Specialty drugmakers poised for a game-changing outcome

Fidelity's Eddie Yoon says specialty drug manufacturers in the biotech industry with promising clinical data have the potential for blockbuster growth.

• Fidelity Portfolio Manager Eddie Yoon believes the stocks of certain specialty drugmakers have promising drug candidates in clinical trials, potentially setting them up for a healthy outlook and outsized growth.
• "Recently, I've been seeing a lot of 'green shoots' in some novel, viable drug candidates under study by biotechnology and specialty drug manufacturers, which gives me optimism about growth prospects for this innovation-driven segment of the health care sector," says Yoon, who manages Fidelity Advisor^® Health Care Fund.
• In helming the sector-based, equity-focused strategy since 2008, Yoon leverages Fidelity's global health care team in building a broad portfolio of health care companies, ranging from high-quality, stable earnings growers to opportunistic names producing innovative products that disrupt the marketplace.
• As of March 31, the fund was notably overweight biotech stocks relative to the sector index, with sizable positions in a handful of specialty drugmakers. "Anti-obesity drugs may have taken center stage in 2024, but recent breakthroughs in biotech could be game-changers in the coming years," Yoon explains.
• In particular, Yoon is drawn to biotechs reporting needle-moving clinical data in blockbuster categories. These so-called specialty drugs, which typically are new drug categories that start at a higher price, have achieved recent sales growth of 15% to 17% per year, according to Yoon. In addition, he notes that biotech firms have been supported by a decrease in the cost of genome sequencing, the expansion of cell-based therapies and the accelerated pace of drug discovery.
• Yoon cites two companies, Alnylam Pharmaceuticals and Netherlands-based Argenx, as particularly well-positioned, both of which were among his largest holdings at the end of March.
• "Alnylam is a leader in RNA interference, a type of therapeutic that can 'silence,' or turn off, the production of specific genes that contribute to or cause a disease," Yoon says. "The company focuses on treating rare diseases and those with unmet medical needs, such as transthyretin amyloid cardiomyopathy, a potentially fatal heart ailment that occurs when faulty proteins build up in the heart."
• Argenx primarily develops antibody-based therapies for autoimmune conditions, including diseases causing muscle weaknesses. In 2024, the company benefited from robust sales of Vyvgart^®, Argenx's flagship treatment for a rare autoimmune disorder in which a body's immune system attacks muscle cells, according to Yoon, who also notes the company released positive phase 2 trial results for Alkivia, its candidate for severe autoimmune diseases.
• Both Argenx and Alnylam have drug candidates that are fully funded into approval, Yoon says. "Within biotech, I focus on the most innovative assets in cell therapy, rare disease and immuno-oncology, and I believe these two companies have among the most promising growth prospects," Yoon concludes.