Historically, biotechnology stocks trade at premiums relative to the healthcare and the broader market. That’s simply the price of admission investors to pay to access the attractive growth prospects of biotech.
Following a surprisingly lengthy slump by biotech stocks — one including 2023 lethargy — some of the group are sporting attractive valuations. Investors that want access to multiple biotech names that fit that bill may want to consider exchange traded funds, including the VanEck Biotech ETF (BBH ).
The $481.6 million BBH follows the MVIS US Listed Biotech 25 Index and holds 25 stocks. While that’s a fairly small lineup, it’s also one with an array of names currently trading at attractive multiples. This indicates investors can access the biotech space at favorable pricing.
BBH Valuation Beneficiaries
Count COVID-19 vaccine maker Moderna (MRNA) among the BBH components currently sporting compelling valuations. The stock has slumped for more than a year and now trades at less than half Morningstar’s fair value estimate.
“The pandemic accelerated Moderna’s evolution into a commercial-stage biotech company, and we expect that the firm’s ramp-up in manufacturing and clinical know-how will pave the way for faster timelines for additional programs. Moderna’s mRNA platform, involving rapid design and similar manufacturing across programs, allows the company to pursue multiple programs in parallel,” noted analyst Jülide Sengil.
So, if Moderna’s shares may rebound, supporting BBH along the way. That depends on if they can adequately prove to market observers it has more up its sleeve than coronavirus vaccines. Speaking of growth prospects, the genomics/gene editing space has vast long-term potential — something BBH provides exposure to via Intellia Therapeutics (NTLA) and CRISPR Therapeutics (CRSP), among others. Both names have interesting risk/reward profiles, but neither are richly valued today.
“We believe the company’s proprietary technology has the potential to build blockbusters in rare diseases with limited treatment options available. Intellia currently has no approved drugs and its pipeline is largely in its early stage, so we refrain from awarding the company an economic moat rating,” wrote Morningstar’s Rachel Elfman.
Seagen (SGEN) and Incyte (INCY), which combine for nearly 7% of the BBH roster, are also residing at levels that could merit the “undervalued” label. Seagen’s Adcetris was approved 12 years ago. It is a leading Hodgkin lymphoma treatment and could make inroads in other areas.
“Due to its efficacy, we think Adcetris will hold its strong position in Hodgkin lymphoma. We see ample room to grow in non-Hodgkin lymphoma over the next several years. We also think trials of Adcetris in combination with checkpoint inhibitors, such as Bristol’s BMY Opdivo, offer further runway for growth,” added Elfman.
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