The New ‘Cash King’ of Biotech

Natalie Harp battled stage 2 bone cancer for most of her young life.

As if that weren’t bad enough, in 2015, a nurse accidentally connected Harp’s IV to a sample of sterile water. Left in excruciating pain and confined to a wheelchair … she was offered opioids, medical marijuana, barbiturates and even counseling on her “Right to Die.”

Harp eventually recovered enough to continue her treatments. But two rounds of chemotherapy failed, and she was rejected from participating in any clinical trials.

Today, she’s walking, healthy and enjoying the quality of life she always wanted. The reason for that: Companies that are operating in a friendlier environment for “alternative” treatments.

Then last year, President Donald Trump signed the “Right to Try” law, and she was able to explore experimental, non-FDA-approved treatments on her own.

“I’m walking. I am healthy,” Harp told Fox News earlier this year. “I am living the quality of life that I always wanted.”

This is just one more reason the biotech sector continues to be hot.

The current bull market began in March 2009. The S&P 500 is up an impressive 340%, but biotech stocks are up an incredible 513%.

That’s even more than the healthcare sector generally, which is up only about 330%.

Mergers and acquisitions are another healthy sign …

Earlier this year, Bristol-Myers Squibb (BMY) agreed to pay $74 billion for cancer drug maker Celgene (CELG). And Eli Lily (LLY) completed its acquisition of Loxo Oncology.

Then last month, Pfizer (PFE) announced it would buy Array BioPharma (ARRY).

Credit Suisse analyst Vamil Divan sees “continued targeted bolt-on acquisitions driven by innovation.”

If you haven’t yet gotten onboard, there are two Exchange-Traded Funds (ETFs) that can give you exposure to the biotech sector:

  • SPDR S&P Biotech ETF (XBI) and
  • iShares Nasdaq Biotechnology Index (IBB)

XBI is an equal-weight ETF, while IBB is cap-weighted. That means XBI gives a potential advantage when smaller biotechs are surging. But it also makes the ETF more volatile.

(See also: A Primer on the Biotech Sector.)

Of course, select biotech stocks will take the lead. One of them I believe in is AbbVie (NYSE: ABBV).

AbbVie’s Humira was the best-selling drug in America last year.

But ABBV is down more than 25% off its highs.

How come?

 

Well, “biosimilars” (generic drug versions of Humira) are eating into its market share overseas. And while the U.S. patent is good until 2023 … the market is pricing in the future.

I think it’s an overreaction.

Because Humira isn’t the only arrow in AbbVie’s quiver. In fact, one of those arrows is leafy green …

It’s called Marinol, and it’s based on a synthetic form of THC, the active ingredient in cannabis … which is known to help with nausea from chemotherapy …

… and the lack of appetite for those suffering with AIDS.

AbbVie is a trailblazer, with long list of promising cannabinoid-related patents working their way through the pipeline.

Plus, it has a slew of potential winners that aren’t marijuana-related, some of which are ready to hit the market this year.

Which means any short-term hiccups will smooth out in the end.

Like last Tuesday, when the company announced it would buy Botox-maker Allergan (AGN) in a bid to lessen its dependence on Humira.

But I think this is actually a golden opportunity for investors!

Botox is a cash machine. And so are Allergan’s “traditional” therapeutics like dry-eye drug Restasis.

SVB Leerink analyst Geoffrey Porges called the combined company “the new cash king — more diversified, more durable (and) cheaper.”

Plus, Allergan’s nearly $16 billion in yearly revenue would give AbbVie more cash to hunt for a new generation of biopharmaceuticals.

Not only is AbbVie now dirt-cheap …

There’s that juicy 5.3% dividend.

You’re basically paid to wait for AbbVie’s next launch higher.

For more on AbbVie and the other stocks of my hotlist, check out my monthly advisory, Wealth Supercycle.

You can grab a 90-day trial membership for only $9.

All the best,
Sean

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One comment on “The New ‘Cash King’ of Biotech

  1. perennial August 4, 2019

    I appreciate that you are pointing out stocks that may be out of favor or being mis-priced that have real value, where you think that those securities will resume rising. Buy low, sell high:)

    Reply