Morningstar analysts recommend these biotech stocks.
Biotechnology stocks are among the most high-risk, high-reward stocks in the market. Many biotech companies are working to develop one or two world-changing drugs or therapies for billion-dollar markets. The fates of these often volatile stocks are tied closely to study data and approval from the U.S. Food and Drug Administration or other global drug regulators. The biotech group has struggled as a whole in 2022, but the Morningstar analyst team says the innovation that has always supported the biotech industry is alive and well. Here are eight of Morningstar’s top biotech stocks to buy.
Gilead Sciences Inc. (ticker: GILD)
Gilead Sciences develops treatments for infections, respiratory disorders, cardiovascular conditions and cancer. Analyst Karen Andersen says Gilead dominates the HIV treatment market and its emerging oncology division can be a significant future growth source. Gilead’s tenofovir molecule has been the core of its $17 billion HIV division, and Andersen says the company’s new tenofovir alafenamide combination pills are experiencing “rapid uptake.” On the downside, demand for hepatitis C drugs Sovaldi and Harvoni has softened as patients are cured. Gilead also pays a sizable 4.6% dividend. Morningstar has a “buy” rating and $77 fair value estimate for GILD stock, which closed at $63.93 on Sept. 28.
Moderna Inc. (MRNA)
Moderna is a leading biotechnology company in the field of mRNA therapeutics, and most investors likely know the company thanks to its leading COVID-19 vaccine. While COVID-19 vaccine sales growth has understandably slowed, Moderna still reported 8% vaccine sales growth in the second quarter. Andersen says the stock remains undervalued given steady vaccine sales and the potential for Moderna’s mRNA technology to support additional respiratory virus vaccines and vaccines for other infectious diseases. Competition is on the rise, but Andersen says Moderna will remain an mRNA vaccine market leader. Morningstar has a “buy” rating and $232 fair value estimate for MRNA stock, which closed at $122.15 on Sept. 28.
Biogen Inc. (BIIB)
Biogen is a biopharmaceutical company focused on therapies for serious neurological and neurodegenerative diseases. Andersen says Biogen’s neurology specialization limits its competition. Multiple sclerosis drugs Avonex and Plegridy still generate nearly $2 billion in annual sales, and Biogen receives significant royalties from leading competitor Roche’s Ocrevus. Andersen says Biogen is expanding its neurology portfolio further outside of MS as well. Biogen’s Spinraza for treating spinal muscular atrophy has been a blockbuster drug. Andersen is bullish on Aduhelm and Biogen’s other Alzheimer’s drug candidates as well. Meanwhile, Morningstar has a “buy” rating and $305 fair value rating for BIIB stock, which closed at $276.61 on Sept. 28 after a 40% jump on news of a favorable trial for the Alzheimer’s treatment lecanemab.
BioMarin Pharmaceuticals Inc. (BMRN)
BioMarin Pharmaceuticals develops drugs to treat serious rare diseases and medical conditions. Andersen says BioMarin is largely insulated from the negative drug pricing impacts of the Biden administration’s Inflation Reduction Act because of its low Medicare exposure, its global diversification and its focus on biologics. The company has struggled to turn a profit to this point given its high research-and-development costs, but Andersen says she is confident that BioMarin’s rare-disease treatments will help it generate consistent and durable profits over time. Morningstar has a “buy” rating and $105 fair value estimate for BMRN stock, which closed at $85.84 on Sept. 28.
Incyte Corp. (INCY)
Incyte specializes in oncology treatments. Andersen says sales of the company’s recently launched topical JAK inhibitor Opzelura, which treats atopic dermatitis, are poised to accelerate in the second half of 2022. Incyte reported $17 million in Opzelura sales in the second quarter, as well as $598 million in sales of key hematology drug Jakafi. Andersen says Incyte’s expansion into dermatology has been impressive, and its investments in its early-stage oncology pipeline have it well positioned for the future. Incyte may also report hematology program data later this year. Morningstar has a “buy” rating and $105 fair value estimate for INCY stock, which closed at $67.66 on September 28.
Jazz Pharmaceuticals PLC (JAZZ)
Jazz is a biopharmaceutical company specializing in drugs to treat orphan conditions, with a focus on sleep, hematology and oncology. Morningstar analyst Rachel Elfman says launches of narcolepsy and idiopathic hypersomnia drug Xywav and acute lymphoblastic leukemia drug Rylaze have generated higher-than-expected prescriber and patient adoption, prompting Jazz to raise its 2022 sales guidance in July. Elfman says sales of Xywav, Rylaze and cannabis-derived seizure drug Epidiolex will help offset a weakening portfolio following the loss of exclusivity on leading narcolepsy drug Xyrem in 2023. Morningstar has a “buy” rating and $187 fair value estimate for JAZZ stock, which closed at $128.94 on Sept. 28.
Exact Sciences Corp. (EXAS)
Exact Sciences is a global cancer screening and diagnostics company, and its flagship product is colorectal cancer test Cologuard. Cologuard sales were up 34% in the second quarter, but the company has yet to demonstrate a profitable business model. In a difficult market, EXAS shares have been punished particularly hard and are down 53% year to date, the worst performance of any stock on this list. However, Morningstar analyst Aaron Degagne says Exact’s 7% reduction in sales and marketing costs last quarter was a step in the right direction. Morningstar has a “buy” rating and $69 fair value estimate for EXAS stock, which closed at $34.44 on Sept. 28.
Ionis Pharmaceuticals Inc. (IONS)
Ionis Pharmaceuticals is a leading biotechnology company developing unique antisense oligonucleotide therapeutics. Ionis developed spinal muscular atrophy drug Spinraza, which is now being marketed by partner Biogen. Andersen says Spinraza is the first RNA-based therapy to reach blockbuster drug status. She says Ionis is facing stiff competition from RNA interference technology and gene editing and therapy companies. However, Andersen says Ionis has built an impressive pipeline of drug candidates, and the stock is also by far the best performer on this list in 2022, gaining 48% year to date. Morningstar has a “buy” rating and $62 fair value estimate for IONS stock, which closed at $44.42 on Sept. 28.
8 best biotech stocks to buy in 2022:
— Gilead Sciences Inc. (GILD)
— Moderna Inc. (MRNA)
— Biogen Inc. (BIIB)
— BioMarin Pharmaceuticals Inc. (BMRN)
— Incyte Corp. (INCY)
— Jazz Pharmaceuticals PLC (JAZZ)
— Exact Sciences Corp. (EXAS)
— Ionis Pharmaceuticals Inc. (IONS)
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Update 09/29/22: This piece was previously published and has been updated with new information.