Renowned investor and manager of the world’s largest actively traded ETF company, Cathie Wood has been an advocate of the genomics industry for a long time. In a CNBC interview, Wood stated that she views a genomic revolution and fintech growth as two potential industry disruptive trends in 2021, following the electric vehicle (EV) industry boom last year. DNA sequencing has been making breakthrough progress in recent years and is expected to eventually lead to cures for virtually all critical diseases. In this regard, Wood said, “We’re going to be able to cure diseases that we never thought it would be possible to cure, including cancer.”
The biotech industry’s business resiliency and degree of medical innovation were revealed over the past year. Investors poured capital into pharmaceutical companies and biotech firms, which are now leveraging abundant capital funds and advanced technology to make significant progress on critical ailment treatments. Companies such as Vertex Pharmaceuticals Incorporated (VRTX) and Incyte Corporation (INCY) have been releasing positive data from clinical trials over the past couple of months, which is driving favorable revenue and earnings growth estimates. Given this backdrop, Wood’s Ark Genomic Revolution ETF (ARKG) has gained 133.4% over the past year, and 30.1% over the past six months.
While the biotech industry is expected to redefine healthcare standards over the long term, many companies have been making only minor, current advancements in the field. Consequently, it may take a long time for such companies to generate acceptable profits from their drug pipelines. This is because significant investment and technical prowess is required for these companies to develop their drug candidates for commercial use. While Wood has ample funding to hold such stocks until they deliver decent results, retail investors might not have that capacity. Thus, we think some companies held by ARKG, such as Fate Therapeutics, Inc. (FATE) and Twist Bioscience Corporation (TWST), which are currently operating in their preliminary research stages, are best avoided until they release verified data demonstrating progress on their respective drug developments.
Stocks to Buy:
Vertex Pharmaceuticals Incorporated (VRTX)
VRTX focuses on developing therapies to treat cystic fibrosis. With the company’s potential to develop break-through treatments for critical ailments, it is one of Wood’s top picks for ARKG. Wood holds roughly 1.75 million shares of VRTX, which represents a 0.78% weighting in the ETF. The stock has a weighted rank of #37 of in Ark. Wood has a 0.68% stake in the company.
VRTX’s robust drug development pipeline and positive results from clinical trials have allowed it to secure a top position in Ark. On April 20, VRTX partnered with CRISPR Therapeutics, Inc. (CRSP) to jointly develop CTX001, a drug for the treatment of sickle cell disease and beta thalassemia. The collaboration paves the way for VRTX to venture beyond out its specialty to develop drugs for other serious diseases.
Last month, VRTX’s breakthrough drug, KAFTRIO, in combination with Ivecaftor, received a positive opinion from European Medicines Agency Committee for Medicinal Products for Human Use for cystic fibrosis (CF) treatment. Its TRIKAFTA CF drug received approval from the Australian Therapeutic Goods Administration (TGA) in March also. These developments reflect VRTX’s leading position in CF research and drug pipeline.
VRTX’s non-GAAP net product revenues increased 29% year-over-year to $1.63 billion in the fourth quarter, ended December 31, 2021. Its non-GAAP operating income rose 50% from its year-ago value to $887 million, while its non-GAAP net income improved 49% from the same period last year to $661 million. Its non-GAAP quarterly EPS came in at $2.51, up 48% from the prior year quarter.
A consensus EPS estimate of $2.70 for the most recent quarter, ended March 2021, represents a 5.5% rise year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. Analysts expect the company’s revenues to rise 9.6% from the same period last year to $1.66 billion for the about-to-be-reported quarter.
Shares of VRTX have advanced 4% over the past six months, and marginally over the past month.
VRTX has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and B for Value. It is ranked #16 of 491 stocks in the Biotech industry. In addition to the grades we’ve highlighted, one can check out VRTX Ratings for Momentum, Sentiment, Stability, Momentum, and Growth here.
Incyte Corporation (INCY)
INCY operates as a commercial drug developer and manufacturer for multiple diseases, including myelofibrosis and leukemia. ARKG holds approximately 3.04 million shares of INCY, which represents a 0.51% weighting in the portfolio. Wood has been investing heavily in the stock since last August, and currently has a 1.38% stake in INCY. The company has a weighted rank of #52 in ARKG. The stock has gained 6.7% over the past month, and 3.1% over the past five days.
