On the stump, if there’s one thing that both Republican and Democratic politicians have long claimed to support, it’s lower drug prices. And when rumors start buzzing that the government may be about to intervene, then biotech stocks often get slammed…some fairly, and some not (as we’ll see).
That’s just what happened in the past week.
House Speaker Nancy Pelosi has a tougher proposal on her agenda than, say, President Trump. While the Trump administration is more interested in importing lower-priced versions of the drugs from Canada, Pelosi wants to apply direct pressure to pharmaceutical companies.
Specifically, Pelosi wants to allow the Dept. of Health & Human Services to negotiate prices for Medicare Part D drug plans directly with drug manufacturers. (That would, effectively, eject pharmacy benefit managers and insurance companies from the negotiating table.)
Several pharma stocks have taken big hits on the regulatory rumors. Some of them even showed up on the list of three-year lows last week! Let’s review – because while some deserve to be sold, one big mover is actually on my Top 5 Stocks list for Breakthrough Stocks.
First we have Biogen (BIIB), a potential target of Pelosi’s proposal. With its famously pricey drug for spinal muscular atrophy, Spiranza, Biogen may well come into Democrats’ crosshairs here. BIIB dropped sharply last Friday and again on Thursday.
You may think that with pricing like $750,000 for your first year of Spiranza, Biogen would be printing money. But Spiranza just picked up a competitor from Novartis (NVS). And below is the full picture on BIIB from my Portfolio Grader:
While Biogen passes some of my profitability tests, it gets an F for Earnings Momentum, and Sales Growth is lackluster as well. Most concerning is the fact that BIIB got a D for its Quantitative Grade – my proprietary measure of institutional buying pressure.
Regeneron Pharmaceuticals (REGN) is looking even worse. The stock got off to a rough start this week, and while it’s clawed back somewhat, it’s still down 8% in the past month. For its part, Regeneron has a cholesterol drug (Praluent) that was so expensive that it eventually succumbed to pressure, reduced prices by 60%, and yet it still costs $5,850 a year.
Here’s REGN’s Report Card:
As you see above, Regeneron just does not measure up on Operating Margin Growth, Earnings Growth, Earnings Momentum or its Quantitative Grade.
Then there’s Repligen (RGEN). While it may have a similar name and ticker, RGEN has much stronger fundamentals. Shares took an even bigger hit – but this is a much more interesting case.
Repligen is a unique biotech: This company actually has no drugs of its own, but rather, its products are used in drug manufacturing.
Repligen hit the biotechnology scene back in 1981, as it started to develop Protein A ligands to aid in the production of biologic treatments. The company has expanded rapidly since then, and was even named one of the Top 100 fastest-growing companies in the U.S. in 2018. Today, along with Protein A ligands, Repligen offers several products and solutions to enhance the production of biologic drugs.
Strong demand for Repligen’s biologic solutions was apparent in the company’s second-quarter earnings report. The company reported 48% annual revenue growth and 121.4% annual earnings growth. Plus, second-quarter earnings of $0.31 per share crushed estimates for $0.25 per share by 24%.
Given the strong second-quarter results, analysts have increased full-year 2019 forecasts in the past two months. Analysts are forecasting 32.9% annual earnings growth and 37.1% annual sales growth.
This all makes for a very impressive Report Card on RGEN, as you see here:
So, when this kind of stock drops as hard as RGEN just did, I view it as a chance to pick up shares at “bargain basement” prices for a great, long-term play.
There’s Something Else That Sets These Breakthrough Stocks Apart
If you take a look at RGEN stock, you’ll notice its much smaller market cap of $4 billion, versus giants like BIIB and REGN with $30 billion (or more)!
If you’re a growth investor – and I certainly am; I’ve made my career this way – then you’ve got to look at elite small-caps like this. With growth statistics like RGEN’s (and my other Breakthrough Stocks), the sky is the limit.
RGEN is #4 on my list of Top 5 Stocks. To get my buy price – and the rest of the list – check out Breakthrough Stocks now. When you do, you’ll learn all about my “Quantum A” system for identifying the best small-cap investments.
Note: Ultimately, spotting the right investment is simple. You buy when the company achieves a Quantum A …and you sell when it disappears.
You don’t fall in love. You certainly don’t fall for hype. You may return to that stock someday – but with my system, you know exactly when it’s time to take profits off the table.
That’s why I always say: There’s no luck and very little skill behind my own success — just hard work. And the result: a proprietary system for picking the best investments of the day. It’s made it easy to nab market-beating returns – for double your money (or better).
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