The Best Biotech Stocks to Buy Thanks to rapid innovation and strong product launches, some biotech stocks look attractive again. Investing in biotechnology stocks has always required a high risk tolerance and the patience to wait years, even decades, for results. But in the past few years, biotech investors have found their resilience tested by a bumpy market. “ Biotech stocks performed strongly early in the [covid-19] pandemic,” says Morningstar strategist Karen Andersen. “Investors saw a strong contrast between the industry’s innovation and the weak performance of typically more reliable corners of the market. However, by mid-2021, biotech stocks began to decline.” In 2023, the Morningstar US Biotechnology Index returned 7.37%, while the Morningstar US Market Index gained 26.44%. As Andersen explains: “Tailwinds from the sale of covid vaccines and therapies turned to headwinds in 2023 as the pandemic waned and demand plummeted. Combined with increasing pressure from the FTC on acquisitions, such as the delay in Amgen’s Horizon acquisition in 2023, the biotech outlook was murky.” Are Biotech Companies Good to Invest in Right Now? After several years of volatility, Andersen thinks the market is beginning to appreciate biotech’s potential once again. “We think the biotech industry has found its footing again, beginning with a rebound in the fourth quarter of 2023,” she says. “Pricing pressure from the Inflation Reduction Act in the US looks manageable. Interest rates are beginning to fall, and acquisitions are being announced at a rapid pace, with big biopharma firms finally putting their significant cash balances to use. The FDA also looks very receptive to approving innovative drugs early, as there are many remaining areas of unmet need.” The 7 Best Biotech Stocks to Buy Now These were the most undervalued biotech stocks that Morningstar’s analysts cover as of March 21, 2024. Intellia Therapeutics NTLA Moderna MRNA Royalty Pharma RPRX Crispr Therapeutics CRSP BioNTech BNTX Incyte INCY Jazz Pharmaceuticals JAZZ Here’s a little more about each of the best biotech stocks to buy, including commentary from the Morningstar analysts who cover each company. All data is as of March 21. Intellia Therapeutics Morningstar Price/Fair Value: 0.33 Morningstar Uncertainty Rating: Very High Morningstar Economic Moat Rating: None Market Capitalization: $2.67 Billion Intellia is the cheapest name on our list of the best biotech stocks to buy now. This early-stage gene-editing company has a promising pipeline but does not yet have any approved products. The stock looks 67% undervalued relative to our $85 fair value estimate. Intellia Therapeutics is a gene-editing company focused on the development of Crispr/Cas9-based therapeutics. Intellia’s technology platform specializes in clustered regularly interspaced short palindromic repeats, or Crispr/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. Crispr/Cas9 has created a new class of medicines, which are well-suited for targeting rare diseases or other disorders that are caused by genetic mutations. Crispr/Cas9 works by having Crispr (pieces of DNA sequences) guide Cas9 (an enzyme that can cut and edit DNA) to edit, alter, or repair genes. Intellia is utilizing this gene-knockout approach to remove unwanted proteins using its proprietary lipid nanoparticle delivery system. Intellia has leveraged its expertise in Crispr/Cas9 gene editing to advance a pipeline of in vivo and ex vivo therapies for diseases with high unmet medical needs. We believe the company’s proprietary technology has the potential to build blockbusters in rare diseases that have limited treatment options available. Intellia currently has no approved drugs and a largely early-stage pipeline, so we refrain from awarding the company an economic moat. Intellia’s most advanced in vivo candidates are NTLA-2001 for the treatment of transthyretin amyloidosis and NTLA-2002 for the treatment of hereditary angioedema. NTLA-2001 is part of a co-development and co-promotion agreement with Regeneron REGN, in which Intellia is the clinical and commercial lead party and Regeneron is the participating party. Regeneron shares in 25% of worldwide development costs and commercial profits for the ATTR program. We like that Intellia will retain 75% of the economic profits of NTLA-2001, if approved, and the company also has the expertise and financial support of Regeneron to offset some of the development costs. In addition, we appreciate that NTLA-2002 is wholly owned by Intellia. The rest of Intellia’s pipeline is either in the early (phase 1) or preclinical stages of development. While Intellia does not currently have approved products, the company provides long-term investors with pure-play exposure to gene editing. Rachel Elfman, Morningstar Analyst Moderna Morningstar Price/Fair Value: 0.45 Morningstar Uncertainty Rating: Very High Morningstar Economic Moat Rating: None Market Capitalization: $39.3 Billion Of all stocks on our list of the best biotech stocks to buy, Moderna, which benefited from sales of