B.iotech is one of the fastest growing areas in the healthcare sector and one of the most attractive sectors in the stock market. That’s why three Fool.com contributors are optimistic 10x Genomics (NASDAQ: TXG), Axsome Therapeutics (NASDAQ: AXSM)And Proximity (NYSE: DOCUMENTS).
Powering the next scientific revolution
Patrick Bafuma (10x Genomics): My favorite biotechnology fuels one of the biggest developments in molecular biology research since the days of gene sequencing. 10x Genomics sells the machines and associated supplies that allow scientists to look in and around a single cell, called space biology. The company’s tools offer researchers an unprecedented insight into the cell observed with unprecedented resolution. This makes 10x Genomics equipment a necessity for the modern researcher.
The company has also proved resilient, making its way through the coronavirus pandemic. Income up 22% from 2019 to 2020, and 64% from 2020 to 2021, the company reiterated revenue growth of 22% to 28% for the full year 2022 in its most recent conference call. That’s not bad, considering the ongoing coronavirus-related lockdowns in China, a country that accounted for 15% of 10x revenue in 2021, not to mention the first-quarter omicron variant increase. Keeping driving through those headwinds is pretty mind-boggling.
To understand my love for 10x Genomics, let’s go back 20 years. Other gene sequencing machines were available at the time, but Illuminate it was the best ever and there was really no clear second choice for the impending genomic revolution. The same is true 10 times in the space biology arena. One of its platforms, Visium, has been featured in more publications than any other space biology tool. No other method has even half the citations. Additionally, more institutions have published using Visium than using the next three spatial methods combined.
10x is the undisputed leader in this emerging industry. So yes, I believe this is an eerily similar opportunity to buying Illumina in the early 2000s, where investors were rewarded 1,400% for holding Illumina for better or for worse, crushing the 180% gains for the S&P 500. Seeing 10 times similarly set as a leader in his budding pitch, I will hold my stock for the long term.
A biotechnology with enormous upside potential
George Budwell (Axsome Therapeutics): Axsome Therapeutics, a newly coined commercial biotechnology, is my favorite asset in this space for a clear reason. Namely, I think this company has one of the most compelling risk-reward ratios within the small-cap biopharmaceutical space, especially over the next three to five years.
As things currently stand, Axsome sports a commercial stage product: Sunosi for excessive daytime sleepiness in adults with narcolepsy, along with four pipelined candidates. The company’s near-term growth potential, however, really revolves around its candidate for major depressive disorder, AXS-05. AXS-05, if approved, is expected to generate over $ 800 million in sales by 2026, according to Evaluate Pharma.
To put this mid-decade sales projection into context, Axsome’s market cap is currently hovering around $ 1 billion at the time of this writing. In other words, this single drug could most likely trigger a 300% or possibly 500% increase in biotech stocks over the next few years (assuming the market resumes its shape around this time).
How about the downside risk? This is the part of the story that I find most intriguing. At this point in the game, it’s hard to imagine that the Food and Drug Administration categorically rejected AXS-05 for the reasons detailed here.
In addition, Sunosi is expected to significantly reduce the company’s cash consumption rate in the next year or so. So at worst, my impression (and it’s just a hunch) is that Axsome’s stock will simply trade sideways over the next 12 months.
After all, Axsome is already deeply underestimated when compared to the incredible commercial potential of the AXS-05.
Billions will be made as the Internet transforms healthcare
Taylor Carmichael (Doximity): I love investing in biotechnology. Even if my investment fails, I feel I am helping humanity by funding scientific research. If I suffer losses in this area, I only consider them a charitable contribution. And investing in biotechnology is a high-risk area that is sure to come with bad ideas. But when you are right, the payout can be huge. My family has been very successful with investing in Intuitive surgical And Novavaxand those companies remain my favorites. But if I had to choose only one title in this area, I would probably choose Doximity.
The company enjoys a market cap of $ 6 billion, so it’s not small. But there is a considerable track for growth. Doximity is the strongest internet company in the healthcare industry. Doximity already enjoys powerful networking effects, with 80% of American doctors (and 90% of medical students) on the platform. How valuable is this internet health portal? I don’t know, but it’s much bigger than $ 6 billion.
Right now Doximity has three main profit drivers. It is an employment portal for doctors, nurses, ambulance drivers and anyone else looking for a job in a hospital. It is also a media company where pharmaceutical companies go to reach out to all those medical eyeballs. And finally it’s a telemedicine specialist, where primary care doctors can meet their patients safely and securely online.
I love this business, with its profit margins of 44% and its revenue growth of 66%. The only real question is how much do you want to pay for this dominant franchise? Thanks to the tech disaster of 2022, the stock is as cheap as it has ever been. It is below the initial public offering price. It is a wonderful opportunity to add stocks or open a position.
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George Budwell holds positions in Axsome Therapeutics. Patrick Bafuma has positions in 10x Genomics Inc. Taylor Carmichael has positions in Axsome Therapeutics, Doximity, Inc., Intuitive Surgical and Novavax. The Motley Fool has positions and recommends 10x Genomics Inc, Axsome Therapeutics, Doximity, Inc., and Intuitive Surgical. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.