Here are three stocks that may be appropriately held in a basket of stocks intended to participate in the future of medicine says Enriched Investing’s Margaret Samuel.
It’s a disturbing thought, but the fact is that as our average age grows, and as the life expectancy of baby boomers rises, our likelihood of contracting illnesses increases. And, traditional cancer-treatment therapies such as chemotherapy and radiation are deadly, causing poisoning and burning. There is a wave, however, of therapies that are disruptive to chemotherapy and radiation and that aim to be much kinder to the healthy parts of our bodies.
At the 2018 annual meeting of the American Society of Clinical Oncology (ASCO), Bruce E. Johnson, MD, FASCO (Fellow of ASCO), stated: “There is no question that we are witnessing a transformation of cancer care brought about by precision medicine.” Dr. Johnson also explains that: “Precision medicine has been defined by the National Institutes of Health as an emerging approach for disease treatment and prevention that considers individual variability in genes, environment and lifestyle for each person. A simpler way of thinking of it is the right drug for the right person at the right time.”
Precision medicine includes precision oncology
The application of the principles of precision medicine to the treatment of cancer can be referred to as precision oncology. For example, Dr. Johnson states: “Today, nearly half of all patients presenting with lung cancer can now be initially treated with targeted agents or immunotherapy rather than chemotherapy.”
Globally, the size of the precision oncology market was USD $49.98 billion in 2019 and is expected to grow at a CAGR of 9.9 per cent forecast to reach USD $99.72 billion by 2027, according to a new report by Reports and Data. Further key findings from the report suggest that biotechnology companies are the largest end-user segment and are estimated to generate revenue of over US $43.08 billion by 2027.
An example of an application of precision oncology is Peptide Receptor Radionuclide Therapy (PRRT)—precision oncology at the cellular level. Unlike external beam radiotherapy, which indiscriminately affects both healthy and diseased cells, according to the Society of Nuclear Medicine and Molecular Imaging, in PRRT, a cell-targeting protein is combined with a small amount of radioactive material which, when injected together into the patient’s bloodstream, deliver radiation directly to the cancer cells.
Although there are negative side effects, according to Soricimed Biopharma Inc., PRRT minimizes collateral damage to healthy surrounding cells, affects far fewer healthy cells than does traditional radiotherapy, and often results in a better expected outcome for the patient.
The remainder of this article looks at three publicly-traded companies that research and develop precision medicine, and more specifically precision oncology, products and treatments including the first available FDA-approved PRRT.
Novartis International AG (NYSE—NVS)
In its October 18, 2018 press release, Novartis explained that it “is re-imagining medicine to improve and extend people’s lives…. Novartis products reach nearly 1 billion people globally and … about 125,000 people of more than 140 nationalities work at Novartis around the world.”
On October 28, 2018, Liz Barrett, CEO, Novartis Oncology, said that Novartis “is building a leadership capability in new, technology-driven platforms that address some of the world’s most complex health challenges, including cancer”.
Indeed, Novartis owns the first available FDA-approved peptide receptor radionuclide therapy, PRRT, called Lutathera®. Its approval was based on “a Phase 3 study which demonstrated a 79% reduction in the risk of disease progression or death … .”
Susanne Schaffert, PhD, Chairperson and President of Advanced Accelerator Applications, the subsidiary of Novartis that developed Lutathera® said: “The approval of Lutathera® marks an important achievement and an innovation greatly needed for the NET cancer community.” NETs are rare tumors originating in the neuro-endocrine cells of numerous organs, including the gastrointestinal tract, pancreas and lung.
While Novartis provides investors with exposure to long-term anticipated upside participation in precision medicine, its other areas of business create revenue such that the company generates income and free cash flow. In the first quarter of 2021, net sales were US $12.4 billion, operating income was US $2.4 billion, and free cash flow was US $1.6 billion. Novartis also pays a 3.62 per cent dividend with a payout ratio of about 92 per cent. This appears to be sustainable, so investors may expect to get paid while waiting for the investment benefits from PRRT and other precision medicine advancements.