its covid-19 vaccine, took the biggest hit to its stock price as the pandemic receded. However, we think it has growth opportunities ahead in many areas. Moderna is also the largest company on our list, with a nearly $40 billion market capitalization. This cheap biotech stock is 55% undervalued; we believe it’s worth $227 per share. Moderna’s mRNA technology has gained rapid validation as sales of its covid-19 vaccine soared in 2021 and 2022, but we think the firm has yet to secure a narrow economic moat around its business, largely because of uncertainties tied to an evolving virus and the changing competitive landscape for innovative vaccines. In a record-breaking span of just 11 months, Moderna created, developed, manufactured, and got regulatory authorization for mRNA-1273, a two-dose covid-19 vaccine that is one of the first two mRNA vaccines ever authorized (alongside Pfizer/BioNTech’s BNT162b2). The pandemic accelerated Moderna’s evolution into a commercial-stage biotech, and we expect that the firm’s ramp-up in manufacturing and clinical know-how will pave the way for faster timelines for additional programs. Moderna’s mRNA platform, involving rapid design and similar manufacturing across programs, allows the company to pursue multiple programs in parallel. Moderna also retains full rights to most of its programs, although partnerships with Merck MRK and Vertex VRTX help support its efforts in oncology and cystic fibrosis. Moderna reported roughly $18 billion in covid-19 vaccine sales in both 2021 and 2022, but with vaccine fatigue and uncertainty around the severity of covid-19 infections in the coming season, we assume $6.2 billion in sales in 2023. We see potential for continued revenue around $4 billion annually if higher-risk populations receive annual vaccines, although there is high uncertainty around the number of long-term competitors (including new mRNA players) and pricing, particularly as the US market moves from government contracts to a commercial market. Moderna’s phase 3 pipeline beyond covid-19 is growing and includes potential 2024 launches in RSV and oncology, as well as 2025 launches for a covid-19/flu combination vaccine and rare disease treatments. Moderna and Merck’s melanoma therapy has potential in a wide range of cancers in combination with Merck’s Keytruda. We think mRNA technology will eventually be used in a broad spectrum of other therapeutic areas, from cancer to cardiology to rare diseases. Karen Andersen, Morningstar Strategist Royalty Pharma Morningstar Price/Fair Value: 0.58 Morningstar Uncertainty Rating: Medium Morningstar Economic Moat Rating: Narrow Market Capitalization: $13.5 Billion Royalty Pharma specializes in purchasing royalties from other biotech firms, allowing it to profit from an array of therapies and innovations. It is also the first of two biotech firms on our list that we think has carved out an economic moat. Royalty Pharma stock is 42% undervalued relative to our $52 fair value estimate. Royalty Pharma is the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. The company makes lump-sum payments in exchange for future cash flows linked to those products’ sales revenue, which differentiates it from other biotech companies that are exposed to high research and development and/or manufacturing costs. Its uniqueness also lies in the diversity of royalties across different therapeutic areas. This stands in contrast to a typical biotech firm’s focus on developing specialized therapies targeting certain diseases. Royalties play an important role in the commercialization process of cutting-edge therapies. Royalties are usually created as a form of payment when a large biopharma company takes over research insights from smaller biotech firms or research institutions for further marketing and development through licensing agreements. In this process, royalty recipients often face the issue where multiple small future royalty streams cannot fulfill ongoing large lump-sum R&D funding needs. The mismatch is where Royalty Pharma captures its market opportunity. The increasing demand for capital across the global biopharma industry has been propelling Royalty Pharma’s growth in recent years. The total dollar value of all royalty transactions in 2022 was 10 times the volume in 2015. Royalty financing shows its advantage as a nondilutive funding method that satisfies instant funding needs despite the conditions of debt and equity markets. As a leading royalty acquirer, we think Royalty Pharma is in a great position to capture market tailwinds. With the average development cost for a newly approved drug surpassing $1.4 billion in 2022, we find Royalty Pharma’s capability of executing large deals appealing. Royalty Pharma has a dominant market position for transactions sized over $500 million. The company’s extensive experience in structuring flexible deals with installment and milestone payments makes it a preferred choice for many royalty sellers. Rachel Elfman, Morningstar Analyst Crispr Therapeutics Morningstar Price/Fair Value: 0.61 Morningstar