Are these 3 Biotech Stocks Undervalued?

The biotech theme could rise in 2025. Here are three value picks to help you ride the wave.

Dec 04, 2024

While the biotech theme took a bit of a beating in the aftermath of Donald Trump’s election win, principally due to concerns around vaccine skeptic Robert F Kennedy Jr. becoming his health secretary, investors have since been buoyed by Trump’s Food and Drug Administration pick.

Marty Makary is a surgeon and proponent of RFK Jr.’s plan to tackle chronic diseases through the ‘Make America Healthy Again’ movement.

Analysts believe that this could be good news for biotech stocks and drug developers. BMO Capital Markets analyst Evan Seigerman believes Makary will likely take a more “reasonable approach to running the FDA than has been feared,” according to a note seen by CNBC last week.^[1]

“All in, we think the FDA pick should allow biopharma investors a reprieve, removing uncertainty and may reverse significant drawdowns the week RFK Jr. was nominated,” Seigerman concluded.

The iShares Biotechnology ETF [IBB] is down 1.95% in the past month through December 3, but has gained 4.71% in the past six months.

Here, we explore three Nasdaq-listed stocks held by the fund that investors could consider as value plays on the biotech theme for 2025, and beyond: looking further ahead, the biotech sector is tipped to grow at a healthy pace over the next decade.

Three Plays on Biotech

AMGN Stock: The Weight Loss Play

Amgen [AMGN] published positive results from the Phase 2 trial of its obesity drug MariTide showing that it can help people who are obese to lose up to a fifth of their body weight over the course of a year.^[2]

Analysts have noted that, while MariTide has shown more side effects than competitors, the benefits are in line with trials of competitors. Patients on Eli Lilly’s [LLY] Zepbound lost 22% on average over 72 weeks, while those on Novo Nordisk’s [NVO] Wegovy lost 15% of their weight on average over 68 weeks.^[3]

A Phase 3 trial for MariTide is now planned, which will also include people with heart disease, kidney failure and sleep apnea.[4]

BBIO Stock: The Heart Disease Play

BridgeBio [BBIO] announced last month that the FDA had given the green light to Attruby, its oral drug taken to treat adults with a rare heart condition, ATTR-CM.^[5] It is hoped that Attruby will challenge in a market currently dominated by Pfizer’s [PFE] Vyndaqel, which generated $1.45bn in sales in Q3.^[6]

Attruby will reportedly be priced at $18,759 for a 28-day round of treatment, slightly lower than Pfizer’s drug, which costs $268,000 a year,^[7] or approximately $20,600 for a 28-day supply.^[8]

The FDA approval triggered a $500m royalty payout to BridgeBio.[9]

VRTX Stock: The Cystic Fibrosis Play

Vertex Pharmaceuticals [VRTX] beat analysts’ expectations in Q3. Revenue rose 12% year-over-year to $2.77bn, driven by a 14% increase in sales of its blockbuster cystic fibrosis drug Trikafta — known as Kaftrio outside the US — to $2.59bn.^[10]

On the back of strong demand for the drug, full-year revenue guidance has been raised from a range of $10.65bn–10.85bn to $10.8bn–10.9bn.

Earlier this year, Vertex completed the biggest biotech M&A deal of the year with the $4.9bn buyout of autoimmune disease specialist Alpine Immune Sciences.^[11]

Biotech’s Gains Are a Mixed Bag

These three stocks have seen mixed gains over the past 12 months through December 3. BridgeBio’s share price is down 14.09%, while Amgen’s share price is up 5.24%. Vertex’s share price is the outlier, gaining 30.13%. For comparison, the iShares Biotechnology ETF is up 14.57% over the same period.

Biotech: The Investment Case

The Investment Case for AMGN Stock

The Bull Case for Amgen

After closing the $27.8bn buyout of Horizon Therapeutics in October, Amgen is starting to reap the rewards.

