The Best Biotech Stocks to Buy

Investing in biotechnology stocks has always required a high risk tolerance and the patience to wait years, even decades, for results. Uneven results in recent years, and in the year to date, have tested the resilience of biotech investors.

“Biotech had a strong start to 2024, driven by an uptick in M&A and every indication that interest rates would begin to decline,” says Morningstar strategist Karen Andersen. “However, the second quarter has been more mixed for the industry, as rates look to be stabilizing rather than declining, given persistent (but improving) inflation. Higher rates tend to make waiting for uncertain returns on biotech investments less attractive.”

This year to date, the Morningstar US Biotechnology Index has returned 7.02%, versus the Morningstar US Market Index result of 10.57%.

Are Biotech Companies Good to Invest in Right Now?

Despite recent mixed results, Andersen sees plenty of positive aspects in biotech, as well as areas for growth.

“We still see tailwinds for the industry going forward. Smaller-cap names are still targets for acquisitions by bigger biopharma firms, and a wave of acquisitions has continued since late last year, particularly focused on oncology and immunology,” she says. “We think obesity acquisitions are likely going forward, as big biopharma can bring development and commercialization expertise to multiple programs in midstage trials at small biotechs. Second, on a more fundamental level, new technologies and launches in new therapeutic areas are poised to boost productivity and drive biotech performance.”

The 7 Best Biotech Stocks to Buy Now

These were the most undervalued biotech stocks that Morningstar’s analysts cover as of June 5, 2024.

1. Intellia Therapeutics NTLA
2. Crispr Therapeutics CRSP
3. Royalty Pharma RPRX
4. Jazz Pharmaceuticals JAZZ
5. Moderna MRNA
6. Ionis Pharmaceuticals IONS
7. Incyte INCY

Here’s a little more about each of the best biotech stocks to buy, including commentary from the Morningstar analysts who cover each company. All data is as of June 5.

Intellia Therapeutics

• Morningstar Price/Fair Value: 0.27
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: None
• Market Capitalization: $2.2 Billion

Intellia is the cheapest name on our list of the best biotech stocks to buy now. This early-stage gene-editing company has a promising pipeline but does not yet have any approved products. The stock looks 73% undervalued relative to our $85 fair value estimate.

Intellia Therapeutics is a gene-editing company focused on the development of Crispr/Cas9-based therapeutics. Intellia’s technology platform specializes in clustered regularly interspaced short palindromic repeats, or Crispr/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. Crispr/Cas9 has created a new class of medicines, which are well-suited for targeting rare diseases or other disorders that are caused by genetic mutations.

Crispr/Cas9 works by having Crispr (pieces of DNA sequences) guide Cas9 (an enzyme that can cut and edit DNA) to edit, alter, or repair genes. Intellia is utilizing this gene-knockout approach to remove unwanted proteins using its proprietary lipid nanoparticle delivery system. Intellia has leveraged its expertise in Crispr/Cas9 gene editing to advance a pipeline of in vivo and ex vivo therapies for diseases with high unmet medical needs.

We believe the company’s proprietary technology has the potential to build blockbusters in rare diseases that have limited treatment options available. Intellia currently has no approved drugs and a largely early-stage pipeline, so we refrain from awarding the company an economic moat.

Intellia’s most advanced in vivo candidates are NTLA-2001 for the treatment of transthyretin amyloidosis and NTLA-2002 for the treatment of hereditary angioedema. NTLA-2001 is part of a co-development and co-promotion agreement with Regeneron, in which Intellia is the clinical and commercial lead party and Regeneron is the participating party. Regeneron shares in 25% of worldwide development costs and commercial profits for the ATTR program. We like that Intellia will retain 75% of the economic profits of NTLA-2001, if approved, and the company also has the expertise and financial support of Regeneron to offset some of the development costs. In addition, we appreciate that NTLA-2002 is wholly owned by Intellia.

The rest of Intellia’s pipeline is either in the early (phase 1) or preclinical stages of development. While Intellia does not currently have approved products, the company provides long-term investors with pure-play exposure to gene editing.

Crispr Therapeutics

• Morningstar Price/Fair Value: 0.49
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: None
• Market Capitalization: $4.9 Billion

Among our best biotech stocks to buy now, Crispr proved most resistant to the recent industry volatility. The company continues to possess a sizable, mostly early-stage pipeline, and it invests heavily in research and development. Shares of Crispr Therapeutics look 51% undervalued compared with our $119 fair value estimate.

