Finding the right biotech stock is a challenge because there are so many choices. You need to evaluate your priorities and, perhaps most importantly, your budget. There are options in all price categories, but in many cases you get what you pay for. There are some low-cost options that could explode, but it will take patience and you need to know what you are getting into. Your best bet is to find a lower priced option that can stack up to the major players in the industry. In my opinion, Vertex Pharmaceuticals (NASDAQ:VRTX) is an example of this.
First, lets us address what Vertex does not offer. Many of the big players in the pharmaceutical industry offer treatments for both humans and animals. Vertex is focused strictly on humans. The company has fewer products on the market than the big players, but it does feature the reliable earnings marketed drugs provide. The Vertex price tag proves most people in the know think it will be a big hit in the long run. At around $39, it is actually a little more than some better known companies. A big part of the reason for this somewhat lofty price tag is its healthy pipeline. What Vertex lacks in current products it makes up for with its future outlook.
The company's two products already on the market include Kalydco and Incevik. Kalydco is a prescription medicine used to treat cystic fibrosis in patients with a particular mutation in their CF gene known as the G551D mutation. Incevik is a prescription medicine used to treat chronic hepatitis C infections in adults with stable liver problems, who have not received prior treatment or who have failed previous treatment. There is quite a bit of hepatitis C competition, but Incevik has proven it can hold its own.
Vertex also has eight products in its pipeline including several drugs in phase two trials. Three are for treating hepatitis C, two are for treating cystic fibrosis, one is for treating immune-mediated inflammatory disease, one is for treating epilepsy, and one is for treating influenza. Though the main focus from the company is on hepatitis C and cystic fibrosis, I still think it is a well-rounded pipeline.
By comparison, some of the world's best known biotech and pharmaceutical companies have strong pipelines, but vast and varied groups of marketed products. Merck (NYSE:MRK), currently selling for around $39, offers vaccines, prescription medications, consumer products, and veterinary health medications. There are more than 100 marketed items in its collection. Merck also features a direct competitor of Incevik in Intron A. The drug was originally made by Schering-Plough until Merck merged with the company in 2009.
One of the best known companies I would compare to Vertex is Johnson & Johnson (NYSE:JNJ). The current price of Johnson & Johnson is around $65, so you are looking at quite a jump. The company has a huge selection of non-prescription consumer products, as well as cosmeceuticals, health and beauty products, baby care items, pain relievers, and skincare products. Johnson & Johnson products are found just about everywhere, from operating rooms to nurseries. The thing to remember about companies like Johnson & Johnson is the fact that they own smaller companies that produce medical products. Vertex is a single company that produces a collection of medications, while Johnson & Johnson and some of the others have divisions focused on over the counter medications, healthcare items, and prescription drugs. This is one of the main reasons people love investments such as Johnson & Johnson. You really do get a lot of bang for your buck, and there is a great deal of security built into your investment.
Two others big players to consider are Pfizer (NYSE:PFE) and Eli Lilly (NYSE:LLY). Pfizer is one of the big bargains among the best known drug companies and is currently selling for around $23. Lilly is pricier, but at $41 is a great comparison to Vertex. Lilly has a large selection of products that target diabetes, cardiovascular disease, oncology, neuroscience, musculoskeletal health, and men's health. Lilly has divisions like the other big companies, but is a great bargain if you are considering buying in the $40 price range.
Buyers looking for a much bigger bargain who find Vertex research and Vertex-type products desirable will want to consider Idenix (NASDAQ:IDIX). The company is focused on hepatitis C treatment and has a marketed drug in telbivudine. Idenix has five drugs in its pipeline that are also focused on hepatitis C. Two are in phase two trials and three are in the preclinical stage, so there is still a ways to go. Idenix also received good news from the FDA this past February concerning its pipeline drug IDX 184. According to Idenix President and Chief Executive Officer Ron Renaud, "… we are looking forward to initiating a combination study with a protease inhibitor and ribavirin in the near-term to establish the safety and potency of an all-oral IDX184-containing regimen, and, if successful, potentially support a phase III clinical program."
Idenix has some risk, but its low price tag still makes it a safe risk. This means investors stand to make a great deal of money should the treatments for hepatitis C gain a strong following. You might see a few ups and downs over the years, but at $9, downs are not that far down.
The question for investors is whether to go for a low-priced stock with big potential or a dependable option with steady earnings in its future. Obviously, those looking to keep spending under control will choose something like Idenix over a heavier hitter. This does not make it an overall better choice, but a better choice in certain situations. If you are ready to spend bigger and you cannot decide between the heavy hitters, Vertex is certainly one of the best bets. It lacks some of the brand familiarity as the other big companies, but more obscure often means better performing. When there is upheaval, the lesser known companies receive less attention. This can help and it is one of the main reasons I would suggest buying Vertex.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.