Martin Shkreli, former chief executive of Turing Pharmaceuticals, is a corporate villain out of central casting.

During his grilling last month before a House committee concerning accusations of price gouging, he antagonized lawmakers by smirking and demonstrating an utter lack of remorse. On Thursday, his former Turing Pharmaceuticals colleagues appeared before a Senate committee to conduct damage control.

The result for investors? The entire biotechnology sector has gotten tarred with the same brush.

The Nasdaq Biotechnology index dropped nearly 6% this week, and it is down 27.02% for the year to date.

As Turing Pharmaceuticals and other scandal-plagued companies such as Valeant Pharmaceuticals come under tough scrutiny from Capitol Hill for dodgy finances and exorbitant prices, investors increasingly worry that it will be difficult in this political environment for drug companies to raise prices, which would subsequently weigh on earnings and revenue.

But in this bitterly contested election year, political showmanship is to be expected.

This isn't to minimize some of the very real and serious charges leveled at companies such as Turing Pharmaceuticals and Valeant Pharmaceuticals. But when the dust settles this year, many biotech stocks that are getting unfairly beaten down will resume their upward trajectory as their inherent strengths as drug makers again become apparent.

A robust product pipeline is vital for pharma companies because it can take about 20 years and $1 billion to create a new drug and usher it through the byzantine testing and approval process.

Another hurdle is patent expiration. Drug patents last for 20 years from the date of application, and post-expiry treatments must contend with fierce competition from low-priced generic copies.

But Bayer (BAYRY) is an undervalued biopharmaceutical firm that boasts consistently substantial research and development investment, a well-developed pipeline of future drugs geared to anticipated medical needs and a large market capitalization. The stock is also a good buy, in light of its growth prospects.

This company enjoys another benefit: It is based in Europe, which will get an economic jolt from the European Central Bank's new stimulus measures. Bayer is among the most exciting but under-appreciated biotech opportunities available.

Based in the eurozone's economic powerhouse of Germany, drug giant Bayer is a powerhouse of its own. With a market cap of $81.34 billion, the company develops, produces and markets more than 5,000 health care, pharma and agricultural products worldwide.

The company spends more than 1 billion euros per year on R&D. This year, after spinning off under-performing assets, Bayer re-branded itself as a leaner "life sciences company" and restructured into three divisions: consumer health, crop science and pharmaceuticals.

In a milestone for the company, the Food and Drug Administration on Thursday approved Bayer's therapy for the most common form of hemophilia. Called Kovaltry, the European Commission approved the drug on Feb. 22.

Another of the company's promising drugs is Eylea, to prevent eye blindness in the elderly. Eye care is a long-term growth opportunity as aging baby boomers grapple with macular degeneration.

Bayer also is a major player in crop science. The company is tapping emerging markets that increasingly seek to boost grain crops, to meet the burgeoning consumption of meat by their rising middle classes.

As severe weather becomes more frequent, Bayer's high-performing seed varieties help farmers cope with disruptions in growing conditions.

Bayer's other big-selling products include Xarelto for the treatment of deep vein thrombosis, Betaseron to treat multiple sclerosis, Nexavar to treat liver cancer and Trasylol to control bleeding during surgery.

Bayer's fourth-quarter earnings came in at 613 million euros ($675 million), more than double the 224 million euros posted a year earlier and beating analysts' predictions of 595 million euros.

Full-year 2015 earnings came in at 4.1 billion euros, an increase of 20% from 2014. Full-year earnings per share were 6.83 euros, up 16% from a year earlier.

The majority of Bayer's revenue last year came from Europe, to the tune of 15.9 billion euros, which puts it in the sweet spot to benefit from the ECB's shot of adrenaline into the European Union.

For 2016, management gave guidance for revenue of more than 47 billion euros, compared with 46.32 billion euros last year, which was up 2.7% from 2014.

Significantly, Bayer hiked total R&D spending last year 21% to 4.28 billion euros.

The stock's trailing 12-month price-to-earnings ratio is 19.72, compared with the average trailing P/E of 22 for its peers. Major American-based competitors Merck and Pfizer are more expensive, with P/Es of 33.03 and 26.38, respectively.

With Bayer shares trading at $98.04, the median one-year price projection for the stock is $138.64, for a gain of 41.4%. On the high end, the one-year projection is $172.03, for a gain of 75.4%.

The time to buy Bayer is now, while the biopharmaceutical sector is temporarily in the stockade of public opinion and stimulus in the EU gathers steam.

Bayer is one of our favorite large-cap biotech stocks. We have also found a small-cap biotech "rocket stock" that is about to take off. UCLA researchers are stunned by a Nobel Prize-winning cancer breakthrough that is proven in clinical trials to eliminate lethal forms of cancer with a single dose. One small company owns the patent to this life-saving treatment. Now trading at about $5 a share, the stock of this innovative company is projected to surge 2,700% on an imminent FDA announcement. To download the full report, click here.

 

 

John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.