Crispr Therapeutics is a clinical-stage gene editing company focused on the development of Crispr/Cas9-based therapeutics. The company’s proprietary platform specializes in Clustered Regularly Interspaced Short Palindromic Repeats/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. Crispr’s emerging technology has led to a new class of therapies, which are well suited for targeting rare diseases or other disorders that are caused by genetic mutations.

Crispr/Cas9 works by having Crispr (pieces of DNA sequences) guide Cas9 (an enzyme that can cut and edit DNA) to edit, alter, or repair genes. We think Crispr Therapeutics’ proprietary technology has the potential to build blockbusters in rare diseases with limited treatment options available.

Crispr Therapeutics is focused on developing and commercializing novel therapies to treat severe, genetic diseases and currently possesses a sizable, yet mostly early-stage pipeline. Its first approved product, Casgevy, was developed in collaboration with narrow-moat Vertex Pharmaceuticals for the treatment of transfusion-dependent beta-thalassemia and sickle cell disease. Crispr Therapeutics and Vertex have received regulatory approvals for Casgevy in the European Union, the United Kingdom, and in the United States. We think Casgevy’s high selling price and the significant unmet medical need for treating sickle cell disease and transfusion-dependent beta thalassemia will help it become a blockbuster drug, generating over $1 billion in total sales annually by 2025. The rest of Crispr Therapeutics’ pipeline is either in early (Phase 1) or preclinical stages of development, so we refrain from awarding the company an economic moat. That said, Crispr Therapeutics provides long-term investors with pure play exposure to gene editing technology.

Royalty Pharma

• Morningstar Price/Fair Value: 0.52
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Market Capitalization: $12.1 Billion

Royalty Pharma specializes in purchasing royalties from other biotech firms, allowing it to profit from a variety of therapies and innovations. It is also the first of three biotech firms on our list that we think has carved out an economic moat. Royalty Pharma stock is 48% undervalued relative to our $52 fair value estimate.

Royalty Pharma is the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. The company makes lump-sum payments in exchange for future cash flows linked to those products’ sales revenue, which differentiates it from other biotech companies that are exposed to high R&D and/or manufacturing costs. Its uniqueness also lies in the diversity of royalties across different therapeutic areas. This stands in contrast to a typical biotech firm’s focus on developing specialized therapies targeting certain diseases.

Royalties play an important role in the commercialization process of cutting-edge therapies. Royalties are usually created as a form of payment when a large biopharma company takes over research insights from smaller biotech firms or research institutions for further marketing and development through licensing agreements. In this process, royalty recipients often face the issue where multiple small future royalty streams cannot fulfill ongoing large lump-sum R&D funding needs. The mismatch is where Royalty Pharma captures its market opportunity.

The increasing demand for capital across the global biopharma industry has been propelling Royalty Pharma’s growth in recent years. The total dollar value of all royalty transactions in 2022 was 10 times the volume in 2015. Royalty financing shows its advantage as a nondilutive funding method that satisfies instant funding needs despite the conditions of debt and equity markets. As a leading royalty acquirer, we think Royalty Pharma is in a great position to capture market tailwinds.

With the average development cost for a newly approved drug surpassing $1.4 billion in 2022, we find Royalty Pharma’s capability of executing large deals appealing. Royalty Pharma has a dominant market position for transactions sized over $500 million. The company’s extensive experience in structuring flexible deals with installment and milestone payments makes it a preferred choice for many royalty sellers.

Jazz Pharmaceuticals

• Morningstar Price/Fair Value: 0.56
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: None
• Market Capitalization: $6.5 Billion

Jazz Pharmaceuticals is next on our list of affordable biotech stocks. Strong commercial launches for several products have continued to be Jazz’s primary growth driver. Jazz Pharmaceuticals looks undervalued as it trades 44% below our fair value estimate of $187 per share.

Jazz Pharmaceuticals added its leading drug, Xyrem, to its portfolio in 2005 with the acquisition of Orphan Medical for about $123 million. This was a great price for the then newly approved drug, which became a blockbuster. At that point, Xyrem was the only approved treatment for cataplexy (sudden muscle weakness or paralysis) in narcolepsy; it has since garnered additional approvals for excessive daytime sleepiness in patients with narcolepsy. Its strong efficacy has propelled its success in the difficult-to-treat sleep indication, but generic entry is on the horizon, leaving a cloud of uncertainty for the company. Jazz reached a settlement in 2017 with Hikma Pharmaceuticals to not allow generics on the market until January 2023. While Jazz will retain some economic profit from royalties on generic sales and a shared distribution program, we are seeing the negative impact of generic entry on Xyrem’s sales.

