Despite the macroeconomic challenges, the biotech industry is primed for long-term growth. An aging population and the need for quality treatments for rare and common diseases underpins this positive outlook.
Therefore, it could be wise to invest in fundamentally strong biotech stocks Jazz Pharmaceuticals plc (JAZZ), Alkermes plc (ALKS), and Gilead Sciences, Inc. (GILD), given their solid growth prospects.
Before diving deeper into their fundamentals, let’s discuss why the biotech industry is well-positioned for growth.
After achieving immense growth during the pandemic due to the launch of the COVID-19 vaccines, the biotech industry witnessed a slowdown over the past year as investor interest faded. However, biotech companies have significant long-term growth opportunities as they develop new treatments and personalized medicines through extensive research and clinical trials.
The industry looks set to do well because of the robust drug pipelines. However, the sector faces regulatory risks and the possibility of failure in real-world applications. The global biotechnology market revenue is forecasted to grow at a CAGR of 14.2%, reaching $2.77 trillion by 2030.
Investors’ interest in biotech stocks is evident from the VanEck Vectors Biotech ETF’s (BBH) 12% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Biotech picks, beginning with the third choice.
Stock #3: Jazz Pharmaceuticals plc (JAZZ)
JAZZ identifies, develops, and commercializes pharmaceutical products for unmet medical needs in the United States, Europe, and internationally. The company has a portfolio of products and product candidates focusing on neuroscience, including sleep medicine and movement disorders, and oncology, such as hematologic and solid tumors.
On August 2, 2023, JAZZ announced that it entered into a Letter of Intent (LOI) with the Pan-Canadian Pharmaceutical Alliance (pCPA) for Rylaze in Canada, enabling access for eligible patients.
Rylaze is vital for acute lymphoblastic leukemia and lymphoblastic lymphoma treatment when E. coli-derived asparaginase hypersensitivity occurs. This addresses incomplete treatments and offers a sustainable solution backed by Rylaze's Phase 2/3 efficacy and safety results.
JAZZ’s revenue grew at a CAGR of 19.3% over the past three years. Its EBITDA grew at a CAGR of 18.4% over the past three years. Moreover, its EBIT grew at a CAGR of 19.2% over the past three years.
In terms of the trailing-12-month EBITDA margin, JAZZ’s 43.03% is significantly higher than the 5.23% industry average. Likewise, its 92.09% trailing-12-month gross profit margin is 66.3% higher than the 55.37% industry average. Likewise, its 26.80% trailing-12-month EBIT margin is significantly higher than the 0.24% industry average.
For the fiscal first quarter that ended June 30, 2023, JAZZ’s total revenues increased 2.6% year-over-year to $957.32 million. Its non-GAAP net income rose 6.4% year-over-year to $325.13 million. The company’s income from operations rose 84.3% year-over-year to $157.64 million. Moreover, its adjusted earnings per share increased 4.9% year-over-year to $4.51.
Analysts expect JAZZ’s EPS for the March 31, 2024 quarter to increase 7.1% year-over-year to $4.23. Its revenue for the quarter ending September 30, 2023, is expected to increase 3% year-over-year to $968.36 million. Over the past three months, the stock has gained 14.2% to close the last trading session at $143.71.
JAZZ’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 376 stocks in the Biotech industry. It has an A grade for Value and a B for Growth and Quality. Click here to see JAZZ’s Momentum, Stability, and Sentiment ratings.
Stock #2: Alkermes plc (ALKS)
Headquartered in Dublin, Ireland, ALKS researches, develops, and commercializes pharmaceutical products to address patients' unmet medical needs in neuroscience and oncology in the United States, Ireland, and internationally.
On August 30, 2023, ALKS announced a settlement agreement with Teva Pharmaceuticals USA, Inc. (TEVA) to resolve patent litigation concerning VIVITROL in the U.S. District Court for New Jersey. Teva will gain a license to market a generic VIVITROL version in the U.S. starting January 15, 2027, pending regulatory approval.
ALKS’ revenue grew at a CAGR of 8% over the past three years. Its Total Assets grew at a CAGR of 6.7% over the past three years. Moreover, its Tang Book Value grew at a CAGR of 11.7% over the past three years.
