A Good Time to Get Into Biotech

Stefan Quenneville: We recently published our annual biotech moat and pipeline report, where we do a deep dive to look at the pipeline progress of our covered companies and the impact on their economic moats.

The key takeaway is that despite worries about pricing and biosimilar competition in the U.S., the overall fundamentals continue to improve in the sector given the strong pipeline productivity.

In addition, given the recent sell-off in biotechs in the last month or so, this is the first time in a number of years where the group, in aggregate, is trading at a discount to our fair value estimates. So, we think it's a good time to get into some high-quality names in the sector.

Among our wide-moat companies, Amgen (AMGN) is currently one of our best ideas. We think that the company is undervalued because the market is too focused on the near-term risks from biosimilar competition and is underappreciating the cost-cutting initiatives the company is taking and the long-term potential of its pipeline. 

Among narrow-moat names, several rare-disease companies have been hit by worries about pricing because many of their drugs have price tags of more than $100,000 per year. Nevertheless, we think that the rare-disease space is one of the most attractive niches in the biotech space. As such, Biomarin (BMRN), Vertex (VRTX), and Alexion (ALXN) are currently very attractively valued.