.2%.

Rublin, Amusa, and Wood chatted about how investors can make winning bets on the sector. Here are some highlights from their discussion.

Why the Sector Has Stumbled

Amusa argued that some of the weakness in biotech is a product of the approaching presidential election. “We’re heading into an election year, and for many people in a highly regulated industry, this means uncertainty,” Amusa said. “Uncertainty hurts high-beta names.”

Amusa said that investors could manage the risk posed by potential changes to the U.S. regulatory environment around drug pricing by taking a close look at their portfolios. “Just look at where a company’s positioned in Europe and the rest of the world versus the U.S.,” he said. “If 90% of its sales are U.S. based due to higher prices, it’s more exposed.”

Wood also said that investors could be holding out in the expectation of big, market-moving announcements at major health-care conferences in December and January, including the American Society of Hematology meetings in Orlando and the J.P. Morgan health-care conference in San Francisco.

How to Ride the Genome Medicine Wave

Wood argued that the public markets are vastly undervaluing the three companies that control the foundational patents for the most promising gene-editing technique, called CRISPR-CAS9: Intellia Therapeutics (NTLA), Crispr Therapeutics (CRSP), and Editas Medicine (EDIT).

“It’s amazing to us that these companies, which are at the cusp of curing disease, are valued at such low valuations in the marketplace,” she said. “Just $5 billion among the three of them.”

She said that Intellia and Crispr Therapeutics have stronger patent positions than Editas.

“That’s just one example of the severe undervaluation in the space,” she said. “Mostly because people are afraid.”

How Should Investors Evaluate Biotech Companies?

Amusa argued that it is important for the company to understand why their drug should work. “If a company can’t articulate the biology, it may be onto the wrong thing,” he said. “Then you also want to move to the individual technology, and what are its limitations.”

For people without a deep background in the science, both experts said it’s a good idea to watch where the smart money is going. “VC portfolios are public,” Amusa said. “See what public companies are similar” to the private companies where venture capitalists are investing.

What’s the Next Big Biotech Area?

Wood is bullish on molecular diagnostic testing. “InVitae [NVTA] is a company that is riding down the cost curve aggressively of DNA sequencing,” she said. “They’re going to be one of the companies that will help people identify cancer at the very early stages.”

She also cited Veracyte (VCYT), another molecular diagnostic testing company. It is developing tests to identify thyroid cancer without requiring a biopsy.

“You’re going to save the health-care system money and target drugs more precisely instead of guessing,” she said. “We’re bringing real science into health-care decision-making for the first time.”

How Do You Make Money Investing In Biotech?

“Understand the market, get the returns if success happens, and diversify your portfolio, and that’s a winning strategy,” Amusa said. “For many people, I think it’s underappreciated that what drives the portfolio over five years sometimes is one or two winners that go up 30X. And some people sell after the 2X, which is often a mistake.”

Stock Picks

Amusa highlighted Regenxbio (RGNX), a gene-therapy company. “For people who are worried about binary stocks, this is not one of them,” he said, noting that the company has 30 drugs in its pipeline, and that sell- side analysts have only so far modeled a handful of them.

Amusa also flagged Medicines Co. (MDCO), which he said is a potential M&A target, and Krystal Biotech (KRYS), which develops gene therapies for skin diseases, among others.

Wood, meanwhile, highlighted Illumina (ILMN), which sells DNA sequencing tools, and is a dominant player in the market. “Last year there were 2.4 million whole human genomes sequences globally,” she said. “That’s half of the human genomes ever sequences.” Wood said that she thinks the DNA sequencing market should be a 30% to 40% revenue growth opportunity. The company’s revenue growth has been disappointing, she said, but predicted that it will increase as the market matures.

Wood also highlighted liquid biopsy company Guardant Health (GH).

Write to Josh Nathan-Kazis at

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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