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March 2, 2015, 11:37 a.m. EST

These are the most profitable Nasdaq biotech companies

Biotechnology stocks tend to be risky, but some are backed by real products and solid earnings

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By Philip van Doorn, MarketWatch


Bloomberg News/Landov
Gilead Sciences CEO John C. Martin undoubtedly is pleased that his company’s profit margin last year was almost 49%.

The Nasdaq Composite Index has nearly doubled since the end of 2011, led by its riskiest sector: biotechnology.

But biotech companies vary more than most in other industries. Some have no hopes of ever making money. And others are backed by products that are established in the marketplace and are quite profitable.

The Nasdaq Biotechnology Index /zigman2/quotes/210598353/realtime NBI -2.20%  has risen 227% since the end of 2011 through Feb. 25, compared with a 91% return for the broader Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.69% , which is within 4 percentage points of its all-time intraday high of 5,132.52, set in March 2000.


FactSet
The Nasdaq Composite Index has nearly doubled since the end of 2011, and the Nasdaq Biotechnology Index has more than tripled.

“Looking at the simple average of all the individual biotechnology companies on the Nasdaq, the group is higher by [roughly] 300% since 2011. However, if we exclude the biotechnology companies ... the simple average of the rest of the Nasdaq listed companies are up on average about 75%,” according to Myles Clouston, Nasdaq’s senior director of advisory services.

So there’s no question that this rally has been driven by biotech.

But how risky is it to play this sector?

The following chart, showing this year’s best-performing Nasdaq biotech stocks, illustrates why it’s important to be very careful when buying:

Company Ticker Total return - YTD Total return - 2014 Total return - 3 years Total return - 5 years
Capnia Inc. 327% N/A N/A N/A
Genetic Technologies Ltd. Sponsored ADR /zigman2/quotes/208953622/composite GENE 233% -73% -68% 12%
Cellular Biomedicine Group Inc. /zigman2/quotes/201267130/composite CBMG 129% 153% 310% 195%
Semler Scientific Inc. /zigman2/quotes/201267132/composite SMLR 117% N/A N/A N/A
Curis Inc /zigman2/quotes/207276322/composite CRIS 111% -47% -30% 17%
Coherus Biosciences Inc. /zigman2/quotes/202304465/composite CHRS 97% N/A N/.A N/A
Exelixis Inc. /zigman2/quotes/204247745/composite EXEL 87% -77% -53% -58%
Stereotaxis Inc. /zigman2/quotes/205025017/composite STXS 78% -59% -65% -94%
Neurocrine Biosciences Inc. /zigman2/quotes/202459527/composite NBIX 77% 139% 388% 1,423%
Echo Therapeutics Inc. /zigman2/quotes/205706544/composite ECTE 70% -57% -87% -87%
Total returns assume reinvestment of dividends. Sources: Nasdaq and FactSet

Among this year’s 10 best performers, eight were publicly traded for all of 2014 and five of those saw huge losses for the year. Five of those eight also have suffered painful losses over the past three years.

Since most biotech firms have so much riding on trial results and government approvals of new medications or treatments, “it’s all about a binary event,” according to Clouston. And we all know how risky it can be to hope that a stock will be driven higher by positive headlines.

Then again, Clouston said during an interview on Thursday that compared with the heady days of early 2000, there is now “a much bigger bench of companies that have actual products and fundamentals that support the appreciation.”

Rather than trying to pick winners, a much safer way to play Nasdaq biotech stocks is with an exchange traded fund, such as the iShares Nasdaq Biotechnology ETF /zigman2/quotes/206189322/composite IBB -2.22% , which is up 12% this year, more than double the Nasdaq’s increase. The ETF returned 34% during 2014, and its three-year return through Wednesday is 186%, with a five-year return of 304%.

Profitable Nasdaq biotech companies

If you want to study individual Nasdaq biotech stocks, you might want to focus on larger and profitable companies. To pare our list, we have included the 10 Nasdaq biotechnology companies with the widest net income margins (earnings divided by revenue) over the past 12 reported months. They also must have market values of at least $100 million:

/zigman2/quotes/210598353/realtime
US : U.S.: Nasdaq
4,141.30
-93.36 -2.20%
Volume: 297,319
Aug. 11, 2020 5:16p
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/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
10,782.82
-185.53 -1.69%
Volume: 3.90M
Aug. 11, 2020 5:16p
loading...
/zigman2/quotes/208953622/composite
US : U.S.: Nasdaq
$ 4.08
+0.10 +2.51%
Volume: 1.62M
Aug. 11, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$53.22 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/201267130/composite
US : U.S.: Nasdaq
$ 14.27
-0.70 -4.68%
Volume: 53,695
Aug. 11, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$290.29 million
Rev. per Employee
$1,163
loading...
/zigman2/quotes/201267132/composite
US : U.S.: OTC
$ 51.25
-2.25 -4.21%
Volume: 15,550
Aug. 11, 2020 3:58p
P/E Ratio
28.88
Dividend Yield
N/A
Market Cap
$351.13 million
Rev. per Employee
$467,196
loading...
/zigman2/quotes/207276322/composite
US : U.S.: Nasdaq
$ 1.28
-0.07 -5.19%
Volume: 1.14M
Aug. 11, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$72.72 million
Rev. per Employee
$198,818
loading...
/zigman2/quotes/202304465/composite
US : U.S.: Nasdaq
$ 18.76
+0.01 +0.05%
Volume: 1.05M
Aug. 11, 2020 4:00p
P/E Ratio
8.25
Dividend Yield
N/A
Market Cap
$1.34 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/204247745/composite
US : U.S.: Nasdaq
$ 21.67
-0.06 -0.28%
Volume: 2.41M
Aug. 11, 2020 4:00p
P/E Ratio
24.32
Dividend Yield
N/A
Market Cap
$6.71 billion
Rev. per Employee
$2.30M
loading...
/zigman2/quotes/205025017/composite
US : U.S.: NYSE American
$ 3.75
-0.12 -3.10%
Volume: 178,773
Aug. 11, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$283.51 million
Rev. per Employee
$246,610
loading...
/zigman2/quotes/202459527/composite
US : U.S.: Nasdaq
$ 113.01
+0.45 +0.40%
Volume: 930,834
Aug. 11, 2020 4:00p
P/E Ratio
53.67
Dividend Yield
N/A
Market Cap
$10.50 billion
Rev. per Employee
$771,350
loading...
/zigman2/quotes/205706544/composite
US : U.S.: OTC
$ 0.01
+0.0050 +62.50%
Volume: 80,246
Aug. 11, 2020 3:56p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
N/A
Rev. per Employee
N/A
loading...
/zigman2/quotes/206189322/composite
US : U.S.: Nasdaq
$ 131.88
-2.99 -2.22%
Volume: 4.09M
Aug. 11, 2020 4:00p
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