Biotech Companies: A More Exciting Way to Buy Stocks

Marc Lichtenfeld
by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
biotech companies 0

Investing is serious work.

If you’re like most people, your retirement won’t be - or wasn’t - secured by your job. Even if you’re fortunate enough to have a pension, that income alone probably won’t take care of all of your expenses in retirement. That’s why it’s critical to invest for the future and to start early.

Once you have your long-term plan in place and some extra funds left over, it’s fun to speculate in the market. When it’s successful, you can make big money... just from a small investment. And usually the companies that you speculate on are exciting and innovative companies.

It’s one of the reasons I love the biotech sector.

Some of these companies make your average speculative stock look like the ultra-conservative Coca-Cola (NYSE: KO). In other words, many biotechs fly all over the place. When stocks are down and the biotech sector is getting hit, some small cap names can fall 5% or more in a day.

But when things go right, boy do they ever. A small biotech company with positive clinical trial data on one of its drugs can surge 50%, 75%, even 100% in one trading session.

And for the companies that become successful, the amount of money that can be made is mind-boggling.

For example, Celgene (Nasdaq: CELG) went public in 1990. If you had waited five years after its IPO to buy the stock (I usually don’t like to buy biotech IPOs right away - I prefer to give the company a little bit of time to prove itself), you would have bought the stock at $5.31. Today, Celgene is at $101.44. A 2,000-share investment of $10,620 would now be worth $202,880.

That’s a 1,810% return in 21 years.

There are many other examples.

Biotech has another unique feature. Not only are the potential gains better than those in any other sector of the market, but people actually enjoy following the progress of the stocks.

An investor can own a stock like Target (NYSE: TGT) and make some money. But do they really get excited when the same store sales reports come out every month?

On the other hand, imagine owning a stock like Kite Pharma (Nasdaq: KITE), which develops cutting-edge cancer immunotherapy products.

Its patented KTE-C19 therapy for lymphoma has been shown to be effective in two-thirds of clinical trial subjects (lymphoma patients who haven’t responded to other treatments). More than 40% of subjects show complete remission.

These successes in treating seemingly terminal forms of cancer led Gilead Sciences (Nasdaq: GILD) to acquire Kite for $11.9 billion. Kite shareholders earned triple-digit returns from the deal.

That’s incredibly exciting. And biotech investors are often as jazzed about the medical advances that their companies make as they are about the stock price advances.

I don’t ever recommend you let your emotions be a factor in your investing, but it’s hard not to be happy when you know that the company you invested in will drastically improve or even save the lives of sick patients.

In the Thick of It

In a few weeks, I’ll be attending the J.P. Morgan Healthcare Conference in San Francisco. It’s easily the most exhausting yet exhilarating week of the year. Anyone who’s anyone in healthcare and healthcare investing is there.

It’s impossible to get a hotel room, restaurant reservation or even a latte at Starbucks because there are so many men in suits (it’s mostly men) walking around Union Square meeting with companies, investors, potential business partners, etc.

I attend each year and spend the week running from hotels to restaurants to cafés, meeting with CEOs, investment bankers, analysts, hedge fund managers and scientists, learning about new stories, and following up on the companies I’ve been keeping an eye on.

I’ll be writing about what I see and hear at the conference and letting you know if there’s anything you need to be paying attention to in the biotech world.

In the meantime, if you have a little extra play money, I encourage you to get familiar with the sector. You can score some huge profits and may learn something that could help someone suffering from a particular condition or disease.

Good investing,


Thoughts on this article? Leave a comment below.

Editor’s Note: If you’re interested in learning more about the biotech sector, check out Marc’s Lightning Trend Trader, which focuses on opportunities in this sector.

Marc’s Favorite Biotech Income Stock

Much of Marc’s research is focused on two parts of the equity market. One, as you can imagine, is biotech. The other, as Marc’s Oxford Income Letter subscribers know, is dividend stocks.

AbbVie (NYSE: ABBV) is a promising company that fits both categories. Here’s Marc checking on the pick back in August...

Among the drug makers, AbbVie (NYSE: ABBV) is my favorite.

AbbVie’s biggest seller is Humira. The drug, which is approved for psoriasis, arthritis, Crohn’s disease and several other indications, generated $8.8 billion in sales in the first half of the year. That’s an increase of 14% over last year’s sales - despite competition from generic versions.

But Humira continues to attract new patients. This week, it was approved for reimbursement in Canada for the treatment of ulcerative colitis.

While Humira is still vital to the company’s business, other therapies are gaining importance.

Cancer fighter Imbruvica posted $1.2 billion in sales in the first six months of the year, a 44% gain.

Earlier this year, the FDA and Health Canada approved Mavyret to treat hepatitis C in all major (six) genotypes. Many hep C drugs are approved for only one or two genotypes. The disease affects 3.2 million Americans and more than 130 million others around the world.

The company also received FDA approval for the use of Imbruvica in chronic graft versus host disease. It’s a serious condition that affects roughly half of all stem cell and bone marrow transplant recipients.

Imbruvica can now be given to patients who fail to respond to steroids. It’s the first drug that has been approved specifically for this treatment.

AbbVie has 37 drugs in its pipeline, including Rova-T, which is in Phase 2 and 3 trials for small cell lung cancer; ABBV-3067, in Phase 1 for cystic fibrosis; and ABBV-951, also in Phase 1 for Parkinson’s disease.

AbbVie’s deep pipeline and very successful approved products should keep the cash coming in for years. As a result, investors should continue to see AbbVie’s dividends and stock price grow strongly.

- Samuel Taube with Marc Lichtenfeld

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