2 Biotech Stocks That Have Caught Warren Buffett's Eye
10/31/2016 6:32:25 AM
October 28, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Everyone likes to know what big, successful investors are investing in, and in the U.S., it doesn’t get much bigger than the Oracle of Omaha, Warren Buffett. Keith Speights, writing for The Motley Fool, takes a look at two biotech stocks that Buffett likes.
1. Johnson & Johnson
Johnson & Johnson (JNJ) holds a decent position in Buffett’s Berkshire Hathaway, with more than 327,000 shares. Speights points out that Buffett “likes” the company now, “but he used to love the company. In 2012, the Oracle of Omaha said that J&J had ‘some wonderful products and a wonderful balance sheet, but too many mistakes had been made.’”
Those mistakes include multiple product recalls, but Speights believes one of the things Buffett likes is how much money the company returns to its shareholders in dividends and share buybacks. Also, the company has a strong pipeline with more than 30 late-stage clinical programs.
And the company may be sitting on another potential blockbuster. Between 2009 and mid-2014, J&J brought out 14 new drugs, and half of them hit $1 billion in annual sales. It plans to bring out 10 new blockbuster drugs by 2019. But the one that has investors on the edge of their seats is guselkumab.
The company introduced the drug in later September at the European Academy of Dermatology and Venerology Congress held in Vienna, Austria. The drug was developed to treat plaque psoriasis and potentially other immune disorders of the skin. Aside from mid-trial data showing its effectiveness, Sean Williams, writing for The Motley Fool in October, indicates that if approved, the drug could protect J&J from biosimilar competition. The company’s own Remicade is a treatment for plaque psoriasis that is being targeted by biosimilar drug developers.
Both Remicade and J&J’s Stelara are on the market for plaque psoriasis, but both target the tumor necrosis factor protein. Guselkumab targets interleukin-23. Williams wrote, “By introducing a new pathway of treatment, J&J is providing some degree of separation that physicians and patients may latch onto—especially with results superior to those of both the placebo and Humira.”
J&J stock is currently trading for $115.33.
Another biopharma stock Buffett likes is Paris-based Sanofi (SNY). Berkshire Hathaway holds more than 3.9 million shares.
Again, there are similarities to J&J. Sanofi pays out dividends, with its dividend yield presently at 4.4 percent. It also continues to innovate, with 43 drugs and vaccines in its pipeline. Twelve of those are in late-stage trials or are waiting approval by regulators.
That said, not all investors are as optimistic about Sanofi as Buffett appears to be. The company was cited for problems with its manufacturing facility in Normandy, France for its sarilumab drug for rheumatoid arthritis, which it is developing with Regeneron (REGN). Its insulin franchises are taking a battering from competitors, and its relationship with MannKind Corporation (MNKD) for the manufacturing and marketing of Afrezza, an inhaled form of insulin, was a disaster that was terminated in January. It had also been attempting a hostile takeover bid of Medivation (MDVN) this year in order to bolster its oncology presence, but was beat out by Pfizer (PFE).
About the manufacturing plant deficiencies, Arsalan Arif, writing for Endpoints News, said, “For Sanofi, it’s a fresh reminder of just how much is riding on its relationship with Regeneron, which is also advancing dupilumab under their collaborative relationship. For Regeneron, it’s also a reminder of Sanofi’s often star-crossed attempt to advance new meds into the market.”
Sanofi stock is currently trading for $38.85. That’s a far cry from its high of $56.69 on September 19, 2014.
comments powered by