Owith the S&P500 down more than 23% since the start of the year, investors looking for safety are eyeing the healthcare sector. Indeed, the S&P 500 Healthcare Index is down just under 15% year-to-date, outperforming broader markets. People will need healthcare regardless of the economy, which makes the sector a great place to invest right now.
Our contributors have identified three businesses they believe are currently for sale: Vir Biotechnology (NASDAQ: VIR), Orthopediatrics (NASDAQ: KIDS)and Vertex Pharmaceuticals (NASDAQ: VRTX).
Vir has a blockbuster in Sotrovimab
Taylor Carmichael (Vir Biotechnology): Vir Bio is down about 45% in 2022, but it’s one of my most trusted positions in healthcare right now. When the Food and Drug Administration gave Vir — and his partner, GlaxoSmithKline — an emergency use authorization (EUA) for its COVID-19 treatment sotrovimab (trademark Xevudy), demand for the drug has skyrocketed.
Here’s a bottom-of-the-envelope calculation for how much money this drug made for Vir. Xevudy costs from $1,800 to $2,400, depending on the country. We will assume a price of $2,000 for the treatment. Vir shares this revenue with Glaxo, its marketing partner, but the biotech has an interesting partnership agreement: it pockets 72.5% of all Xevudy revenue.
|Chronology||Number of doses sold||Overall income of Xevudy (estimate)||Turnover vir (actual)|
|2021||700,000||$1.4 billion||$917 million|
|Q1||900,000||$1.8 billion||$1.2 billion|
|Q2||100,000||$200 million||N / A|
The drug has already earned Vir $2 billion. It’s a crazy success story. So why is the stock falling so sharply in 2022?
In the second quarter, the FDA rescinded the EUA after the United States was inundated with the BA.2 subvariant of the Omicron virus. According to the FDA, there is insufficient evidence that sotrovimab works against this new strain to warrant the EUA.
The rest of the world disagrees. Canada, France and Japan all allow access to sotrovimab, while noting that the drug is unlikely to retain efficacy against the BA.2 subvariant. Europe also maintained the authorization.
While we should expect Vir’s revenue to decline in Q2, Europe and Japan aren’t exactly nothing. And in Q3, Vir and Glaxo will begin testing a higher dose version of Xevudy to see if it works against the BA.2 subvariant. Any good news there and the stock will skyrocket.
No doubt, this company is on the right track
Patrick Bafuma (orthopediatrics): In an uncertain market, I look for companies that have a niche but have grown steadily over the years. OrthoPediatrics fits that mold. Producer of new orthopedic surgery solutions for children, this manufacturer of specialized surgical equipment is used in 100% of the best children’s hospitals in the United States. Serving more than 540,000 pediatric patients since its inception, with the broadest pediatric-specific portfolio in the industry, OrthoPediatrics fills a much-needed void.
With product lines for trauma, scoliosis and specialty corsets, the company is leaning into its pediatric niche. And it’s not as if the children were going to stop being poorly housed, playing on trampolines or playing sports. All of this, unfortunately, sometimes results in hospital visits. As such, this device maker is poised to thrive regardless of economic conditions.
Evidence for this theory can be found in the compound annual growth rate (CAGR) of the company’s total revenue since 2016 of just over 21%. Not to mention, for the second time in a month, it raised its full-year 2022 revenue forecast, most recently to $125m-$128m from $118m-$121m. This represents growth of 27% to 31% from 2021 – even better than its historical CAGR.
Investors also reaped rewards. Since the pediatrics-focused company went public in October 2017, shares have gained more than 120%, compared to just over 40% for the S&P 500 over the same period. Not to mention that OrthoPediatrics’ gross profit margin for the first quarter of 2022 increased to 79.3% – the surgical supply giant stryker64.8% for the same quarter. Although beaten by the index year-to-date (down 32% vs. 23% for the S&P), I think this represents an opportune time to buy shares in a solid company poised for years of growth steady, regardless of the economic situation. climate.
A golden opportunity for patient investors
George Budwell (Vertex Pharmaceuticals): It’s no secret that biotech stocks have been in meltdown mode for most of the past nine months. The SPDR S&P Biotech ETFfor example, is currently down 46% over this period.
What’s particularly remarkable about this unprecedented decline in the biotech industry is that it hasn’t been limited to risky clinical-stage companies. Even rare disease giant Vertex Pharmaceuticals has been hit hard. At this point, shares of Vertex are currently trading at a 10% discount to their former 52-week high. This double-digit drop in Vertex stock price, however, could represent a golden opportunity for bargain hunters.
Why is Vertex stock a solid buy in this volatile market? A few reasons. First, Vertex has a virtual monopoly in the high value-added cystic fibrosis market. Biotech faced a potential competitive threat from an experimental therapy AbbVie under license from Galapagos. But this competing treatment recently fell short of the efficacy threshold required to advance to pivotal testing. Vertex, in turn, is expected to maintain a stranglehold on this multi-billion dollar drug market for the foreseeable future.
Next, Vertex has made steady progress in expanding its portfolio beyond cystic fibrosis. Vertex’s increasingly diverse pipeline offers breakthrough treatments for a host of key indications such as sickle cell disease and type 1 diabetes.
Finally, Vertex stock is very cheap at these levels. Underscoring this point, biotechnology stocks are currently trading at less than 18 times forward earnings, which is a real bargain for a company with strong fundamentals, a recession-proof revenue stream and strong growth prospects over the next decade.
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George Budwell has no position in the stocks mentioned. Patrick Bafuma holds positions at OrthoPediatrics Corp. Taylor Carmichael holds positions at Vir Biotechnology Inc. The Motley Fool holds positions and recommends Vertex Pharmaceuticals. The Motley Fool recommends GlaxoSmithKline. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.