Biotechnology, also known as biotechs, are companies that use biological technology to solve health issues. In theory, they are separate from pure-play pharmaceutical companies, which specialize in using chemicals to develop drugs. In most cases, the two types of companies are usually intertwined.
2020 was a relatively successful year for biotech companies. Indeed, while the overall S&P 500 index gained by just 13%, the iShares Nasdaq Biotechnology ETF and SPDR Biotech ETF rose by 30% and 54%, respectively. The relatively small ARK Genomic Revolution ETF rose by more than 180%.
This happened because several biotech firms had a leading role in developing the COVID vaccine. Further, because of the importance of their products, these companies tend to survive periods of deep recessions. Furthermore, people will always need to be treated regardless of the macroeconomic situation.
So, will the biotech industry continue to fire on all cylinders in 2021? It depends. But, the four companies we highlight below stands an excellent chance.
2020 was a mixed year for Pfizer. On the negative side, the company was removed from the blue-chip Dow Jones Industrial Index after spending decades there. On the positive side, the company became the first to get its COVID vaccine approved by the United Kingdom and the United States. The negatives led its stock to lag in 2020, dropping by more than 3%, bringing its market cap to more than $211 billion. Its total return that also includes dividends, increased by more than 4%.
Pfizer is more than just a COVID vaccine provider. The company has tens of products that help treat many diseases, including brain and cardiovascular, cancer, diabetes, menopause, and other rare diseases. Indeed, while the COVID vaccine is a big deal, its revenue will be just a small part of Pfizer’s business.
For one, before COVID, the company generated more than $51 billion in annual revenue, leading to a profit of more than $16 billion. In the past twelve months, its revenue fell to more than $48 billion, leading to a net profit of more than $8 billion.
In 2021, we believe that Pfizer will continue doing well partly because of the potential rotation from technology to value stocks. Also, its high dividend yield will possibly draw many investors to the firm.
Pfizer vs. S&P 500
Abbvie is one of the biggest biotech companies in the United States. It was formed in 2013 as a spin-off from Abbott Laboratories. Today, the company’s value has grown, becoming a $185 billion company. That’s slightly less than the value of Abbott, which is valued at more than $193 billion.
Abbvie is a well-known brand that has a substantial market share in immunology, oncology, neural science, eye care, and virology. Some of its top-selling products are Humira, RINVOQ, and SKYRIZI, among others.
ABBV has been on a strong upward trend in the past few years. Its total revenue has grown from about $22 billion to more than $40 billion in the past 12 months. The same is true about its profitability since annual profit has grown from about $5 billion to more than $7.3 billion.
This performance has been mostly organic, but some of it has been because of acquisitions. Its most notable acquisition was Allergan in a deal that was valued at more than $63 billion. Other key acquisitions are Luminera, Pharmacyclics, and Humira, among others.
Abbvie shares did well in 2020, rising by about 25%, and there is a possibility that the shares will continue doing well in 2021. This is partly because of Humira, the best-selling drug in immunotherapy. The firm believes that this drug will cross $20 billion in annual revenue in 2021, partly because of global expansion.
Established in 1980, Amgen has become a biopharmaceutical juggernaut worth more than $134 billion. The firm produces tens of products that are used by millions of people from around the world. Enbrel, its best-seller drug, treats people with diseases like rheumatoid arthritis and psoriasis. Its other popular drugs are Neulasta, Prolia, and XGEVA, among others.
Amgen generates most of its sales from the United States. In 2019, it sold products worth $16.5 billion in the US and about $6.5 billion abroad. It is also one of the recent entrants to the Dow Jones.
The firm’s sales have been on steady growth in the past few years. They increased from more than $20 billion in $2015 to more than $23 billion in 2020. Its profit also increased to more than $7.3 billion. This growth has come organically and through acquisitions. Its most recent acquisition was the $13 billion buyout of Otezla in 2019 from Celgene. It also acquired Decode in a $415 million deal.
Amgen stock has been a laggard in the past few years. The shares declined by about 1.43% in 2020, partly because of the company’s weak pipeline compared to its peers. Also, for years, investors have been worrying about its dependence on Enbrel. 2021 could be a big year for the company since it is revamping its pipeline. Just recently, its RIABNI drug received FDA approval. Also, the firm recently increased its dividend by about 10%.
Amgen vs. S&P 500
Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals is a fast-growing biopharmaceutical company that was started in 1989. The firm is best known for its approach to developing drugs, which is known as rational drug design. The firm’s main products treat a condition known as Cystic Fibrosis, which is a common disease around the world. For example, in North America, Europe, and Australia, the disease affects more than 75,000 people.
Some of the products Vertex makes are Trikafta, Symdeko, and Symkevi. Because of its effectiveness, the company’s revenue has grown from more than $1 billion in 2015 to almost $6 billion. This growth has pushed its market cap over the limit. Today, the firm has a market cap of more than $61 billion, pushing its price-to-earnings ratio to 23.
The company will continue doing well in 2021 as the management shifts focus to the large addressable market abroad.
Vertex vs. S&P 500
Biotech companies are often known as all-weather stocks because of the fact that they tend to do well regardless of the overall economy. 2020 provided more evidence for this. In 2021, we believe that these biotech names will continue doing well. Among others to watch will be Gilead Sciences, Moderna, Sanofi, and GlaxoSmithKline.