Precious Njoku is a Financial Writer with extensive knowledge about the stock market.

2022-03-12 11:31

Summary:
- Biotech stock’s revenues benefitted from the Covid-19 pandemic, which gives them a lot of advantages.
- Moderna is not resting on its oars after posting a 2,200% increase in revenue for 2021.
- Fulgent Genetics is investing in cancer diagnostics and reproductive health testing to increase revenue.

Those already into biotech stocks will agree that it is exciting to invest in that sector because of the tremendous level of gains therein. Interestingly, the success of certain companies lies in the outcome of a new drug that could provide mind-blowing gains or punishing losses for investors, all of which are based on the outcome of clinical trials.

The two companies highlighted in this article had tailwinds of huge cash from the pandemic, which reduces or mitigates some of the risk investors would ordinarily face. Although post-pandemic execution would determine the future success of these companies, both of these businesses have a solid foundation and a plan to ride on a bull run in 2022.

Moderna
Moderna (NASDAQ: MRNA)had a staggering result in 2021. It had a fiscal year revenue of $18.5 billion compared to $803 million in 2020. That translates to a 2,200% increase in revenue. One caveat to this 2021 revenue is that before the release of the Emergency Use Authorization of its covid-19 vaccine, Moderna had no commercially viable product. So one has to be sceptical.

The staggering 2021 revenue made Moderna's cash flow positive and profitable. Since revenue outpaced expenses, it recorded a net income of $12.2 billion. Operating expenses for the year were not significant and stood at 28% of revenue. In addition, Moderna had $18 billion in cash and investments.

Investors would not be disappointed in having Moderna in their portfolio. The development of pipeline vaccines and therapeutics is the key. It will take a long time before covid-19 vaccine revenue will slow, and since the virus will become endemic, there will still be a growing need for vaccines and boosters. But Moderna is not resting on its oars. It plans to bring new products to the market in the future. Two drug development programs are currently in phase 3 of the FDA trials, while five more, including covid-19 vaccine boosters, are in phase-2 trials. If these drugs and vaccines become successful, they will show that mRNA technology is effective and efficient. mRNA technology is at the heart of Moderna’s business.

At the time of writing, Moderna stock stood at $139.52, and it has dropped only 0.68% over 52 weeks.

Fulgent Genetics Inc
Like Moderna, Fulgent Genetics (NASDAQ: FLGT) profited from the covid-19 pandemic from selling its Covid-19 test kits. As a result, revenue jumped 135% for the fiscal year 2021 and some quarters recorded year-over-year growth in quadruple digits. Although the Q4 earnings were down 15% year-over-year at $252 million, it is insignificant when considering the 3,400% revenue growth for the same quarter a year ago. But investors are concerned that the outlook for Q1 2022 is not favourable with revenue guidance, putting it at only $245 million, which would be a year-over-year decline.

We are not surprised by the slowing of revenue. This is because vaccines reduce the demand for testing kits. But patient investors would rely more on Fulgent’s next-generation sequencing (NGS) genetic testing, which will be a growth driver for the coming years. Q4 NGS testing revenue growth was at 234% year over year. Interpreting this, we see that the core business is on a growth path while Covid-related revenue is trailing off.

Notably, along with its NGS genetic testing technology, Fulgent (NASDAQ: FLGT) made acquisitions and signed agreements with some partners that gave it leeway into the cancer testing space. Its target is to enter the early detection and liquid biopsy space in cancer diagnostics, along with the reproductive health spaces. Management sees these two spaces as an $18 billion market.

Investing in Fulgent is not without its risks. It has revenue guidance of only 28% growth for the fiscal year 2022 in NGS but an overall revenue decline of 40%. At the time of writing, Fulgent stock sells at $55.89, with a 45% decline over 52 weeks.

The aforementioned stocks have been added to my watchlist. Stay alert and watch out for signals to buy.