2 best biotech stocks challenging the bear market

It is difficult to sweeten the current state of the stock markets and the economy in general. Things don’t look good. Inflation, a potential recession on the way, geopolitical tensions and supply chain problems are just some of the challenges we face. With all that going on, it might be tempting to give up investing in stocks right now.

However, it’s worth noting that some companies are doing well, even in the midst of all these problems. Let’s take a look at two such companies in the biotech space: Vertex Pharmaceuticals (VRTX 4.79%) And Exelixis (EXEL 0.37%). These drug makers have done a great job of challenging the market sell-off this year, at least so far. That’s why they could continue on that path.

VRTX graph

VRTX data from YCharts.

1. Top pharmaceuticals

Shares of Vertex Pharmaceuticals have risen 24% year to date despite macroeconomic headwinds on their way. Biotechnology owes this in part to its dominance in the market for drugs that treat the underlying causes of cystic fibrosis (CF), an area where Vertex is the only game in town.

Revenues and profits continue to grow for Vertex thanks to its CF franchise. But the market is far-sighted. And the long-term outlook for biotechnology beyond CF is also playing a significant role in its performance this year. Vertex is developing several interesting drugs that could be very successful.

Let’s consider two of them. First, there is VX-548, a potential treatment for acute and neuropathic pain (pain caused by nerve damage). Although there are treatments for pain, they are limited. Opioids are a standard option for acute pain, but as we have learned from the recent opioid epidemic, their use and misuse can have profoundly negative consequences for entire communities.

Other medicines also suffer from drawbacks. Paracetamol is a popular pain reliever sold under several brands, including the all too familiar Tylenol. Intake of too much acetaminophen is the leading cause of acute liver failure in the United States

Vertex argues that there hasn’t been a major breakthrough in this therapeutic area for decades and that patients are in dire need of new options. The company plans to launch a Phase 3 study for VX-548 in the fourth quarter.

Second, there is VX-880, a potential therapy for type 1 diabetes. This targets one of the underlying causes of this condition: the inability of patients to produce insulin. Vertex has released encouraging data from two patients in an ongoing phase 1/2 study of VX-880.

The first patient’s glucose time-to-range (IRR) – how long a person’s blood glucose stays within certain parameters – increased from 40.1% before treatment to 99.9% 270 days after treatment, a point where the patient has achieved insulin independence. The second saw an increase in glucose IRR from 35.9% to 51.9% on day 150, and the patient needed 30% less external insulin. The VX-880 still has a long way to go, but targeting the underlying causes of a disease is an approach that served Vertex well before.

In all likelihood, the company’s next launch will be exa-cel, a potential one-time curative treatment for sickle cell anemia and transfusion-dependent beta-thalassemia, two blood diseases with few therapeutic options. Vertex plans to ship applications for exa-cel to the US and Europe by the end of the year, with potential launches in these respective markets occurring next year.

Within the next five years, the company is expected to continue to generate revenue from its cystic fibrosis products while benefiting from new therapies. This means higher revenue, higher profits and a solid share price performance. These factors make Vertex Pharmaceuticals one of the best stocks to buy right now.

2. Exelixis

Exelixis is a biotechnology that focuses on cancer treatments. Not a bad place to stay. Although oncology is a highly competitive therapeutic area in the biotech industry – with many of the largest drug manufacturers present in this field – it is also one of the largest by total sales and one of the fastest growing. The main product of Exelixis is Cabometyx, which treats some forms of kidney and liver cancer.

This single product has gained regulatory approvals one after another and continues to do so. A major new indication obtained last year – as a first-line combination therapy for advanced renal cell carcinoma (a form of kidney cancer) – was instrumental in boosting Exelixis’ revenue and profits.

There is more where it comes from, as Cabometyx is undergoing dozens of clinical trials, both as a standalone therapy and as a potential combination treatment. Last month, the company released positive results from a phase 3 clinical trial for its crown jewel.

Exelixis is looking to expand its revenue base. In June, it initiated a Phase 3 clinical trial for its candidate XL092 as a potential treatment for metastatic colorectal cancer. This form of cancer is the third most common and third deadliest in the United States and is difficult to treat after it has metastasized, which is when about 25 percent of cases are diagnosed.

Exelixis has other programs in initial studies. Diversification across different therapeutic areas has its benefits, but Exelixis’ laser-centric approach to developing new cancer therapies has been successful in the past, thanks to Cabometyx. I expect the company to continue to reap the rewards of these efforts as its current programs ultimately pay off.

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