Uncertainty Rating: Very High Morningstar Economic Moat Rating: None Market Capitalization: $5.8 Billion Among our best biotech stocks to buy now, Crispr proved most resistant to the recent industry volatility. The company continues to possess a sizable, mostly early-stage pipeline, and it invests heavily in research and development. Shares of Crispr Therapeutics look 39% undervalued compared with our $119 fair value estimate. Crispr Therapeutics is a clinical-stage gene-editing company focused on the development of Crispr/Cas9-based therapeutics. The company’s proprietary platform specializes in Crispr/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. Crispr’s emerging technology has led to a new class of therapies, which are well suited for targeting rare diseases or other disorders that are caused by genetic mutations. Crispr/Cas9 works by having Crispr (pieces of DNA sequences) guide Cas9 (an enzyme that can cut and edit DNA) to edit, alter, or repair genes. We think Crispr Therapeutics’ proprietary technology has the potential to build blockbusters in rare diseases with limited treatment options available. Crispr Therapeutics currently has no approved drugs and a largely early-stage pipeline, so we refrain from awarding the company an economic moat. Crispr Therapeutics is focused on developing and commercializing novel therapies to treat severe genetic diseases and currently possesses a sizable, yet mostly early-stage pipeline. Its lead candidate, exa-cel, is being developed in collaboration with narrow-moat Vertex Pharmaceuticals for the treatment of transfusion-dependent beta-thalassemia, or TDT, and sickle cell disease, or SCD. Crispr Therapeutics and Vertex have submitted their regulatory filings for exa-cel in the European Union, United Kingdom, and United States, and they await potential regulatory approval of the drug. The rest of Crispr Therapeutics’ pipeline is either in early (phase 1) or preclinical stages of development. While Crispr Therapeutics does not currently have approved products, the company provides long-term investors with pure-play exposure to gene editing. Rachel Elfman, Morningstar Analyst BioNTech Morningstar Price/Fair Value: 0.62 Morningstar Uncertainty Rating: Very High Morningstar Economic Moat Rating: None Market Capitalization: $21.3 Billion Emerging biotech company BioNTech distinguishes itself with its personalized cancer treatments and mRNA therapies, as well as its vaccine pipeline. BioNTech stock trades 38% below our fair value estimate of $143 per share. BioNTech, founded in 2008 in Germany, has become a key player in the development of personalized mRNA cancer treatments. The emerging biotech’s first commercial vaccine, for covid-19, received its first authorization in December 2020, and its early-stage pipeline and mRNA technology platforms have caught the eye of several large pharmaceutical companies, resulting in collaborations and partnerships. BioNTech’s internal discovery platform is focused on mRNA, including off-the-shelf and personalized mRNA drugs, but opportunistic acquisitions have brought in targeted antibodies and cell therapies as well. As such, BioNTech’s pipeline is not overly reliant on any one key drug candidate or drug class, and it is poised to tackle cancer via many different mechanisms. BioNTech pushed its first oncology program into phase 3 in 2023: CTLA4 targeting gotistobart in lung cancer. Further, the company has a burgeoning vaccine pipeline for infectious diseases. In partnership with the Bill & Melinda Gates Foundation, BioNTech is developing vaccines for HIV and tuberculosis, and the company’s covid-19 program in partnership with Pfizer PFE and Fosun Pharma was built off an existing partnership with Pfizer for an influenza vaccine. The covid-19 vaccine, Comirnaty (BNT162b2), quickly progressed through human trials, culminating in authorization in the United States and Europe in December 2020. The vaccine’s excellent efficacy, strong supply, and early leadership on the market all supported roughly $40 billion in annual Comirnaty sales in 2021 and 2022. (BioNTech books half of Pfizer’s gross profits, profit share from other smaller partners, and direct sales in Germany and Turkey.) While the long-term market for coronavirus vaccines is uncertain, we currently assume annual seasonal boosters for higher-risk individuals, with BioNTech/Pfizer and Moderna continuing to dominate the market. Karen Andersen, Morningstar Strategist Incyte Morningstar Price/Fair Value: 0.66 Morningstar Uncertainty Rating: Medium Morningstar Economic Moat Rating: Narrow Market Capitalization: $13.0 Billion Incyte is the second company on our list of cheap biotech stocks that we think has carved out an economic moat. The firm’s Jakafi franchise and new launches like Opzelura help secure its narrow moat rating. The stock trades 34% below our fair value estimate of $88 per share. Incyte has built a solid foundation over the past decade with hematology drug Jakafi, and the approval of the same active ingredient as oral dermatology drug