3 Biotech Stock Picks

VIDEO: There's more to the biotech sector than the Covid-19 vaccine. International Biotech Trust manager Ailsa Craig has three stock picks

Holly Black 7 July, 2021 | 12:24PM
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Holly Black: Welcome to Morningstar "3 Stock Picks". I'm Holly Black. With me is Ailsa Craig, she's Manager of the International Biotechnology Trust (IBT). Hello.

Ailsa Craig: Hi, Holly.

Black: So you've got three stocks from the portfolio for us today, where should we start?

Craig: So, what I've done is within our portfolio, we have three buckets of risk. So I've picked a stock out of each of those buckets of risk, one profitable one, one company that's launched a drug, they we call them revenue growth. So they're selling but they haven't turned a profit. And then a slightly higher risk company that is ahead of approval and hasn't had the drug approved.

Black: So which one should we start with?

Craig: Let's start with the high risk one, the most exciting one, in my opinion, anyway. So this is a company called Mirati (26M). They are about to file, which means they are about to apply for approval for their drug, which is a targeted oncology drug for lung cancer. And obviously, you know that lung cancer is a hugely high unmet medical need. So it takes one of the criteria we look for in a company. But what's exciting about this is that the target they're going for, has been considered undruggable. So in the past, all efforts to try and target this particular mutation in lung cancer have failed. And there are two companies right now in the lead addressing this with and succeeding. So Amgen have just had their version approved, and this smaller company Mirati, are going to apply for approval for their version in the second half of this year.

Black: What does that mean, if they don't get approval?

Craig: If they don't get approval, then the share price will fall dramatically, but the data have been incredibly strong at late stage clinical trials. So it would be surprising, but of course, the drug could be refused at the FDA.

Black: Okay, what's stock number two?

Craig: So stock number two in the middle category, so the slightly lower risk category is Biohaven (BHVN). And this is a central nervous system company, addressing migraine. So, you'll definitely know people in just your daily life that suffer from migraine, it's really debilitating and damaging, and people don't go to work, for example, if they have a migraine. And what they've got is a really clever way of addressing the cause of the migraine called anti-CGRP, there are currently similar mechanisms out there, but you have to inject them. And so this is an oral tablet, so it makes it much more convenient for patients. And they've had approval in the acute setting. So if you have a migraine, you take the drug as a treatment, but they've just received approval for prevention as well. So we're really excited about this company.

Black: Okay, what is our final stock today?

Craig: The final stock is a profitable company called Horizon Therapeutics (HZNP). This company has been around a while they have grown through acquisitions. And they've got a really smart management team, and they find assets that they see value in. And they made a hugely successful acquisition through acquiring something called TEPEZZA. And TEPEZZA treats something called thyroid eye disease, where eyes bulge out in a patient, and it's incredibly uncomfortable and it's unsightly and you look like you're staring at people. And they launched the drug during the pandemic, and it's already sold over 800 million in a year. So that's been fantastic growth. And they've just recently made another acquisition. So this company is doing incredibly well. And yeah, we like these guys.

Black: So what's the sort of mix in your portfolio of profitable and non-profitable companies, because I'm assuming getting that balance right, is really important for your performance?

Craig: Yeah, and you have to sort of keep an eye on it, depending on where the market is, if you have a really strong run in the market, you probably want to take some profits in the more high risk names, and then the inverse about is true. So we have about 25% of the portfolio, 25% to 30% in profitable names, about the same in the revenue growth names. So names that haven't turned a profit, but are selling the drug, and then the rest in the development stage companies. So these guys are still working in the clinic to see whether the drug works and is safe.

Black: Ailsa, thank you very much for your time. From Morningstar I'm Holly Black.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor, Morningstar.co.uk