Biotech Stocks: The Good, The Bad, and The Ugly

On the stump, if there’s one thing that both Republican and Democratic politicians have long claimed to support, it’s lower drug prices. But while the Trump administration is more interested in importing lower-priced versions of the drugs from Canada, House Speaker Nancy Pelosi wants to apply direct pressure to pharmaceutical companies.

One item on Pelosi’s agenda is 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.)

Pelosi’s bill stands little chance in the Senate, with its Republican majority.

However, Congress is expected to pass something else that includes a major blow to pharmaceutical companies: the new U.S.-Canada-Mexico trade deal.

As soon as January, we could have a new trade agreement that removes the 10-year patent protection for biologics. In other words, competitors will be free to make cheaper generic versions of these extremely costly drugs.

So, how should investors react? Let’s take a look at some of the key players here and see how they measure up in my Portfolio Grader.

First we have  AbbVie (ABBV). Once part of Abbott Laboratories (ABT), AbbVie is probably best known for Humira, a top-selling biologic for treating conditions like rheumatoid arthritis and Crohn’s disease.

While Humira is off-patent now anyway, AbbVie has plenty of other biologics still in the pipeline. And below is the full picture on ABBV from my  Portfolio Grader:

AbbVie (ABBV) Report Card

While AbbVie looks okay on some measures, it gets an F for Return on Equity, and its Operating Margins Growth and Earnings Growth rate poorly as well, resulting in an overall C grade for Fundamentals.

ABBV also scores a C for its Quantitative Grade – my proprietary measure of institutional buying pressure. As more news outlets report on the biologics provision of the U.S.-Canada-Mexico trade deal, though, you’d hardly expect that to improve.

Then there’s Pfizer (PFE). Like AbbVie, Pfizer has a blockbuster biologic – Enbrel, for rheumatoid (and psoriatic) arthritis, as well as plaque psoriasis – with plenty more biologics in the pipeline.

Here’s PFE’s Report Card:

Pfizer (PFE) Report Card

As you see above, Pfizer is all over the place. While it passes my profitability tests, PFE just does not measure up on Sales Growth – and especially not  its Quantitative Grade. Taking all these factors into account, PFE is a D-rated “Sell” overall.

Lastly, I’d like to call your attention to Repligen (RGEN).

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.

In other words, RGEN might be right in the “sweet spot” of these drug-pricing wars. Since it doesn’t sell or market the drugs – just helps make them – the availability of cheaper generics shouldn’t hurt Repligen the way it would for its Big Pharma clients.

And, as you can see, RGEN is a B-rated “Buy” in my Portfolio Grader:

Repligen (RGEN) Report Card

RGEN is the only one of these stocks to earn an A for its Sales Growth. While its Operating Margin Growth leaves something to be desired, it also gets top marks for several of my earnings factors.

Most importantly, RGEN gets a B for its Quantitative Grade. And I always want to see a stock attract big money on Wall Street. In my experience, that’s absolutely crucial to its long-term performance.

I Just Added Another Buy In This Space Now

Later today, I’ll be releasing a brand-new biotech recommendation in my latest venture, a joint project with Matt McCall: Power Portfolio 2020.

Based in Silicon Valley, this company is one of the select few that fits both my quantitative criteria and Matt’s big-picture, “top-down” approach.

Our other nine stocks are demonstrating good momentum so far. And this tenth one is a must-have, too.

We just went live with this new recommendation today , at the close of markets. So, you can be among the first to hear about it. Click here for our free presentation on the Power Portfolio strategy and the chance to join us today.

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