Biotech stocks were starved for love on Wall Street in recent years, notwithstanding revolutionary research and the launch of novel therapies for once incurable diseases.
Not anymore. The catastrophic outbreak of Covid-19 has led to a reappraisal of the sector, even if viable treatments and vaccines seem far off. Sure, biotech stocks tanked this past month, but the iShares Nasdaq Biotechnology exchange-traded fund (IBB) and other industry benchmarks have been outperforming the broader market.
The industry’s reversal of fortune is no surprise to Eli Casdin, founder and chief investment officer of Casdin Capital, a New York–based hedge fund specializing in life-sciences investments. Casdin, a panelist on Barron’s 2019 Biotech Roundtable considers life sciences, including biotech, the biggest growth story of the next decade. “A lot of value has been taken out of the sector,” he says. “Investors should recognize that an industry with a lot of growth ahead isn’t going to sustain disruption in the same way that much of the legacy economy will. And companies with strong balance sheets and management teams will carry the day.”
In the edited interview below, he highlights some of these companies, and the outlook for biotech investing.
Q: How is Covid-19 affecting the life-sciences industry?
A: Many people in the industry are on the front lines and caring for patients. Also, like the rest of the economy, the industry is experiencing severe disruptions. As hospitals focus on the emergent sick, nonessential treatments are put on hold. People selling new medicines, medical devices, and diagnostics can’t visit customers, and clinical-trial recruitments are being delayed or halted because hospitals are overwhelmed, patients are too at-risk to go to hospitals to get these treatments, or the treatments require coordination and resources that just can’t be spared right now.
Q: How badly will these delays set back science—and biotech companies?
A: The delays will be counted in months, not years, but they are delays. For some companies, the data on clinical trials are critical for capital-raising. For undercapitalized companies, delays could be eternal. But not all testing sites are shut down. And, companies are looking to regions on the other side of the crisis, such as China, to pick up some of the slack.
Q: Do any prospective treatments for Covid-19 excite you?
A: We are most hopeful about Gilead Sciences ’ (GILD) Remdesivir, which was developed to treat Ebola and Marburg. It is being adapted as a treatment for Covid. The in vitro data are promising; we should get more insight in four to six weeks.
Q: Has the current crisis altered the long-term outlook for investors?
A: It has turned the industry from the heel of people’s opinion to the hope. Look at Gilead, which came under fire for pricing its hepatitis-C drug too highly. Now it is regarded as something of a savior. Also, the industry is used to shift and remote work. It can remain productive even if Covid-19 flares up again. The life-changing drugs and diagnostics being developed by biotech and life-sciences companies are critical. For growth investors looking for high-value, sustainable businesses, the industry could become even more attractive.
Q: So, does this mean it’s time to buy?
A: There isn’t a ton of liquidity in the stock market, and it could retest its lows. But there are companies with strong balance sheets, mature pipelines, and commercial or soon-to-be commercial products. Also, in a pandemic, small molecules are better than biologics and cell therapies. You can get them at a pharmacy, and they are easier to take. Small-molecule-targeted medicine companies look particularly attractive.
We’re interested in Blueprint Medicines (BPMC), a long-term holding. Blueprint is developing targeted medicines for rare, genetically driven cancers. It will have three products on the market in the next 18 months. It raised money before Covid-19 hit, so it is well capitalized. The stock is down 42% from its July 2019 high, and trades for $57. Blueprint may be disrupted in the near term, but patients need these medicines. Business will come back.
Even before the coronavirus hit, we were increasingly interested in China biotech. This crisis accelerates China’s efforts, particularly in outsourced research and development and manufacturing. We own WuXi Biologics (WXXWY) and WuXi AppTec (WUXAY). WuXi Biologics has 5% of the global market for biologics outsourcing, and a 78% share in China. WuXi AppTec is a leading contract research organization.
Q: What else appeals to you?
A: Invitae (NVTA) has been disrupted, and the stock has become volatile. It peaked at $28 on Feb. 19, and now trades around $12. We own it and have been buying again. Invitae provides genetic testing for children with developmental disorders. The company isn’t going to go out of business. It made a series of acquisitions in the past year that enable the practice of virtual medicine, so it was prepared, in a sense, for what is happening now.
We also like stocks in the cell-therapy space ; bluebird bio (BLUE) a leader in targeted cell therapy, has products approved or about to be approved . The sales ramp is delayed, but not permanently. The stock has fallen 50% since mid-February, to $42. Fate Therapeutics (FATE) and Crispr Therapeutics (CRSP) are other cell-therapy companies we like. They are well financed. You don’t want to be looking for money in this market.
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