Opzelura is expanding the firm’s focus to new therapeutic areas. We think the strategy to find more effective combination therapies in hematology and build a larger oncology and dermatology portfolio is solid, although we’re waiting for key data before assuming the firm can grow through Jakafi’s patent expiration in 2028. Jakafi initially gained traction in 2011 as the only drug approved for severe myelofibrosis, a rare blood disorder. Jakafi’s stronghold of the MF market is likely to continue, although new drugs are entering the market for subsets of the population. Incyte expanded Jakafi’s label to polycythemia vera (2014), steroid-refractory acute graft-versus-host disease (2019), and chronic GvHD (2021) should together push peak US sales to $3 billion. Incyte’s ALK2 and BET-targeted drugs are being combined with Jakafi in myelofibrosis, which could lead to a fixed-dose combination regimen that refreshes this franchise beyond Jakafi’s patent expiration. In dermatology, we see strong potential for a topical version of the active ingredient in Jakafi (ruxolitinib), which was approved in 2021 in atopic dermatitis as Opzelura and received a label expansion in vitiligo in 2022. While the atopic dermatitis market is crowded, Opzelura’s launch is going strongly, and with no other approved vitiligo drugs, unmet need in this indication is high. In oncology, the approval of lymphoma drug Monjuvi (part of a collaboration with MorphoSys MOR) in 2020 in the US and 2021 in Europe also expands Incyte’s hematology portfolio, and studies are in progress testing the drug in earlier-stage patients. Incyte received approval for its PD-1 antibody Zynyz in the niche indication of Merkel cell carcinoma but continues to move forward in broader indications, and several oral PD-L1 programs could also move forward with additional data. Karen Andersen, Morningstar Strategist Jazz Pharmaceuticals Morningstar Price/Fair Value: 0.67 Morningstar Uncertainty Rating: High Morningstar Economic Moat Rating: None Market Capitalization: $7.7 Billion Jazz Pharmaceuticals closes out our list of the best biotech stocks to buy now. Strong commercial launches for several products have continued to be Jazz’s primary growth driver. Although it is the most expensive stock here, Jazz Pharmaceuticals still looks undervalued as it trades 33% below our fair value estimate of $187 per share. Jazz Pharmaceuticals added its leading drug, Xyrem, to its portfolio in 2005 with the acquisition of Orphan Medical for about $123 million. This was a great price for the then-newly approved drug, which became a blockbuster. At that point, Xyrem was the only approved treatment for cataplexy (sudden muscle weakness or paralysis) in narcolepsy; it has since garnered additional approvals for excessive daytime sleepiness in patients with narcolepsy. Its strong efficacy has propelled its success in the difficult-to-treat sleep indication, but generic entry is on the horizon, leaving a cloud of uncertainty for the company. Jazz reached a settlement in 2017 with Hikma Pharmaceuticals to not allow generics on the market until January 2023. While Jazz will retain some economic profit from royalties on generic sales and a shared distribution program, we are seeing the negative impact of generic entry on Xyrem’s sales. We believe Jazz faces a notable degree of risk in clinical development and commercialization. In addition to generic Xyrem, we anticipate branded competition in narcolepsy will increase. We expect modest growth from Xywav, which was approved by the Food and Drug Administration in July 2020. We anticipate this low-sodium version of Xyrem will help offset Xyrem’s declines as a subset of patients will shift to this newer medication. Management has been focused on diversifying its portfolio, with the new drug approvals of Zepzelca (for metastatic small cell lung cancer), Rylaze (for acute lymphoblastic leukemia), and Xywav (for the treatment of cataplexy, excessive daytime sleepiness, and idiopathic hypersomnia). Strong launches and commercialization efforts for these drugs will be crucial for Jazz to diversify its portfolio. Acquiring recently launched drugs has been part of Jazz’s portfolio diversification strategy. In May 2021, Jazz acquired GW Pharmaceuticals for the hefty price of $7.2 billion. GW contributed $865 million to Jazz’s overall 2023 revenue, largely driven by its leading product, Epidiolex. This drug is a cannabidiol for the treatment of severe, rare forms of epilepsy. Rachel Elfman, Morningstar Analyst How to Find More of the Best Biotech Stocks to Buy Investors who’d like to extend their search for top biotechnology stocks can do the following: Review Morningstar’s comprehensive list of biotechnology stocks to investigate further. Use the Morningstar Investor screener to build a shortlist of biotechnology stocks to research and watch. Read the latest news about notable biotechnology companies from Morningstar’s Karen Andersen. The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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