INCY’s diversified drug pipeline comprises treatment for alopecia, hepatitis B virus, as well as metastatic cholangiocarcinoma, among several other ailments. The company has received European Commission and Japan Ministry of Health approval for commercial use of Pemazyre for varied cancer treatments. These approvals reflect INCY’s commitment and success towards developing treatments for cancer. The company also has a dedicated COVID-19 related drug pipeline that is aimed at the treatment of the virus’ side-effects.
INCY’s revenues stood at $789.51 million for the quarter, ended December 31, 2021, representing a 36% rise year-over-year. This can be attributed to a 34% rise in Jakavi product royalty revenues, and a 31% rise in Olumiant product royalty revenues. Its EBT increased 33.4% from the same period last year to $168.10 million, while its net income improved 35% from its year-ago value to $149.85 million. Its EPS rose 33.3% year-over-year to $0.68.
The Street expects INCY’s annual EPS to rise 883.3% from the year-ago value to $3.29. A $2.90 billion consensus revenue estimate for fiscal 2021 represents an 8.8% improvement year-over-year.
INCY strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth, and B for Value and Quality, INCY is ranked #15 in the same industry.
Beyond what we’ve stated above, we have rated INCY for Momentum, Stability, and Sentiment. Get all INCY ratings here.
Stocks to Sell:
Fate Therapeutics, Inc. (FATE)
Biotech company FATE specializes in developing drugs for cancer treatment and immunotherapies for immune disorders. Ark Investment Management has a combined holding of 7.05 million shares of FATE, in ARKG and Ark Innovation ETF (ARKK). The stock has a 1.09% weighting across all funds, translating to a weighted rank of #25. Wood has a 7.5% stake in the company.
FATE has an ISS Governance QualityScore of eight, which indicates substantial governance risk. Though the company released positive data from its lymphoma clinical trials five months ago, it should take some time for the company to generate profits from the commercialization of the drug.
Shares of FATE have declined 7.4% year-to-date, and 6.7% over the past month.
FATE’s revenues increased 467.3% year-over-year to $15.90 million in the fourth quarter ended December 31, 2020. Despite the impressive top-line growth, the company’s loss from operations was $33.40 million, up 14.9% from the prior year quarter. Its quarterly net loss stood at $53.11 million, representing an 87.7% rise from the same period last year. And its loss per share rose 64.9% from its year-ago value to $0.61.
FATE’s EPS is expected to decline 28.6% year-over-year in the current quarter, ending June 2021, to negative $0.45. The company’s EPS is expected to remain negative until at least 2022. FATE has a poor earnings surprise history; it missed the consensus EPS estimates in each of the trailing four quarters. The Street expects FATE’s revenues to decline 55.2% from the same period last year to $5.93 million in the current quarter.
FATE’s POWR Ratings reflect its bleak outlook. It has an overall rating of D, which equates to Sell in our rating system. The stock has an F grade Sentiment, and D for Stability and Momentum. It is ranked #238 in the Biotech industry.
You can check out all FATE Ratings (Growth, Quality, and Value) here.
Twist Bioscience Corporation (TWST)
TWST is a DNA synthesis biology company that manufactures synthetic DNA-based products. The company was named as one of the world’s most innovative businesses in 2021 by Fast Company. The company’s unique business operations caught Wood’s eye. She holds approximately 5.65 million shares of TWST. TWST has a combined 1.42% weighting in ARKG and ARKK ETFs and a weighted rank of 17 across all funds. ARK has an 11.61% stake in the company.
Despite its revenues rising 64.1% year-over-year to $28.16 million, TWST failed to generate profits in its fiscal first quarter, ended December 31, 2020. Its quarterly loss from operations stood at $32.79 million, while its net loss and loss per share came in at $32.90 million and $0.72, respectively. Wood has been selling shares of TWST continuously since November 2020.
The $120.21million consensus revenue estimate for fiscal 2021 represents a 33.4% improvement year-over-year. However, the company’s EPS is expected to remain negative this year. Furthermore, TWST’s EPS is expected to decline 16.4% from its year-ago value to negative $0.78 in the fiscal second quarter ending June 2021.
TWST has declined 5.3% year-to-date, and 5.8% over the past five days.
TWST has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. It has an F grade for Sentiment and Quality. The stock is currently ranked #487 in the same industry.
Click here to view all TWST Ratings (Stability, Momentum, Value, and Growth).
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VRTX shares were trading at $215.22 per share on Thursday afternoon, down $4.54 (-2.07%). Year-to-date, VRTX has declined -8.94%, versus a 10.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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