We believe Jazz faces a notable degree of risk in clinical development and commercialization. In addition to generic Xyrem, we anticipate branded competition in narcolepsy will increase. We expect modest growth from Xywav, which was approved by the Food and Drug Administration in July 2020. We anticipate this low-sodium version of Xyrem will help offset Xyrem’s declines as a subset of patients will shift to this newer medication.

Management has been focused on diversifying its portfolio, with the new drug approvals of Zepzelca (for metastatic small cell lung cancer), Rylaze (for acute lymphoblastic leukemia), and Xywav (for the treatment of cataplexy, EDS, and idiopathic hypersomnia). Strong launches and commercialization efforts for these drugs will be crucial for Jazz to diversify its portfolio.

Acquiring recently launched drugs has been part of Jazz’s portfolio diversification strategy. In May 2021, Jazz acquired GW Pharmaceuticals for the hefty price of $7.2 billion. GW contributed $865 million to Jazz’s overall 2023 revenue, largely driven by its leading product, Epidiolex. This drug is a cannabidiol for the treatment of severe, rare forms of epilepsy.

Moderna

• Morningstar Price/Fair Value: 0.64
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: None
• Market Capitalization: $55.7 Billion

Of all stocks on our list of the best biotech stocks to buy, Moderna, which benefited from sales of its covid-19 vaccine, took the biggest hit to its stock price as the pandemic receded. Moderna shares have risen this year as it approaches multiple launches beyond its covid vaccine. However, we think the firm’s pipeline of mRNA-based vaccines and treatments is advancing rapidly across multiple therapeutic areas. This cheap biotech stock is 36% undervalued; we believe it’s worth $227 per share.

Moderna’s mRNA technology has gained rapid validation as sales of its covid-19 vaccine soared in 2021 and 2022, but we think the firm has yet to secure a narrow economic moat around its business, largely because of uncertainties tied to an evolving virus and the changing competitive landscape for innovative vaccines.

In a record-breaking span of just 11 months, Moderna created, developed, manufactured, and got regulatory authorization for mRNA-1273, a two-dose covid-19 vaccine that is one of the first two mRNA vaccines ever authorized (alongside Pfizer/BioNTech’s BNT162b2). The pandemic accelerated Moderna’s evolution into a commercial-stage biotech, and we expect that the firm’s ramp-up in manufacturing and clinical know-how will pave the way for faster timelines for additional programs. Moderna’s mRNA platform, involving rapid design and similar manufacturing across programs, allows the company to pursue multiple programs in parallel. Moderna also retains full rights to most of its programs, although partnerships with Merck and Vertex help support its efforts in oncology and cystic fibrosis.

Moderna reported roughly $18 billion in covid-19 vaccine sales in both 2021 and 2022, but with vaccine fatigue and uncertainty around the severity of covid-19 infections in the coming season, we assume $6.2 billion in sales in 2023. We see potential for continued revenue around $4 billion annually if higher-risk populations receive annual vaccines, although there is high uncertainty around the number of long-term competitors (including new mRNA players) and pricing, particularly as the US market moves from government contracts to a commercial market.

Moderna’s phase 3 pipeline beyond covid-19 is growing and includes potential 2024 launches in RSV and oncology, as well as 2025 launches for a covid-19/flu combination vaccine and rare disease treatments. Moderna and Merck’s melanoma therapy has potential in a wide range of cancers in combination with Merck’s Keytruda. We think mRNA technology will eventually be used in a broad spectrum of other therapeutic areas, from cancer to cardiology to rare diseases.

Ionis

• Morningstar Price/Fair Value: 0.65
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Market Capitalization: $5.8 Billion

Ionis is the second company on our list of cheap biotech stocks that we think has carved out an economic moat. The firm’s approved RNA-based drugs and a steadily growing pipeline help secure its narrow moat rating. The stock trades 35% below our fair value estimate of $62 per share.

