With fears that the second wave of the COVID-19 pandemic is on the horizon, many investors are on the lookout for defensive stocks whose businesses will see little to no impact as the virus sweeps across the nation. In cases like this, the best defense is a good offense, and it is usually companies with new growth opportunities that can survive the worse of what's to come.
Today, let us look at two well-rounded companies that are making rapid innovations in the healthcare sector.
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A blue chip growth stock
Regeneron Pharmaceuticals (REGN 0.45%) is at the forefront of the battle against COVID-19. In its efforts to develop new treatments for coronavirus, the company has identified two distinct antibody cocktails that have the potential to produce antiviral effects against the condition. Regeneron may be onto something here, as scientists elsewhere have recently discovered that treatments using single types of neutralizing antibody may not be enough to inhibit SARS-CoV-2; instead, an effective treatment may require multiple types of antibodies.
If its antibody cocktail approach doesn't work out in this case, the company is also testing its rheumatoid arthritis drug, Kevzara (a monoclonal antibody) as a treatment to reduce acute respiratory distress in patients with severe cases of COVID-19. Based on phase 2 trial data from China, Kevzara showed a potential benefit in critically ill COVID-19 patients who require the use of ventilators. Phase 3 clinical trials studying the drug are ongoing and data readouts are expected in the third quarter.
As for the rest of the company's pipeline and products, sales were only impacted minimally by the pandemic in the first quarter -- though that period mostly did not include much of the worldwide surge in cases. For the quarter ending March 31, global sales of Eylea, Regeneron's eye injection treatment for various retinal diseases, grew by 6% year-over-year to $1.85 billion. Dupixent, a drug for treating different forms of type 2 inflammation, generated $855 million in revenue, up by an astonishing 124% year over year.
And Dupixent's addressable market could get a boost (or more than one) in years to come. At the end of the month, data readouts are expected from a study testing the drug against pediatric atopic dermatitis, and phase 3 trials assessing Dupixent as a treatment for several other type 2 inflammatory diseases will begin later this year.
At the same time, the company also has more than $7.2 billion in cash and investments with minimal debt. Its profit growth was also spectacular -- Regeneron's bottom line rose by a stunning 48% year over year to $771 million (or $6.60 per share) in the first quarter. At an annualized rate, the stock is trading for about 22 times earnings, which is a more than reasonable price to pay for a company with such massive growth. In all, I think this is a must-have stock for healthcare investors who are interested in well-rounded blue chip companies with strong track records.
A small-cap innovator
This year, Avadel Pharmaceuticals (AVDL), a company with a market cap of only $500 million, developed a drug called FT-218 that could allow the company to tackle a $1.7 billion market opportunity in the treatment of narcolepsy, which affects more than 200,000 people in the U.S.
Narcolepsy is a chronic disorder that causes the overwhelming urge to fall asleep during the day, which in turn leads to significant disruptions to patients' sleep cycle at night. In addition, patients with the condition may also experience sudden and frequent loss of muscle control during the day -- a condition known as cataplexy.
Currently, the standard of care for the condition is Jazz Pharmaceuticals' (JAZZ -1.88%) Xyrem, an orally ingested anesthetic that induces deep sleep in patients. Patients on Xyrem must take one dose before bed, and wake up in the middle of the night to take another to achieve a full sleep cycle. This can significantly hamper the quality of life for people with narcolepsy, and also for parents who must wake up in the middle of the night to administer Xyrem to their children.
Avadel's FT218 is a new formulation of the same compound as Xyrem, but designed to allow narcolepsy sufferers to sleep for eight hours with just one dose before bed.
In its recent phase 3 clinical study, the drug met all of its co-primary endpoints in improvements in the Maintenance of Wakefulness Test (MWT), Clinical Global Impression-Improvement (CGI-I) and reduction of mean weekly cataplexy attacks across all doses with robust statistically significance. The drug was also well tolerated.
In less than three months, the company was able to raise more than $190 million from retail and institutional investors alike in preparation for commercializing the drug. I expect the company will file FT218's New Drug Application with the Food and Drug Administration this year and receive approval in 2021.
Furthermore, the company is now preparing an open-label study evaluating whether or not patients with narcolepsy can in fact get a full night's sleep based on one dose of FT218. The company said it expects the impact of the COVID-19 pandemic on that investigation to be minimal.
Management is predicting because the drug has demonstrated efficacy in combating narcolepsy in the phase 3 study, it will be able to achieve this follow-up clinical goal as well. There is a high level of credibility in this guidance.
Back when FT218 was still in phase 3 clinical studies, the company's chief medical officer correctly predicted it would succeed in treating narcolepsy based on phase 1 data regarding how healthy volunteers had reacted to it. In addition, some patients with narcolepsy would argue even if FT-218's efficacy were to wear off early, a full night's sleep could still be obtained as the body's normal sleep cycle would kick in.
Avadel also generated $12.2 million in revenue from its legacy hospital portfolio, and has a new product called Nouress for improving nutrition in newborns. In my view, this is an ideal stock for investors who are enthusiastic about small-cap growth stocks in the healthcare sector.
