:max_bytes(150000):strip_icc()/GettyImages-1185509424-c266dcf1b8da47a49db6e29b8546c63e.jpg "Top Biotech Stocks for Q4 2022")
The biotechnology industry includes companies that develop drugs and diagnostic technologies for the treatment of diseases and medical conditions. These products must go through rigorous, costly, and time-consuming trials before potentially obtaining approval from the U.S. Food and Drug Administration (FDA). This means that investors may wait for years before knowing whether a drug under development will pay off. The industry includes smaller start-up companies with recent traction as well as large, well-established corporations that aim to develop a range of drugs and technologies. Many biotech companies have shifted their focus entirely or added COVID-19 vaccines and treatments to their product pipeline.
Early-stage biotech companies are prone to wild swings in revenue due to going from nearly no revenue to having a significant revenue stream once a drug is approved or a partnership with another company is reached. That means that growth numbers have to be thought of more as indicative of the company having achieved some sort of breakthrough regarding where they were with research, corporate partnerships, or other events in their corporate lifecycle, rather than how you’d normally think of growth.
During the past year, biotech stocks, as represented by the iShares Biotechnology ETF (IBB), have posted a total return of -21.0%, below the Russell 1000’s total return of -12.1%. These market performance figures and all statistics in the tables below are as of Oct. 4, 2022.
Here are the top biotech stocks with the best value, the fastest growth, and the most momentum.
These are the biotech stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.
| Best Value Biotech Stocks | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing P/E Ratio | |
| ITeos Therapeutics Inc. (ITOS) | 19.48 | 0.7 | 2.2 |
| BioNTech SE (BNTX) | 137.57 | 33.4 | 2.6 |
| Vir Biotechnology Inc. (VIR) | 21.49 | 2.9 | 2.7 |
Source: YCharts
- ITeos Therapeutics Inc.: ITeos Therapeutics is a clinical-stage biopharmaceutical company. It is focused on developing immuno-oncology therapeutics for cancer patients.
- BioNTech SE: BioNTech SE is a German-based immunotherapy company focused on developing therapies for cancer and other serious diseases. The company, in collaboration with Pfizer Inc., developed a vaccine against COVID-19. On Sept. 28, BioNTech and Pfizer announced that they had completed a submission to the European Medicines Agency for approval of the companies’ Omicron-adapted bivalent COVID-19 vaccine for children 5-11 years of age. Prior to that, on Sept. 26, the companies applied for Emergency Use Authorization (EUA) to the U.S. Food and Drug Administration for the same vaccine in the same population.
- Vir Biotechnology Inc.: Vir Biotechnology is an immunology company. It’s development pipeline includes candidates targeting infectious diseases including COVID-19, hepatitis B, and HIV. On Oct. 4, Vir reported that the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services awarded the company a multi-year contract of up to $1 billion to develop solutions to address influenza and potentially other infectious diseases.
These are the top biotech stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Due to the nature of biotech business models, especially early on, earnings and revenue can undergo large growth spurts when a deal is made or a drug is approved, so we are not excluding outliers with growth of over 2,500% as we typically do.
| Fastest Growing Biotech Stocks | ||||
|---|---|---|---|---|
| Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | |
| Vertex Pharmaceuticals Inc. (VRTX) | 300.64 | 77.1 | 1,100 | 22.5 |
| Beam Therapeutics Inc. (BEAM) | 51.60 | 3.6 | N/A (see company description) | 277,400 |
| Genmab A/S (GMAB) | 35.45 | 23.3 | 445.6 | 41.6 |
Source: YCharts
- Vertex Pharmaceuticals Inc.: Vertex Pharmaceuticals is a biotechnology company that develops medicines primarily to treat the underlying cause of cystic fibrosis (CF). It has related programs to enhance the treatment of CF. Vertex announced financial results for Q2 2022 on Aug. 4. Net income skyrocketed by 12-fold on rising revenue year-over-year (YOY), driven by growth in sales of TRIKAFTA/KAFTRIO, a CF prescription medicine.
- Beam Therapeutics Inc.: Beam Therapeutics is a biotechnology company focused on developing precision genetic medicines using its gene editing and delivery technologies. Because the company’s EPS was negative in the most recent quarter, an EPS growth rate could not be calculated in the table above.