In terms of the trailing-12-month EBITDA margin, ALKS’ 12.82% is 145.3% higher than the 5.23% industry average. Likewise, its 84.54% trailing-12-month gross profit margin is 52.7% higher than the 55.37% industry average. Its 7.56% trailing-12-month EBIT margin is significantly higher than the 0.24% industry average.
ALKS’ total revenue for the fiscal second quarter that ended June 30, 2023, increased 123.5% year-over-year to $617.40 million. The company's non-GAAP net income rose 798.1% year-over-year to $94.28 million.
Its operating income came in at $239.19 million, compared to an operating loss of $34.46 million in the year-ago quarter. Additionally, its non-GAAP EPS rose 816.7% year-over-year to $0.55.
Street expects ALKS’ EPS for the September 30, 2023 quarter to increase significantly year-over-year to $0.44. Its revenue for the same quarter is expected to increase 44.2% year-over-year to $363.85 million. Over the past nine months, the stock has gained 13.2% to close the last trading session at $27.18.
It’s no surprise that ALKS has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth, Value, and Quality and a B for Sentiment. Within the same industry, it is ranked #2. In total, we rate ALKS on eight different levels. Beyond what we stated above, we also have given ALKS grades for Momentum and Stability. Get all the ALKS ratings here.
Stock #1: Gilead Sciences, Inc. (GILD)
GILD discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally.
On August 24, 2023, GILD announced that the FDA approved Veklury without dose adjustments for COVID-19 treatment in individuals with mild to severe hepatic impairment, reaffirming its safety across all stages of liver disease. This approval extends Veklury's reach as the sole antiviral COVID-19 treatment usable throughout liver disease stages.
Frank Duff, MD, Senior Vice President, Virology Therapeutic Area Head at GILD, said, “With the recent increase in levels of COVID-19 circulating in the U.S., the risk to vulnerable individuals persists, including for those with hepatic impairment. This approval demonstrates Gilead’s ongoing commitment to COVID-19, including our focus on vulnerable populations.”
GILD’s revenue grew at a CAGR of 7.3% over the past three years. Its EBITDA grew at a CAGR of 7.4% over the past three years. Moreover, its EBIT grew at a CAGR of 5.2% over the past three years.
On July 27, 2023, GILD announced that the European Commission approved Trodelvy as a monotherapy for the treatment of adult patients with unresectable or metastatic hormone receptor (HR)-positive, HER2-negative breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the advanced setting.
Bill Grossman, M.D., PhD., Senior Vice President, Therapeutic Area Head at GILD Oncology, said, "Trodelvy could change the outlook for women with pre-treated HR+/HER2- metastatic breast cancer by replacing the standard-of-care chemotherapy that has been their only option for decades, we look forward to working with European authorities to ensure access for these patients who need new treatment options."
In terms of the trailing-12-month EBITDA margin, GILD’s 44.42% is 749.8% higher than the 5.23% industry average. Likewise, its 79.42% trailing-12-month gross profit margin is 43.4% higher than the 55.37% industry average. Additionally, its 0.44x trailing-12-month asset turnover ratio is 16.6% higher than the 0.38x industry average.
GILD’s revenues for the fiscal second quarter ended June 30, 2023, rose 5.4% year-over-year to $6.60 billion. The company’s non-GAAP operating income came in at $2.28 billion. Its non-GAAP net income attributable to GILD came in at $1.69 billion.
Also, its net cash provided by operating activities increased 29.7% year-over-year to $2.34 billion. Additionally, its non-GAAP EPS came in at $1.34.
For the quarter ending September 30, 2023, GILD’s EPS is expected to increase 0.5% year-over-year to $1.91. Its revenue for the March 31, 2024 quarter is expected to increase 1.8% year-over-year to $6.47 billion. Over the past year, the stock has gained 25.2% to close the last trading session at $78.21.
GILD’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Stability, and Quality. It is ranked first in the Biotech industry. To see GILD’s ratings for Momentum and Sentiment, click here.
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GILD shares were trading at $77.88 per share on Wednesday afternoon, down $0.33 (-0.42%). Year-to-date, GILD has declined -7.54%, versus a 18.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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