Product sales in Q3 were up 23%, but if revenue from products acquired through Horizon Therapeutics were stripped out then the growth rate would fall to just 8%.^[12]

The Bear Case for Amgen

The Amgen share price tumbled following the MariTide data read-out, which failed to impress some investors. “Bulls will be a little disappointed today, while bears will say Amgen is no longer a major player here to be concerned [about],” wrote Jefferies analysts in a note.^[13]

MariTide could also face political headwinds in trying to capture a share of the weight loss drug market. RFK Jr. has been critical of using drugs to treat obesity and he could potentially push for a clampdown on the companies developing them.^[14]

The Investment Case for BBIO Stock

The Bull Case for BridgeBio

Despite the recent FDA win, the BridgeBio share price is down 63.84% from its all-time high of $73.50, reached on February 9, 2021, and BoA analysts believe that the stock is “still underappreciated currently”.^[15] BoA has kept a ‘buy’ rating on the stock — it was one of three firms to have reiterated a bullish view on the stock following the FDA announcement.^[16]

A decision on whether to approve the ATTR-CM drug for Europe is expected next year. Bayer [BAYRY] has been granted exclusive license to commercialize the drug, which will see BridgeBio receive $310m, including milestone payments.^[17] AstraZeneca’s [AZN] Alexion has a deal to market it in Japan.[18]

The Bear Case for BridgeBio

Morningstar has forecast that the ATTR-CM drug could generate $3.3bn in annual sales globally by 2033.^[19] However, this is on the assumption that the drug gets the nod in Europe, Japan and other regions.

Until BridgeBio is successful in commercializing the drug, the company is likely to remain unprofitable. Net income for Q3 was a loss of $162m.^[20]

The Investment Case for VRTX Stock

The Bull Case for Vertex

Vertex has been named as one of the top biotech picks for 2025 by J.P. Morgan on the basis that “the company in the enviable position of being able to stack new products on top of its long-duration [cystic fibrosis] business”.[21]

There is plenty of bullishness around suzetrigine, its non-opioid candidate for treating acute pain. Data presented at the American Society of Anesthesiologists in October has been described by William Blair analysts as “an incremental positive”.

The Bear Case for Vertex

Truist Securities analyst Joon Lee has said he’s “not entirely sold yet on the commercial case for suzetrigine in acute pain”.^[22]

GlobalData has forecast suzetrigine could generate $1.4bn in annual global sales by 2030.^[23] However, failure to commercialize suzetrigine could potentially present a challenge to diversifying its revenue stream. Vertex is currently heavily reliant on sales of Trikafta/Kaftrio, which accounted for 93.50% of Q3 revenue.^[24]

Conclusion

Biotech is poised to bounce back in 2025 and there are catalysts for Amgen, BridgeBio and Vertex to rally next year. However, the nature of the industry means that all three stocks could face near- and long-term challenges related to their drug portfolio.

This is for informational purposes only. OPTO Markets LLC does not recommend any specific securities or investment strategies. Investing involves risk and investments may lose value, including the loss of principal. Past performance does not guarantee future results.

^[1] https://www.cnbc.com/2024/11/26/healthy-returns-trump-fda-pick-makary-may-be-a-relief-for-biotech-pharma.html

^[2] https://www.amgen.com/newsroom/press-releases/2024/11/amgen-announces-robust-weight-loss-with-maritide-in-people-living-with-obesity-or-overweight-at-52-weeks-in-a-phase-2-study

^[3] https://www.reuters.com/business/healthcare-pharmaceuticals/amgen-drug-leads-up-20-weight-loss-trial-2024-11-26/

[4] https://www.biospace.com/drug-development/amgen-plans-phase-iii-program-for-next-gen-obesity-drug-targeting-liver-and-kidney-diseases

^[5] https://investor.bridgebio.com/news-releases/news-release-details/attrubytm-acoramidis-near-complete-ttr-stabilizer-90-approved

^[6] https://s28.q4cdn.com/781576035/files/doc_financials/2024/q3/Q3-2024-PFE-Earnings-Release-Final.pdf

^[7] https://www.reuters.com/business/healthcare-pharmaceuticals/us-fda-approves-bridgebios-drug-rare-heart-condition-2024-11-23/

^[8] https://www.bloomberg.com/news/articles/2024-11-23/bridgebio-gets-us-approval-for-heart-drug-to-compete-with-pfizer

[9] https://finance.yahoo.com/news/fda-approves-bridgebio-attruby-attr-093820789.html

^[10] https://investors.vrtx.com/static-files/eafe620a-981b-4b21-a6c4-bf1e0a0a0014

^[11] https://www.ft.com/content/54a1d815-0bbb-46c9-a70d-833036cd2734

^[12] https://www.amgen.com/newsroom/press-releases/2024/10/amgen-reports-third-quarter-2024-financial-results