Ionis is a leader in RNA-based therapies, and its spinal muscular atrophy drug Spinraza, marketed by partner Biogen, is the first RNA-based therapy to achieve blockbuster status. The firm’s antisense oligonucleotide, or ASO, technology faces strong competition from RNA interference technology emerging from Alnylam, Arrowhead, and Novo Nordisk (Dicerna), as well as gene editing and gene therapy pipelines at multiple firms. However, Ionis has built a massive pipeline of promising new drugs that are rapidly moving toward the market, securing a narrow moat.

Ionis’ therapies alter production of a given protein in the body, typically reducing production of a toxic, mutant version. Therefore, Ionis can tackle diseases that are difficult to treat effectively with other methods, as its therapies are targeted (avoiding safety issues with off-target effects of small-molecule drugs), can act inside the cell (unlike antibody therapies), and are reversible (unlike gene therapy). Ionis has a broad pipeline and strong collaboration partners to help usher to market drugs for large indications, requiring large clinical trials and salesforces. Ionis spun out cardiovascular-focused Akcea in 2017 but reacquired full ownership again in 2020, given the advancement and increasing attractiveness of Akcea’s late-stage cardiology pipeline.

Waylivra and Tegsedi, both approved for rare metabolic disorders, have not generated significant revenue, due to side effects for both and direct competition for Tegsedi from Alnylam’s Onpattro. We’re more enthusiastic about next-generation ASOs eplontersen (to launch in 2024 in amyloidosis patients with polyneuropathy and potentially in 2026 in cardiomyopathy) and olezarsen (high triglycerides), which require much smaller doses and are easier to administer. Beyond these programs, Ionis has several wholly-owned neurology and rare-disease programs that we expect to help validate its pipeline potential, and partnered programs in neurology (Biogen), cardiology (Novartis), and the complement pathway (Roche) are in late-stage development, putting Ionis in a position to see multiple data readouts through 2025.

Incyte

• Morningstar Price/Fair Value: 0.67
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Market Capitalization: $13.1 Billion

Our list of affordable biotech stocks closes with Incyte. The third company on our list with a moat rating, Incyte’s Jakafi franchise and new launches like Opzelura help secure its narrow moat rating. The stock trades 33% below our $88 fair value estimate.

Incyte has built a solid foundation over the past decade with hematology drug Jakafi, and the approval of the same active ingredient as oral dermatology drug Opzelura is expanding the firm’s focus to new therapeutic areas. We think the strategy to find more effective combination therapies in hematology and build a larger oncology and dermatology portfolio is solid, although we’re waiting for key data before assuming the firm can grow through Jakafi’s patent expiration in 2028.

Jakafi initially gained traction in 2011 as the only drug approved for severe myelofibrosis, a rare blood disorder. Jakafi’s stronghold of the MF market is likely to continue, although new drugs are entering the market for subsets of the population. Incyte expanded Jakafi’s label to polycythemia vera (2014), steroid-refractory acute graft-versus-host disease (2019), and chronic GvHD (2021) should together push peak US sales to $3 billion. Incyte’s ALK2 and BET-targeted drugs are being combined with Jakafi in myelofibrosis, which could lead to a fixed-dose combination regimen that refreshes this franchise beyond Jakafi’s patent expiration.

In dermatology, we see strong potential for a topical version of the active ingredient in Jakafi (ruxolitinib), which was approved in 2021 in atopic dermatitis as Opzelura and received a label expansion in vitiligo in 2022. While the atopic dermatitis market is crowded, Opzelura’s launch is going strongly, and with no other approved vitiligo drugs, unmet need in this indication is high.

In oncology, the approval of lymphoma drug Monjuvi (part of a collaboration with MorphoSys MOR) in 2020 in the US and 2021 in Europe also expands Incyte’s hematology portfolio, and studies are in progress testing the drug in earlier-stage patients. Incyte received approval for its PD-1 antibody Zynyz in the niche indication of Merkel cell carcinoma but continues to move forward in broader indications, and several oral PD-L1 programs could also move forward with additional data.

How to Find More of the Best Biotech Stocks to Buy

Investors who’d like to extend their search for top biotechnology stocks can do the following:

• Review Morningstar’s comprehensive list of biotechnology stocks to investigate further.
• Use the Morningstar Investor screener to build a shortlist of biotechnology stocks to research and watch.
• Read the latest news about notable biotechnology companies from Morningstar’s Karen Andersen.