April 16, 2024


You are Your Only Limit

Top Biotech Stocks for Q2 2023

6 min read

Biotech companies, including Catalyst Pharmaceuticals Inc., Mersana Therapeutics Inc., and Harmony Biosciences Holdings Inc., are leading peers in revenue growth within an industry that has sustained overall performance following slowing vaccine demand.

The S&P Biotechnology Select Industry Index has fallen about 4% in the past 12 months, compared with a 7% drop in the Russell 1000 Index.

We look at the top three biotech stocks in three categories: the best value, the fastest growth, and the best performance. The data are as of April 14.

Best Value Biotech Stocks

These are the biotech stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.

Best Value Biotech Stocks
  Price ($) Market Cap ($B)   12-Month Trailing P/E Ratio
Theravance Biopharma Inc. (TBPH) 11.52 0.7 1.0
Intercept Pharmaceuticals Inc. (ICPT) 16.18 0.7 2.5
BioNTech SE (BNTX) 125.81 30.3 3.2

Source: YCharts

  • Theravance Biopharma Inc.: Theravance Biopharma is a biopharmaceutical company in the Cayman Islands that develops and manufactures respiratory medicines such as Yupelri and Trelergy to treat COPD.
  • Intercept Pharmaceuticals Inc.: Intercept is a biopharmaceutical company that manufactures drugs to treat non-viral liver disease.
  • BioNTech SE: BioNTech is a German-based immunotherapy company focused on developing therapies for cancer and other serious diseases. In collaboration with Pfizer Inc., the company developed a vaccine against COVID-19. In March, the company announced a new American Depositary Shares (ADS) repurchase program for up to $500 million during the rest of 2023.

Fastest Growing Biotech Stocks

These are the top biotech stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general.

Due to the nature of biotech business models, especially early on, earnings and revenue can undergo large growth spurts when a deal is made or a drug is approved, so we are not excluding outliers with growth of over 2,500% as we typically do.

Fastest Growing Biotech Stocks
Price ($) Market Cap ($B)   EPS Growth (%) Revenue Growth (%)
Catalyst Pharmaceuticals Inc. (CPRX) 17.55 1.9 144 59
Mersana Therapeutics Inc. (MRSN) 4.03 0.4 N/A (see company description) 133,427
Harmony Biosciences Holdings Inc. (HRMY) 30.81 1.8 108 41

Source: YCharts

  • Catalyst Pharmaceuticals Inc.: Catalyst is a biopharmaceutical company that develops and manufactures therapies to treat rare neurologic disorders.
  • Mersana Therapeutics Inc.: Mersana Therapeutics is a clinical-stage pharmaceutical company that develops antibody-drug conjugates (ADC) for cancer treatments. The company’s revenue increased to $14.7 million in the fourth quarter of 2022 from $11,000 the year before. Management attributed the jump in revenue to collaboration agreements with GSK and Janssen Biotech. Note Mersana doesn’t have an EPS growth figure in the table above because the company reported negative EPS in the most recent quarter.
  • Harmony Biosciences Holdings Inc.: Harmony Biosciences develops therapies to treat rare neurological disorders. Its flagship medication is WAKIX, which helps treat narcolepsy disorder. President and CEO, John Jacobs, stepped down from his role at the beginning of the year. Jeffery Dayno, MD, the company’s Executive Vice President and Chief Medical Officer was appointed interim CEO by the board. On Feb. 21, the company reported fourth-quarter earnings, with net income more than doubling compared to Q4 2021 due to growing demand for its drug WAKIX.

Biotech Stocks With the Most Momentum

These are the biotech stocks with the highest total return over the last 12 months.

Biotech Stocks with the Most Momentum
 Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
Viking Therapeutics Inc. (VKTX) 17.73 1.4 562
Biomea Fusion Inc. (BMEA) 25.02 0.9 444
Ardelyx Inc. (ARDX) 4.50 0.9 422
Russell 1000 N/A N/A -6
iShares Biotechnology ETF (IBB) N/A N/A 4

Source: YCharts

  • Viking Therapeutics Inc.: Viking Therapeutics is a clinical-stage pharmaceutical company that develops novel medications to treat endocrine and metabolic disorders. On March 28, the company announced positive results from its phase 1 clinical trial of VK2735 to help treat various metabolic disorders. Viking Therapeutics’ share price jumped from $9.12 to $15.44 immediately following the news. A phase 2 trial is set for sometime in mid-2023.
  • Biomea Fusion Inc.: Biomea Fusion is a pharmaceutical company that develops treatments for various cancers and metabolic diseases. Biomea’s stock price nearly doubled on March 28 after the company announced promising initial results from the second phase of a type 2 diabetes drug clinical trial.
  • Ardelyx Inc.: Ardelyx produces medications for individuals with gastrointestinal diseases. Its primary product is Ibsrela, an oral medication to help treat irritable bowel syndrome that was launched in March 2022. Shares jumped last month after the company said fourth-quarter Ibsrela sales accounted for more than half of the year’s total and forecast additional prescription growth.

Advantages of Biotech Stocks

High Potential Reward: Investing in biotech stocks provides potentially high rewards, helping to boost overall portfolio returns. A clinical breakthrough, patent for a new drug, regulatory approval, or strategic partnership can send a biotech stock soaring based on speculation about what that development means for future earnings. For example, German biotech BioNTech saw its share price triple in March 2020 when it announced that it would team up with biopharmaceutical giant Pfizer Inc. (PFE) to co-develop and distribute an mRNA vaccine against COVID-19. The company’s stock continued to climb throughout the pandemic, gaining over 1,450% between March 2020 and August 2021. 

Acquisition Potential: Acquisitions regularly occur in the biotech sector, providing investment opportunities in stocks with exciting buyout potential. In the first three months of 2023, six biotech startups received acquisition offers of more than $1 billion. Four of those offers came from buyers willing to pay a premium of over 100%.

Risks of Biotech Stocks

High Change of Failure: Given that many biotech companies are developing cutting-edge therapies and medical technologies, there is an increased risk of failure in the sector. Moreover, research and development of breakthrough drugs takes time and is costly, presenting further obstacles to success. Failures in a highly anticipated new drug typically result in steep share price declines. For instance, investors sold down Palo Alto, California-based BridgeBio Pharma, Inc. (BBIO) stock more than 60% after its experimental therapy for a genetic heart condition failed a crucial trial.

Regulatory Risk: Approval from the Food and Drug Administration (FDA) can make or break a biotech company. Furthermore, getting the green light from the agency is notoriously difficult. It approved just 37 new drugs in 2022, the fewest since 2016. While the FDA’s approval can send a biotech firm’s share price skyrocketing, rejection can lead to bankruptcy or the company needing to ask investors for more capital. For instance, clinical-stage biotech company Zosano Pharma Corporation (ZSANQ) filed for Chapter 11 bankruptcy after the FDA rejected a migraine drug delivery patch it had been developing.

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