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2 Cathie Wood Stocks That Can Get You Through Any Recession

Motley Fool - Wed May 10, 2023

Economists at the U.S. Federal Reserve recently uttered the dreaded "R" word. They are now predicting a recession will come later this year. Investors have been bracing for this possibility for a while now, so it shouldn't come as too much of a surprise. Still, recessions can be scary, which is why it pays to prepare.

For investors looking for stocks that can get through challenging economic times, it might be helpful to take some inspiration from famous names on Wall Street. Cathie Wood, CEO of Ark Invest, is such a name. And some of her investment firm's ETFs have excellent stock picks that can help make any portfolio more recession ready.

Let's look at two examples: Vertex Pharmaceuticals(NASDAQ: VRTX) and Regeneron(NASDAQ: REGN).

1. Vertex Pharmaceuticals

Vertex Pharmaceuticals defied the bear market last year. And since 2023 started, the biotech has continued to outperform broader equities.

There are good reasons to think the company will perform well even during the next recession. Vertex markets medicines that treat the underlying causes of cystic fibrosis (CF), a genetic disease that affects patients' internal organs and leads to a low life expectancy.

This market is relatively small -- Vertex estimates that there are just 88,000 CF patients in the U.S., Canada, Europe, and Australia. But Vertex is the only biotech company that offers drugs that target CF at the cellular level. This monopoly leads to steady demand from CF patients -- regardless of economic conditions -- along with solid revenue growth.

In the first quarter, Vertex's revenue of $2.37 billion increased by 13% year over year. The company's revenue growth rates have declined over the years as it has made significant headway within its main target population. Yet, there is still potential ahead.

First, over 20,000 CF patients eligible for the company's current medicines remain untreated. Vertex's revenue will continue to move in the right direction as more of these patients start treatment.

Second, Vertex has an exciting pipeline that should yield important approvals. Chief among its programs is exa-cel, a potential gene-editing therapy for sickle cell disease and beta-thalassemia -- a duo of blood-related diseases -- for which it is awaiting approval. Exa-cel could earn approval as early as late 2023.

Vertex's pipeline also includes VX-548, which targets acute and neuropathic pain, VX-880 -- a potential type 1 diabetes therapy, and VX-147 in treating APOL1-mediated kidney disease. Other products should also follow in the near future.

The biotech's stronger, more diversified lineup will help boost its revenue growth. Vertex's exciting pipeline is one reason it has recently outperformed the market. Expect the company to continue doing just that, recession or not.

2. Regeneron

Biotech giant Regeneron has also outperformed the market over the trailing-12-month period, even with a recent pullback related to its first-quarter results.

What caused the company's shares to drop on the heels of its quarterly update? It was probably the fact that sales of one of its biggest cash cows, wet age-related macular degeneration (an eye disease) therapy Eylea, dropped by 6% year over year to $1.4 billion in the period.

Regeneron comarkets Eylea with Bayer. The two partners are feeling pressure from competing medicines such as Roche's Vabysmo, another wet age-related macular degeneration therapy that earned approval a little more than a year ago. This could be a significant issue for Regeneron as Eylea has been one of its main growth drivers.

Fortunately, the biotech should be able to handle this problem. Earlier this year, Regeneron sent an application to the U.S. Food and Drug Administration (FDA) for a high-dose formulation of Eylea. This version showed non-inferiority compared to the current Eylea formulation in a late-stage study. But why would patients switch to the new formulation?

It's because those taking the high-dose variety were on 12- or 16-week dosing schedules, an improvement from the current 8-week dosing schedule for Eylea patients. That should help Regeneron fend off the threat from Vabysmo, which is also administered in 16-week dosing intervals. The FDA could approve Regeneron's application by late June.

Other than Eylea's issues, The company's financial results were decent. Revenue increased by 7% year over year to $3.16 billion. Regeneron's other key growth driver, eczema treatment Dupixent, is also performing well. Regeneron shares the rights to Dupixent with Sanofi. The medicine reported total sales of $2.49 billion in the first quarter, an increase of 37% year over year.

In March, Dupixent aced a late-stage clinical trial in targeting chronic obstructive pulmonary disease (COPD), and it could become the first biologic to earn approval to treat it. Further, Regeneron's pipeline boasts over two-dozen programs that should lead to new approvals. In short, Eylea's headwinds will become less relevant once Regeneron earns the green light from the new high-dose formulation.

And Dupixent's sales are growing rapidly, with more to come thanks to a potential new indication in COPD. That's why Regeneron should continue to perform well and can certainly navigate the coming recession.

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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.

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