The current market scenario doesn't look appealing to new investors. Year to date, the S&P 500 has fallen by 21%. However, healthcare and biotech are defensive industries, because people will (unfortunately) continue getting sick and so the need for healthcare products and services will exist regardless of economic situations.
Surprisingly, 2022 has been hard even on these safe-haven industries. However, a few businesses, such as Axsome Therapeutics (AXSM 2.77%) and Exelixis (EXEL 0.11%) offer outstanding long-term prospects for investors with a good risk appetite.
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1. Axsome Therapeutics
Axsome Therapeutics' solid gains of 42% this year came with the hope that its two new products would bring in plenty of revenue in the next few years. Last month, the U.S. Food and Drug Administration (FDA) approved its drug Auvelity for treating major depressive disorder (MDD). The medication could be launched in the U.S. market by the fourth quarter.
The timing of the approval is intriguing. The nod comes at a time when neurological issues, particularly depression, have grown significantly as a result of the pandemic and worldwide geopolitical conditions. Research shows that at least 22 million adults in the U.S. were diagnosed with MDD in 2020.
Axsome's second standout product is Sunosi, which it purchased from Jazz Pharmaceuticals in May to treat excessive daytime drowsiness caused by narcolepsy. For the second quarter ended June 30, the medicine generated $8.8 million in net sales in the United States. These two drugs should be able to generate more sales once launched in international markets.
Axsome has high hopes for AXS-05, which has reached the second phase of a clinical trial to treat MDD, smoking cessation, and Alzheimer's disease (AD) agitation. Other drugs in its pipeline, such as AXS-07 (for migraine therapy), AXS-14 (for fibromyalgia management), and AXS-12 (a potential treatment for narcolepsy), could be pivotal to its growth in the next few years.
The company ended the quarter with $73 million in cash and "the remaining committed capital from the $300 million term loan facility," which it believes will be enough to support its current pipeline.
2. Exelixis
Oncology drugmaker Exelixis came into the limelight with its star product -- cancer drug Cabometyx (cabozantinib). This medication is used to treat advanced renal cell carcinoma (RCC) as well as other types of cancer. It's also used in conjunction with Bristol Myers Squibb's Opdivo (nivolumab) to treat advanced RCC in people who haven't had any previous treatment for the same.
Cabometyx generated revenue of $1 billion in 2021. In its recent second quarter, total revenue jumped 9% year over year to $419 million.
Cabometyx alone brought in $339.2 million in Q2, accounting for 81% of total revenue. Another formulation of cabozantinib called Cometriq (used for the treatment of thyroid cancer) also contributed around $7.9 million in the quarter. Adjusted net profit came in at $90 million in the quarter. Additionally, the business received $30 million in royalty revenue through a partnership with its non-American partners Ipsen Pharma and Takeda Pharmaceutical.
Cabometyx has been critical to Exelixis' success so far, and it will continue to play an important role. But investors worry its high dependency on Cabometyx is restricting the company's growth. The stock is down 13% so far this year. However, management is aware it cannot just rely on its star product for the long haul.
Thus, the company believes its upcoming pipeline programs, such as XL092, XB002, and XL102 pipeline programs, could be pivotal in Exelixis' growth over the years. For 2022, the company made no change to its previous revenue guidance range of $1.5 billion to $1.6 billion. It ended the quarter with cash and cash equivalents of $2 billion that could help fund its upcoming pipeline.
Are these two stocks worth the risk?
Biotech businesses make drugs generally used to treat chronic and fatal conditions, which is why I believe demand will never fall. By 2030, the global biotechnology market might be valued at $3.4 trillion, growing at a compound annual rate of 17.8%.
Analysts rate Exelixis stock as a good buy, with a 66% upside in the next 12 months. Meanwhile, Axsome is rated as a buy with a 50% upside potential.
However, keep in mind that there are always certain risks associated with such businesses. Clinical studies might fail or regulatory approvals could be delayed, affecting stock performance.
Exelixis and Axsome already have successful drugs in their portfolios, as well as an attractive pipeline in the works. Investors who can stomach these risks may be rewarded handsomely in the long run.
