Although biotech stocks had a “challenging” year in 2024, JPMorgan believes that some of the industry’s companies could see significant growth in the months to come. Senior partner and principal of investments at Novo Holdings, Johan Hueffer, spoke on CNBC on November 28 about his macro outlook for life sciences investments. He claimed that in the past few years, biotechs have had trouble raising funding. Over the past quarter or two, though, that tendency has begun to improve.
Nonetheless, there have been effects on businesses that specifically support the pharmaceutical sector, including contract manufacturing organizations (CMOs), research and development tools providers, and contract research organizations (CROs). Similar patterns have been noted for businesses that produce production tools for the biotech and pharmaceutical sectors. Although there have been ups and downs in these sectors over the last two years, the patterns are now beginning to stabilize. According to Hueffer, there is a lot of potential in the sector right now.
Likewise, Goldman Sachs clarified biotech as a frequently disregarded area of the investment world. John Flood, Head of Americas Equities Sales Trading at Goldman, wrote in a letter to clients that biotech equities offered an unnoticed opportunity for investors hoping to profit from the Fed’s recent rate decreases. Because biotech equities are sensitive to interest rate changes and frequently depend on anticipated future revenues, they are particularly impacted. The cost of capital has a significant effect on these equities as well. These equities have substantial upside potential and, should clinical studies be successful, offer an “option-like structure,” even though they are now quite unprofitable. Because of this, they are particularly sensitive to shifts in interest rates.
The Fed has lowered the funds rate by one full point since September. The present market pricing indicates that there will only be one or two additional declines in 2025, according to CNBC. The Federal Open Market Committee (FOMC) members voted to lower the central bank’s benchmark borrowing rate to the 4.25%–4.5% target range, according to a January 8 CNBC report. But they also trimmed their projections for anticipated rate cuts in 2025, assuming quarter-point increases, from four to two.
Flood’s report also emphasized how the biotech sector has recently demonstrated better fundamentals, which have been ascribed to superior clinical outcomes and a more favorable regulatory environment. Goldman’s data shows that hedge funds continue to underinvest in biotechnology despite these tailwinds. Over the previous year, the industry’s hedge fund’s long/short positioning placed it in the 13th percentile. In addition, for the previous five years, it was in the fourth percentile.
Our Methodology
For our methodology, we selected biotech stocks from the Insider Monkey billionaire database, as of Q4 2024, focusing on those with the highest number of billionaire holdings. We then ranked these stocks based on the number of billionaire investors. In cases where multiple stocks had the same number of billionaire holders, we used the dollar value of billionaire holdings as a tiebreaker, placing stocks with lower dollar values first in ascending order.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is Amgen Inc. (AMGN) a Best Biotech Stock According to Billionaires?
A pharmacist filling a prescription for a complex drug developed by the company.
Dollar Value of Billionaire Holdings: $1,412,039,283
Amgen Inc. (NASDAQ:AMGN) discovers, develops, manufactures, and markets human therapeutics. It provides patients with complicated tumors with innovative treatments, particularly in regions where there are a lot of unmet needs. The corporation had 14 medications at the end of fiscal Q4 2024, each of which had an annualization of over $1 billion. Over the course of the decade, a number of them are anticipated to be important growth drivers for the business.
Additionally, Amgen Inc. (NASDAQ:AMGN) has a robust rare illness portfolio that is anticipated to grow in 2025 with the possible international regulatory approval of TEPEZZA, the first and only FDA-approved medication for the treatment of Thyroid Eye disease (TED). As one of the best biotech stocks in the industry, it is anticipated that the company’s rare disease business will continue to grow as additional indications for UPLIZNA, which treats neuromyelitis optica spectrum disorder (NMOSD), are introduced.
EVENITY, which targets osteoporosis in postmenopausal women, and Repatha, which addresses heart disease and cholesterol, are two medications that consistently provide the company with robust growth. The product Repatha has grown to be worth billions of dollars. Its rise is being further fueled by heart disease, the world’s leading cause of mortality. With the anticipated five-year payoff from its October 2023 acquisition of Horizon Therapeutics, analysts are optimistic about the stock.
PGIM Jennison Health Sciences Fund stated the following regarding Amgen Inc. (NASDAQ:AMGN) in its Q2 2024 investor letter:
“Amgen Inc. (NASDAQ:AMGN) is a large-cap global biotech company with a diverse portfolio of marketed and pipeline products. Amgen’s discovery pipeline has led the company to broaden its focus from oncology, immunology, and renal disease to include musculoskeletal, cardiovascular, and neurologic conditions. In addition, Amgen has turned its expertise in antibody manufacturing into a leading position in the development of biosimilars of competitor drugs. Most recently, Amgen shares advanced in 2Q following its announcement that its novel injectable GLP-1 agonist / GIPR antagonist, MariTide, for obesity, showed promising interim Phase 2 data and has shown enough promise to warrant advancement into pivotal trials as soon as late 2024. While Eli Lilly and Novo Nordisk will remain the market leaders in the diabetes/obesity space, we think there is room for Amgen to carve out a meaningful share of the market with its antibody-peptide conjugate approach that could enable monthly or better dosing for MariTide.”
Overall, AMGN ranks 5th among the 15 best biotech stocks to buy according to billionaires. While we acknowledge the potential of AMGN, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMGN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
