2024-08-02 13:54:56 ET
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Investing in biotech stocks is a thrilling ride. These innovative businesses developing breakthrough drugs can generate enormous profits for investors but also destroy significant value if their investigational therapies fail to make it to market.
The pandemic focused a lot of attention on the sector. The SDPR S&P Biotech ETF (NYSEARCA: XBI ) soared 49% in 2020, outpacing the S&P 500 and the Nasdaq 100 . But the exchange-traded fund has faced a more difficult road since. The ETF is down 30% as investor attention was drawn to artificial intelligence.
Yet biotech stocks are making a comeback . The biotech ETF is up 11% year-to-date and though it still trails the broad market index, the gap has been substantially narrowed.
The benefit of investing in biotech stocks is that they tend to perform better in down markets. And the fact that they can develop life-altering drugs too is a benefit. Below are three biotech stocks that will leave investors smiling with the returns they produce for their portfolios.
Amgen (AMGN)
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Probably no discussion of biotech stocks can be had without starting with Amgen (NASDAQ: AMGN ). It is one of the world’s largest independent biotechs with $26.9 billion in revenue last year. Sales are up 22% so far in 2024.
Amgen has a massive portfolio of billion-dollar therapies led by Prolia, its treatment forosteoporosis and bone cancer. Last year it brought in over $4 billion in sales and it generated $1 billion worth in the first quarter. Other significant drugs include Enbrel, Otezla and Xgeva, all of which produced $2 billion or more in revenue last year.
The biotech stock also has a long and deep bench of therapies in its pipeline that are in various phases of clinical trials.
Since its IPO in 1983, Amgen has returned 135,300% to investors. A $10,000 investment back then would be worth over $13.5 million today. AMGN stock is up 15% in 2024 and is 42% higher over the last 12 months. With a dividend that yields 2.8% annually, investors will be laughing all the way to the bank by buying this biotech stock today.
Terns Pharmaceuticals (TERN)
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A riskier biotech stock to buy is Terns Pharmaceuticals (NASDAQ: TERN ). It is a clinical-stage biopharmaceutical developing therapies to treat cancer and obesity. Its focus is on small molecule candidates, which can be administered orally and can pass through cell membranes to reach their intracellular target.
Terns has two lead drugs in early clinical trials . TERN-701 is in Phase 1 trials for the treatment of chronic myeloid leukemia (CML), a form of cancer that begins in the bone marrow. TERN-601 is also in Phase 1 trials and is for the treatment of obesity. It is an oral GLP-1 therapy targeting the same market that Ozempic and Zepound do for Novo Nordisk (NYSE: NVO ) and Eli Lilly (NYSE: LLY ), respectively.
The biotech expects to report updates on their progress in the second half of the year. A third drug in preclinical stages, TERN-501, shows significant promise in tests on mice when combined with semaglutide, the active ingredient in Ozempic and Wegovy, as well as tirzepatide, the dual receptor agonist in Lilly’s Mounjaro and Zepbound.
While a high-risk investment, Terns Pharmaceuticals is also a potential takeover candidate, especially for a larger pharmaceutical wanting to jumpstart its own anti-obesity drug portfolio.
Vertex Pharmaceuticals (VRTX)
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Also in the high-risk category is Vertex Pharmaceuticals (NASDAQ: VRTX ), a biotech stock laser-focused on treating cystic fibrosis ( CF ). While Vertex generated $9.8 billion last year from its four drugs for CF, the risk comes from being so narrowly defined. Any new entrant with a better treatment could seriously impair Vertex’s business.
Yet the biotech is miles ahead of the competition, which does minimize the risk. And sales are growing, up 13% in the first quarter to $2.7 billion, which generated net profits of $1.1 billion. That is a 57% increase from the year-ago period.
Of the estimated 88,000 patients with CF in North America, Europe and Australia, Vertex treats more than two-thirds of them.
Yet the biotech is widening its lens beyond CF to expand into the rare disease drug market. Its partnership with CRISPR Therapeutics (NASDAQ: CRSP ), for example, resulted in the gene-editing therapy Casgevy getting approved for the treatment of transfusion-dependent beta-thalassemia (TDT) and sickle cell disease ( SCD ).
Shares of Vertex Pharmaceuticals stock is up 22% this year and stands 40% above where it was a year ago. With the dominant position in CF treatments and a potential billion-dollar blockbuster on its hands for other rare diseases, VRTX is a biotech stock worth buying.
On the date of publication, Rich Duprey held a LONG position in TERN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.
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