by Michael Robinson, Money Morning
Money Morning Article of the Week
When it comes to biotech, Wall Street tends to overreact. Though there’s no reason for it to be there, biotech is in the dog house, and investors have been conditioned to punish the sector and its stocks whenever the opportunity presents itself.
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You see, there are three main reasons biotech is down: Wall Street is worried about high and rising drug prices, the impact of a possible trade war on foreign sales, and expiring patents for some older medications.
Over the last several years, for example, I’ve read a number of Wall Street reports about the so-called “biotech patent cliff.” Simply stated, a drug falls off that “cliff” when its patent runs out and it starts facing competition from generics.
And a number of successful drugs out there are rapidly approaching their patent cliffs.
That sounds bad.
But there are good things happening in biotech, as well. In fact, what you don’t hear much about is that the industry is about to bust out.
For example, I was thrilled to see a recent report from Clarivant Analytics, a research firm that works closely with industry leaders and top universities, which says a total of 12 compounds being released in 2018 could become blockbusters.
So I went through the data and found one ultimate biotech blockbuster that I think could lead the pack.
Let’s take a look…
Biotech Blockbuster: The First Cannabis Drug to Market
Get ready for the first in a wave of new cannabis-based drugs. Epidiolex is likely to see FDA approval early this summer – and then start bringing relief to the nearly 4% of society that suffers from seizures.
In fact, an FDA advisory committee unanimously recommended that the agency approve the drug when it comes up for review in June.
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Epidiolex, made by GW Pharmaceuticals Plc. (Nasdaq ADR: GWPH), could become a $1.7 billion yearly seller by 2026.
And it’s just the tip of the spear for GW.
Beyond epilepsy, Epidiolex is being tested on other neurological diseases. Plus, the British firm is also testing a drug called Sativex, which appears to provide strong relief from the spasms induced by multiple sclerosis. Sativex has already been approved for sale outside the United States, pointing the global positive response to cannabis-based drugs.
GW Pharma also has a pipeline of earlier-stage marijuana-based drugs that are focused on schizophrenia, autism, and other conditions.
The firm should finish 2018 with roughly $400 million in the bank, enabling GW Pharma to become medical marijuana’s most dominant player.
Biotech Blockbusters’ One Fell Swoop
That’s why I think now is a great time to invest in the iShares Nasdaq Biotechnology Index (Nasdaq: IBB).
This cost-effective exchange-traded fund gives us broad exposure to a sector – an essential sector – poised for a rebound.
Since its launch in 2001, this $8.82 billion fund has been a top way to profit from the powerful growth of biotech blockbusters. And it holds the stock we’ve been talking about here.
Over the past decade, IBB has racked up a 15% yearly gain. That’s the kind of return you can come to expect now that biotech firms have strongly rebuilt their new drug pipelines.
While the fund aims for broad-based industry exposure, it provides a hefty weighting on biotech firms with the largest drug pipelines.
Amgen, Gilead Sciences, and Celgene Corp. (Nasdaq: CELG), for example, account for a combined 22% of the portfolio. Other key holdings include…
- Regeneron Pharma Inc.(Nasdaq: REGN), which has six FDA-approved drugs on the market and is also home to a deep pipeline of new drugs being tested to treat a range of diseases, including asthma, pain, cancer, and infectious diseases;
- Vertex Pharma Inc.(Nasdaq: VRTX), which is a leader in cystic fibrosis treatment. The firm’s new drugs are helping boost sales from $1.7 billion in 2016 to a projected $5.2 billion by 2020;
- Illumina Inc.(Nasdaq: ILMN), which provides a broad array of gene testing equipment, helping advance disease research, drug development, and the creation of molecular tests;
- And Alexion Pharmaceuticals Inc.(Nasdaq: ALXN), which focuses on monoclonal antibody therapies used to treat ultra-rare diseases. The firm’s sales have nearly tripled in the past five years, to a recent $3.6 billion. And a very deep pipeline should fuel double-digit sales gains for years to come.
The biotech industry is clearly headed for better days. Not just in 2018, but well into the next decade. That makes the iShares Nasdaq Biotechnology Index a great long-term holding that can ride the entire sector to new heights.
If you make your move now, you’re getting in before Wall Street wakes up to the great story here.