Nanostring Technologies Inc. (NASDAQ—NSTG)
Another company that operates in the precision oncology market is NanoString Technologies which develops, manufactures and sells products that unlock scientifically valuable and clinically actionable biologic information from tiny amounts of tissue. Nanostring develops, manufactures and commercializes services, consumables and instruments to profile the activity of hundreds of genes and proteins simultaneously from a single tissue sample.
The company’s nCounter Analysis System is an automated, multi-application, digital detection and counting system, which directly profiles hundreds of molecules simultaneously using a bar-coding technology. Nanostring markets systems and related consumables to researchers in academic, government and bio-pharmaceutical laboratories for use in understanding fundamental biology and the molecular basis of diseases, such as cancer, and to clinical laboratories and medical centers for diagnostic use.
Nanostring’s financial liquidity is provided by cash, cash equivalents and short-term investments of US $409.9 million. However, while revenue in the first quarter of 2021 was US $31.39 million, operating expenses of US $41.86 million generated a net GAAP loss of US $27.71 million. Free cash flow in the first quarter of 2021 was negative US $31.5 million. Nanostring also does not pay a dividend. Thus, with negative earnings and cash flow, Nanostring would be an investment in the future of precision medicine and precision oncology.
Pfizer Inc. (NYSE—PFE)
Pfizer is a focused innovative bio-pharmaceutical company engaged in the discovery, development, manufacturing, marketing, sales and distribution of bio-pharmaceutical products worldwide.
Pfizer states: “Precision medicine is not only a focus of our R&D strategy, but a philosophy that guides everything we do. What does precision medicine really mean to us? It means developing therapies that are as diverse as the cancer itself.”
Pfizer’s Chairman and Chief Executive Officer, Dr. Albert Bourla, emphasizes that Pfizer’s purpose is: “Breakthroughs that change patients’ lives.” Nonetheless, in conducting this breakthrough research, Pfizer is able to generate revenue and profits from its more advanced projects.
Pfizer reports that in the first quarter of fiscal 2021, revenues grew 42 per cent to $14.6 billion, and through 2025 the company projects its revenue to grow at a compound average growth rate of at least 6 per cent. For the full fiscal 2021 year, Pfizer expects revenues to range between $70.5 and $72.5 billion. Pfizer maintains its second quarter 2021 dividend at $0.39/share and paid $2.2 billion in cash dividends yielding about 4.01 per cent annually to shareholders in the first quarter of the year. Frank D’Amelio, Chief Financial Officer and Executive Vice President, Global Supply, stated: “This will make 2021 the 12th year in a row with a dividend increase. I remain confident in Pfizer’s ability to continue to deliver on our commitments to our patients and shareholders in 2021 and beyond.”
By purchasing shares of this very conservative blue chip stock, investors seeking to benefit in the long term from advancements in precision medicine may expect to be able to participate in profits and receive dividends in the short-term.
Investments in the future of medicine
Investors wishing to invest in the next generation of medical developments will need to have a long-term horizon. While the stocks discussed in this article are arguably in the forefront of precision medicine and precision oncology, it may be some time before these areas become lucrative. Accordingly, investing in a pure play may have significant upside, while some larger companies with more diverse technology portfolios already have profits and can afford to pay dividends. Depending on an investor’s objectives, some or all of these three prospects may be appropriately held in a basket of stocks intended to participate in the future of medicine.
Margaret Samuel, MBA, LL.B., CFA is President, CEO and Portfolio Manager of Enriched Investing Incorporated. She can be contacted at email@example.com. She or clients of Enriched Investing™ may hold positions in the securities mentioned. The information provided is general in nature and does not represent investment advice. It is subject to change without notice and is based on the perspectives and opinions of the writer only. It may also contain forward-looking statements that may not prove to be accurate. Every effort has been made to compile this material from reliable sources; however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please consult an appropriate professional regarding your particular circumstances.
This is an edited version of an article that was originally published for subscribers in the June 2021, Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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