BioMarin, Alkermes, Ionis: Are These Health Care Stocks Set To Outperform In 2021?
Our theme of Out Of Favor Health Care Stocks includes health care names that have witnessed strong growth and improving fundamentals over the last few years but have still underperformed over 2020, partly due to Covid-19 related disruptions of the health care industry. However, with highly effective Covid vaccines being rolled out, the broader healthcare sector and economy should start returning to normal, potentially setting these stocks up for outperformance. Companies in our theme include Neurocrine Biosciences – a biotech company that develops treatments for neurological and endocrine-related diseases and disorders, Ionis Pharmaceuticals – a pharma player engaged in RNA-targeted therapeutics, BioMarin Pharmaceutical – a company focused on enzyme replacement therapies and Alkermes – which focuses on drugs for central nervous system diseases. View our theme on Out Of Favor Health Care Stocks for more details on the selection criteria and performance of these companies in recent years.
Our first set of out of favor health care stock picks, published on July 24, 2020 (see below), has outperformed significantly, rising by about 60% on an equally weighted basis since our recommendation. In comparison, the S&P 500 is up by just about 16% over the same period. The stocks we picked back then include Novocure (NASDAQ: NVCR), ACADIA (NASDAQ: ACAD), Alexion (NASDAQ: ALXN), and Alkermes (NASDAQ: ALKS).
[Updated 7/24/2020] Out Of Favor Healthcare Stocks
The performance of the healthcare sector has been mixed this year. While dental and surgery-related stocks have declined – as Covid-19 impacts sectors that require a close person to person contact, companies working on Covid-19 vaccines have outperformed significantly. On the other hand, the stocks of several high-growth companies that sell therapeutics that are relatively insulated from the pandemic have remained listless. In this analysis, we’ve picked a few healthcare names including Novocure (NASDAQ: NVCR), ACADIA (NASDAQ: ACAD), and Alexion (NASDAQ: ALXN) that have witnessed strong growth and improving fundamentals over the last few years but have still underperformed this year. Overall, we believe these stocks could offer some growth and stability in the current environment, without being overpriced. See our analysis Out Of Favor Health Care Stocks That Are Still Poised For Gains for more details on the returns and performance of these stocks. Parts of the analysis are summarized below.
Alexion ($23 billion, -3% YTD) is a pharma company best known for Soliris, a drug used to treat atypical hemolytic uremic syndrome and paroxysmal nocturnal hemoglobinuria – two rare disorders. The company has seen demand for Soliris grow, with revenues almost doubling from $2.6 billion in 2015 to $5 billion in 2019. Alexion’s pipeline also looks strong, with multiple drugs in phase 3 clinical trials including Ultomiris, which is its next-generation drug for PNH.
ACADIA Pharmaceuticals ($7 billion, +2% YTD) a biopharmaceutical company known for its flagship drug Nuplazid, which helps to treat the hallucinations associated with Parkinson’s disease psychosis. However, the stock gave up much of its year-to-date gains after Nuplazid recently failed in a trial for depression treatment. The company could still see an upside as Nuplazid continues to see strong demand from the PDP treatment, with total revenue rising steadily from about $17 million in 2016 to about $340 million last year.
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Novocure ($7 billion, -20% YTD) is an oncology company that offers a novel therapy called Tumor Treating Fields, which uses electric fields to disrupt solid tumor cancer cell division. The company’s revenues have grown from around $33 million in 2015 to $350 million in 2019. While the TTF device is currently used for some types of brain cancer, late-stage trials are underway for its use in other conditions including lung carcinoma, ovarian cancer, and pancreatic cancer and this could drive future growth.
Alkermes ($3 billion, -4% YTD) is a biopharmaceutical company that focuses on drugs for diseases in the central nervous system including schizophrenia, depression, and multiple sclerosis. The company has been seeing steady demand growth, with revenue growing from around $0.6 billion in 2015 to about $1.2 billion in 2019.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 120% return since 2016, versus about 60% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
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