As biotech investors, we would love our favorite companies to report success with every candidate. Of course, that’s not possible. The failure of certain investigational products in clinical trials is all part of the biotech business. Still, that doesn’t mean investors like it. Otherwise successful or promising companies have seen their shares plummet after disappointing data reports.
And that’s exactly what happened to the following two biotech companies. Is it time to flee? Not if you follow superstar investor Cathie Wood, the founder of ARK Invest. In recent weeks, she stocked up on shares of these companies. Let’s find out what they are — and whether we should jump in, too.
Shares of Vertex Pharmaceuticals (NASDAQ:VRTX) slid 15% in the first half, even as revenue and profit climbed and its newish blockbuster Trikafta gained more and more market share. The Food and Drug Administration approved the drug in the fall of 2019. And it’s since gathered additional approvals across age groups and geographies. Trikafta is a key product because it can treat about 90% of cystic fibrosis (CF) patients. Vertex also sells three other CF treatments.
Sounds pretty good, right? But investors didn’t like Vertex’s recent failures in liver and lung disorder alpha-1 antitrypsin deficiency (AATD). The company discontinued two candidates for the condition in less than a year. Investors worry that Vertex will struggle to expand beyond CF.
I’m not overly concerned, for two reasons. First, Vertex is the major player globally in CF. And the company expects to remain the market leader until the late 2030s at least. This gives it time to see success in one of its other pipeline programs — or even buy a late-stage candidate. Vertex has $6.9 billion in cash and equivalents.
My second reason: Vertex and partner CRISPR Therapeutics have reported encouraging clinical data in their gene-editing therapy for blood disorders. They say a regulatory request may come as early as 18 to 24 months from now. Such a product could be a game changer.
Shares of Ionis Pharmaceuticals (NASDAQ:IONS) lost 29% in the first half. What tripped up the stock price? Partner Roche ended a phase 3 study of tominersen in Huntington’s disease. Roche licensed the treatment candidate from Ionis in 2017. An independent monitoring committee didn’t find safety issues but cited the “potential benefit/risk profile” as the reason to stop dosing participants. We can imagine efficacy was likely the problem.
Of course, that’s disappointing. But the Ionis story is far from over. It is at a transition point. The company last year bought its affiliate Akcea Therapeutics to give it full access to two commercialized products and achieve cost synergies. This is all part of the company’s new focus on its wholly owned pipeline of investigational products. Ionis has nearly 40 candidates in the pipeline for areas including cancer, neurological disorders, and cardio-renal conditions. Six candidates are in phase 3 trials. And the company expects five data readouts in the second half of this year.
Ionis is in the early stages of its commercial path. The company’s commercialized products brought it $85 million in revenue in the first quarter. But looking ahead, that figure might gain significantly. In Ionis’ 2020 full-year earnings report, the company said it’s on track to have at least 12 products on the market as of 2026.
Is Cathie Wood right?
Biotech companies are particularly sensitive to clinical trial data. Failure of a program can result in a major crash for the shares. That’s happened to both of these otherwise solid companies in recent times. And it could happen again if one of their programs disappoints. It’s always important to be aware of that when investing in biotech companies.
That said, Vertex and Ionis offer many positives. I like Vertex for its CF leadership, billions of dollars in revenue, and profitability. I like Ionis for the depth and breadth of its pipeline candidates — and the fact that a number of potential products are in late-stage development.
Both companies are trading at low levels in relation to sales compared to that measure over the past decade.
Vertex and Ionis aren’t expensive considering their current revenue — and future potential. So if you’re OK with a bit of risk, now could be a very good time to follow Cathie Wood and get in on these innovative companies.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.