Take one look at the returns from biotech darlings Celgene Corporation (NASDAQ:CELG), Biogen Idec Inc. (NASDAQ:BIIB), and Gilead Sciences, Inc. (NASDAQ:GILD) over the past year. If that doesn’t get you excited as an investor, then you had better check your pulse. The further back you go, the better it gets. Had you staked a position in the companies above 10 years ago, you would have captured returns of 1,626%, 610%, and 833%, respectively. These companies above may not be done growing, but with market caps ranging between $50 billion and $80 billion, it would be misguided to expect similar gains from them going forward.
While we cannot travel back in time (yet) to make our present selves look like investing geniuses, we can attempt to learn from the past while searching for the next big biotech companies. Young investors who are not afraid to adopt a buy-and-hold mentality could benefit the most from finding the next gem. The eye-popping returns of biotech firms coupled with the compounding effect enjoyed by investors who get an early start can be a powerful combination. Here are three companies that could trounce the market in the next 10 years.
It may not seem too impressive on the surface, but Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) has the makings of a game-changing biotech company. The company has developed a novel platform that greatly speeds the development and characterization of complex biological compounds. Unlike more traditional small molecules, therapeutic proteins are massive molecules whose exact chemical structure and makeup can vary from one production method to the other. Simple folds of subunits within the protein can drastically affect its efficacy and toxicity.
Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA)’s platform swipes away uncertainty and risk from product development by making connections between a drug’s chemical structure, manufacturing process, and mechanism of action. The approach has attracted the attention of Novartis and Baxter Pharmaceuticals, which are going all-in on the future of biosimilars, or generic biologics. Although the company’s technology was proven successful at an early stage, its first generic drug quickly succumbed to a flood of competition. An astounding $180 million in profits on $283 million in revenue in 2011 fell a mind-numbing 97% as a result.
Despite an early collapse, Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) has a promising future ahead of it. A partnership with Baxter could produce up to six biosimilars — the first of which could be up for regulatory approval by 2014. The company is also developing a novel oncology drug on its own, although it is still in phase 1 trials. It will remain a high-risk investment until it can generate more revenue. But if Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) can diversify its revenue stream and build out its product portfolio, it should be able to capture the ridiculous profit margins of 2011.
Incite growth into your portfolio
Investors looking for the next high-growth biotech company should certainly spend time researching Incyte Corporation (NASDAQ:INCY). The company sports a handful of the most promising JAK inhibitors, which are garnering high level interest throughout the pharmaceutical industry. The molecules have big potential in treating various cancers and inflammatory diseases such as rheumatoid arthritis and psoriasis.
Incyte Corporation (NASDAQ:INCY) and Novartis AG (ADR) (NYSE:NVS) have teamed up to market Jakafi — the company’s first and only approved drug — for myelofibrosis (a bone marrow cancer). The pair is also evaluating the novel compound in four additional cancer trials; one phase 3 and the balance in phase 2 development. Meanwhile, Eli Lilly & Co. (NYSE:LLY) has tapped Incyte Corporation (NASDAQ:INCY)’s baricitinib for inflammatory diseases. The drug crushed its phase 2 trial for rheumatoid arthritis late last year and is wrapping up a phase 2 trial for psoriasis.