- Genmab A/S: Genmab is a Denmark-based biotechnology company. It specializes in developing antibody therapies used int he treatment of cancers such as myeloma. Genmab reported on Sept. 1 that its share buy-back program initiated on June 17, 2022 had completed on Aug. 31. The company repurchased 370,000 shares for DKK907.5 million (roughly $121.1 million).
Biotech Stocks With the Most Momentum
These are the biotech stocks with the highest total return over the last 12 months.
| Biotech Stocks with the Most Momentum | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | |
| ChemoCentryx Inc. (CCXI) | 51.87 | 3.7 | 180.2 |
| Tricida Inc. (TCDA) | 11.82 | 0.7 | 168.6 |
| Global Blood Therapeutics Inc. (GBT) | 68.49 | 4.6 | 162.2 |
| Russell 1000 | N/A | N/A | -12.1 |
| iShares Biotechnology ETF (IBB) | N/A | N/A | -21.0 |
Source: YCharts
- ChemoCentryx Inc.: ChemoCentryx is a biopharmaceutical company that focuses on therapies for inflammatory diseases, autoimmune diseases, and cancer. On Aug. 4, ChemoCentryx announced that it would be acquired by Amgen Inc. (AMGN) in a deal valued at $3.7 billion. The transaction is expected to close in Q4 2022.
- Tricida Inc.: Tricida is a pharmaceutical company focused on the development and commercialization of the drug candidate veverimer, an orally administered drug used to treat metabolic acidosis, an acid buildup related to kidney disease.
- Global Blood Therapeutics Inc.: Global Blood Therapeutics is a biopharmaceutical company that develops treatments for sickle cell disease, an inherited blood disorder. On Aug. 8, Pfizer announced it would acquire Global Blood Therapeutics for $5.4 billion, pending approval from regulators. GBT’s main product is Oxbryta, an oral, once-daily therapy for sickle cell disease. The product’s net sales rose to $195 million in 2021 in the U.S. and abroad.
Advantages of Biotech Stocks
High Potential Reward: Investing in biotech stocks provides potentially high rewards, helping to boost overall portfolio returns. A clinical breakthrough, patent for a new drug, regulatory approval, or strategic partnership can send a biotech stock soaring based on speculation about what that development means for future earnings. For example, German biotech BioNTech saw its share price triple in March 2020 when it announced that it would team up with biopharmaceutical giant Pfizer Inc. (PFE) to co-develop and distribute an mRNA vaccine against COVID-19. Moreover, the biotech company’s stock continued to climb sharply throughout the pandemic, gaining over 1,450% between March 2020 and August 2021.
Acquisition Potential: Acquisitions regularly occur in the biotech sector, providing investment opportunities in stocks with exciting buyout potential. Furthermore, acquisition activity has accelerated in 2022. According to industry news site BioPharma Dive, there were at least 14 biopharma acquisitions worth $50 million or more between April and June 2022—double the volume of transactions over that period in each of the past four years.
Risks of Biotech Stocks
High Change of Failure: Given that many biotech companies are developing bleeding-edge therapies and medical technologies, there is an increased risk of failure in the sector. Moreover, research and development of breakthrough drugs takes time and is costly, presenting further obstacles to success. Indeed, research from leading investment bank Jefferies Financial Group Inc. (JEF) has identified at least 11 biotechs with a market capitalization over $200 million that have less than 12 months of funds at current spending levels.
Failures in a highly anticipated new drug typically result in steep share price declines. For instance, investors sold down Palo Alto, California-based BridgeBio Pharma, Inc. (BBIO) stock more than 60% after its experimental therapy for a genetic heart condition failed a crucial trial.
Regulatory Risk: Approval from the Food and Drug Administration (FDA) can make or break a biotech company. Furthermore, getting the green light from the agency is notoriously difficult. It approved just 50 new drugs in 2021. While the FDA’s approval can send a biotech firm’s share price skyrocketing, rejection can lead to bankruptcy or the company needing to ask investors for more capital. For instance, clinical-stage biotech company Zosano Pharma Corporation (ZSANQ) filed for Chapter 11 bankruptcy after the FDA rejected a migraine drug delivery patch it had been developing.
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