The biotech industry is expanding due to an aging population, increased investments in research and development, growing healthcare applications, development of innovative drugs and therapies, increasing need for personalized medicines and effective treatments of rare and prevalent diseases, and collaborations.
Given the industry’s solid growth prospects, investors could consider buying fundamentally strong biotech stocks BioMarin Pharmaceutical Inc. (BMRN), Illumina, Inc. (ILMN), and Harmony Biosciences Holdings, Inc. (HRMY). These stocks are B (Buy)-rated in our proprietary POWR Ratings system.
Before delving deeper into their fundamentals, let’s discuss what’s shaping the biotech industry's prospects.
Growing pipeline of drugs under development, a rise in chronic diseases, favorable government initiatives, and the ever-rising global healthcare needs are all contributing to the biotech industry’s growth. Gene editing and precision medicine innovations are transforming illness therapy while rising research expenditures drive growth.
According to a report by the IQVIA Institute, global medicine spending is predicted to increase over the next five years to reach almost $2.3 trillion by 2028. The biotech industry will account for 39% of global spending and will include both innovative cell and gene therapies as well as a mature biosimilar segment. Global biotech spending is anticipated to surpass $892 billion by 2028.
Biotech companies are using cutting-edge technologies such as artificial intelligence, machine learning, and CRISPR/Cas9 for the discovery and development of novel drugs and therapies. The global biotechnology market is expected to grow at a CAGR of 12.8% to reach $5.25 trillion by 2030.
These technologies enable more precise and efficient research and development procedures, eventually leading to revolutionary advances in various sectors. The use of AI in the biotechnology market is projected to grow at a 29.7% CAGR until 2032.
Moreover, investors’ interest in biotech stocks can be gauged from the iShares Biotechnology ETF’s (IBB) 6.9% returns over the past year.
With these encouraging trends in mind, let’s delve into the fundamentals of the three best Biotech stock picks, beginning with the third choice.
Stock #3: BioMarin Pharmaceutical Inc. (BMRN)
BMRN develops and commercializes therapies for people with serious and life-threatening rare diseases and medical conditions. The company’s commercial products include Vimizim, Naglazyme, Kuvan, Palynziq, Brineura, Roctavian, Aldurazyme, and Voxzogo.
BMRN’s trailing-12-month EBIT margin of 7.11% is 906.4% higher than the 0.71% industry average. Also, its 11.43% trailing-12-month EBITDA margin is 93.6% higher than the 5.90% industry average.
During the fiscal fourth quarter that ended December 31, 2023, BMRN’s revenues increased 20% year-over-year to $646.20 million. It reported a non-GAAP income of $94.90 million, up 50.4% from the previous-year quarter. The company’s non-GAAP EPS rose 48.5% year-over-year to $0.49.
Street expects BMRN’s EPS and revenue for the quarter ending June 30, 2024, to increase 20.6% year-over-year to $0.65. Its revenue for the quarter ending March 31, 2024, is expected to increase 9.2% year-over-year to $651.02 million. It surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past month, the stock has declined 1.9% to close the last trading session at $84.39.
BMRN’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BMRN has a B grade for Growth and Value. Within the Biotech industry, it is ranked #30 out of 363 stocks. To see the additional ratings of BMRN for Momentum, Stability, Sentiment, and Quality, click here.
Stock #2: Illumina, Inc. (ILMN)
ILMN engages in the development, manufacturing, and marketing of life science tools and integrated systems for large-scale analysis of genetic variation and function. It operates through Core Illumina and GRAIL segments. It provides sequencing and array-based instruments and consumables, whole-genome sequencing, genotyping, NIPT, and product support services.
On January 5, 2024, ILMN announced that it has signed a contract with Janssen Research & Development, LLC.
This will be the first collaboration involving the development of Illumina’s novel molecular residual disease (MRD) assay, a whole-genome sequencing (WGS) multi-cancer research solution that detects circulating tumor DNA (ctDNA) to better understand disease persistence or recurrence after clinical intervention.
Joydeep Goswami, chief strategy and corporate development officer and chief financial officer of Illumina, said, “This collaboration reflects the value of our unique MRD technology and the promise of Illumina’s whole-genome approach in oncology.”
“Working together with pharma partners like Janssen, we aim to deliver a sensitive, accurate, and easily accessible whole-genome sequencing MRD assay to advance clinical research in oncology,” he added.
ILMN’s trailing-12-month gross profit margin of 65.30% is 15.3% higher than the industry average of 56.64%. Its trailing-12-month EBITDA margin of 7.50% is 27.1% higher than the industry average of 5.90%. Additionally, its 11.39% trailing-12-month levered FCF margin is significantly higher than the 0.49% industry average.
For the fiscal fourth quarter that ended December 31, 2023, ILMN’s total revenue grew 3.6% year-over-year to $1.12 billion, and its service and other revenue came in at $199 million, an increase of 17.1% year-over-year. The company’s non-GAAP net income and EPS were $22 million and $0.14, respectively.
For the quarter ending September 30, 2024, ILMN’s revenue and EPS are expected to increase 1.9% and 5.5% year-over-year to $1.14 billion and $0.35, respectively. Over the past three months, the stock has fallen 2.6% to close the last trading session at $128.10.
ILMN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #29 in the same industry. It has an A grade for Growth and a B for Quality. Click here to see the additional ratings of ILMN for Value, Momentum, Stability, and Sentiment.
Stock #1: Harmony Biosciences Holdings, Inc. (HRMY)
HRMY is a commercial-stage pharmaceutical company that focuses on developing and commercializing therapies for patients in the United States with rare and other neurological diseases. It offers WAKIX (pitolisant), a molecule with a novel mechanism of action for the treatment of excessive daytime sleepiness in adult patients with narcolepsy.
HRMY’s trailing-12-month gross profit margin 79.17% is 39.8% higher than the industry average of 56.64%. Likewise, the stock’s trailing-12-month levered FCF margin of 36.91% is significantly higher than the industry average of 0.49%. Additionally, its 0.78x trailing-12-month asset turnover ratio is 99.6% higher than the industry average of 0.39x.
HRMY’s net product revenue for the fourth quarter, which ended December 31, 2023, grew 31.3% year-over-year to $168.41 million. Its gross profit increased 23.5% from the year-ago value to $125.26 million. Also, the company’s non-GAAP net income and EPS were $42.83 million and $0.73, respectively.
Analysts expect HRMY’s EPS and revenue for the quarter ending March 31, 2024, to increase 28.3% and 29.9% year-over-year to $0.62 and $154.68 million, respectively. HRMY shares have declined 2.9% year-to-date to close the last trading session at $31.36.
It’s no surprise that HRMY has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Value and Quality. It is ranked #27 in the Biotech industry. Beyond what is stated above, we’ve also rated HRMY for Growth, Momentum, Stability, and Sentiment. Get all HRMY ratings here.
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ILMN shares rose $0.34 (+0.27%) in premarket trading Friday. Year-to-date, ILMN has declined -7.76%, versus a 8.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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