If you’re looking for biotech stocks to buy, the iShares Biotechnology ETF (NASDAQ:IBB) is an excellent place to start. It tracks the performance of the ICE Biotechnology Index, a collection of U.S. companies in the biotech industry.
But that exchange traded fund (ETF) hasn’t done well in recent years. In the past three years, its total return was 0.95% in 2021, -13.69% in 2022 and 3.76% in 2023. Year-to-date (YTD), it’s up 2.91%, considerably less than the 8.74% for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that tracks the general S&P 500.
I would never recommend that a risk-averse investor put money into an industry-specific theme such as biotechnology. There’s way too much volatility. However, I could get behind biotech stocks that aren’t necessarily entirely focused on developing new drugs and treatments, but instead have existing products that generate positive cash flow and profitability.
IBB is made up of 223 companies, including some of the country’s largest biotech companies. Its top 10 holdings account for 49% of its $7.77 billion net assets. These three suggested biotech stocks to buy are all from the top 10.
Vertex Pharmaceuticals (VRTX)
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Vertex Pharmaceuticals (NASDAQ:VRTX) is the largest holding of IBB, with a weight of 8.82%. Its EBITDA in 2023 was $4 billion, or approximately 40% of its annual revenue of $9.87 billion. Its net cash position as of Dec. 31 was $13.7 billion.
Vertex’s revenue in 2023 was 11% higher than in 2022. It expects 2024 revenue of $10.65 billion at the midpoint of its guidance, 8% higher than a year earlier. On the bottom line, it earned $3.97 billion non-GAAP, 2.9% higher than in 2022.
The company’s primary product is marketed as Trikafta in the U.S. and is used to treat patients with cystic fibrosis. Outside the U.S., the drug is marketed as Kaftrio. In 2023, the company benefited from expanding the drug’s usage to include children aged two to five years old. It generated $6.04 billion in the U.S. from Trikafta and $3.83 billion internationally from Kaftrio.
It is currently developing Casgevy to treat sickle cell disease. In 2023, Vertex received regulatory approval for the drug in the U.S., United Kingdom, European Union, Bahrain and Saudi Arabia, with more approvals, including Canada, to come in 2024.
Vertex’s enterprise value is $101.38 billion, 25.4 times its EBITDA. That’s higher than its five-year average of 21.76. Given its strong existing numbers and the potential to do even more as it bring more drugs to market, VRTX could be one of the great biotech stocks to buy right now.
Regeneron Pharmaceuticals (REGN)
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Regeneron Pharmaceuticals (NASDAQ:REGN) is the second-largest holding of IBB, with a weight of 8.69%. Its EBITDA in 2023 was $4.69 billion, or 35.7%, of its annual revenue of $13.12 billion. Its net cash position as of Dec. 31 was $4.59 billion.
Regeneron’s revenue in 2023 was $13.12 billion, 8% higher than in 2022. On the bottom line, it earned $5.05 billion non-GAAP, 2% lower than in 2022.
The company’s primary products are Eylea HD and Dupixent. The former treats wet age-related macular degeneration and diabetic eye disease, while the latter treats moderate to severe cases of allergy-related eczema and prevents asthma attacks.
The company has developed these products in partnership with Bayer (OTCMKTS:BAYRY) and Sanofi (NASDAQ:SNY). It reports its Eylea sales in the U.S. plus its profits from Bayer’s sales outside the U.S. Sanofi reports 100% of the worldwide sales of Dupixent. Regeneron reports its share of the profits.
It is currently developing 35 products that are in various stages of clinical development. This includes several products already on the market that Regeneron is seeking additional uses for, such as Dupixent for treating chronic obstructive pulmonary disease (COPD).
Regeneron’s enterprise value is $99.73 billion, which is 23.76 times its EBITDA. That’s almost double its five-year average of 12.23.
Biogen (BIIB)
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Biogen (NASDAQ:BIIB) is the sixth-largest holding of IBB, with a weight of 3.13%. Its EBITDA in 2023 was $2.04 billion, or 20.7% of its annual revenue of $9.84 billion. Its net debt position as of Dec. 31 was approximately $5.9 billion.
Of the three biotech stocks mentioned here, Biogen is the definite underperformer of the bunch. Its shares are down 18% over the past year compared to 45% and 25% gains from Vertex and Regeneron, respectively, over the same period. Clearly, its balance sheet and income statements aren’t nearly as strong as the other two.
Cantor Fitzgerald analyst Eric Schmidt recently reiterated his $311 target price for BIIB stock, suggesting that the company’s drug to treat Alzheimer’s (Leqembi) plus three others recently launched to treat amyotrophic lateral sclerosis (ALS) and postpartum depression should be the tonic to restore Biogen’s level of profitability.
Sales in the U.S. are currently underway for Skyclarys, “the first treatment for Friedreich’s ataxia, a rare, inherited, degenerative disease that damages the nervous system, characterized by impaired coordination and walking,” states the Food and Drug Administration’s (FDA) website.
Year-over-year (YOY), sales in 2023 fell 3.32% to $9.84 billion. Non-GAAP earnings per share (EPS) fell 17% to $14.72. However, it does expect operating income to rise by 10% to 13% in 2024, with an operating margin of 5% to 7% higher than in 2023. If you’re patient, 2025 should be a much better year for Biogen stock.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
