Biotech companies are making significant strides in developing new drugs and treatments for various diseases, including cancer, cardiovascular disease, and rare diseases. Positive clinical trial results and improved patient outcomes are driving the need for ongoing medical care and treatment.
In light of this, fundamentally sound biotech stocks like Gilead Sciences, Inc. (GILD), Jazz Pharmaceuticals plc (JAZZ), and Alkermes plc (ALKS) could be ideal buys this month and beyond.
Before delving into the fundamentals of these stocks, let’s explore the factors propelling the industry’s growth.
The biotech sector assumes a crucial role in propelling the advancement of healthcare by spearheading the creation of innovative therapies and technologies aimed at addressing unmet medical requirements. According to MarketWatch, the global biotechnology market is expected to reach $1.04 trillion by 2030, registering a CAGR of 7.5%.
Moreover, rising investments in research and development initiatives, an upsurge in personalized medicine, and potential breakthroughs in drug and therapeutics are some of the factors contributing to the industry’s success. According to a recent Deloitte survey, 91% of life sciences organizations intend to channel investments into R&D innovation, with almost half being optimistic about the sector’s outlook.
In addition, propelled by the growing demand for novel drug discovery to combat the increasing incidence of cancers and other diseases, the global personalized medicine market reached $538.93 billion last year. Further, it is expected to expand at a CAGR of 7.2% from 2023 to 2030, which should bode well for the biotech industry.
Furthermore, the integration of Generative AI and biotechnology has emerged to have a significant potential to fortify the biotech industry robustly. It offers great promise for drug discovery, streamlined disease diagnosis, customization of medication, and structural modifications in gene editing. Generative AI in the biotech market is expected to be nearly $472 million by 2032, growing at a CAGR of 24.9%.
On top of it, investors’ interest in biotech stocks is evident from the First Trust NYSE Arca Biotechnology Index Fund ETF’s (FBT) 6.7% returns over the past year. Let’s dive deeper into the fundamentals of the stocks mentioned above to understand this investment opportunity even better.
Gilead Sciences, Inc. (GILD)
GILD focuses on discovering, developing, and marketing medicines to prevent and treat life-threatening diseases, including Human Immunodeficiency Virus (HIV), viral hepatitis, and cancer. Its product portfolio includes Odefsey, Biktarvy, Truvada, Complera/ Eviplera, Stribild, Oncology, and Vekulaery.
On August 24, GILD announced that the U.S. Food and Drug Administration (FDA) approved a supplemental new drug application (sNDA) for the use of Veklury® (remdesivir) to treat COVID-19 in people with mild, moderate and severe hepatic impairment, with no dose adjustments.
This approval further supports the safety profile of Veklury as the first and only approved antiviral COVID-19 treatment that can be used across all stages of liver disease.
On August 15, the company also announced that it had initiated three long-term partnerships utilizing Tentarix’s Tentacles™ platform to create multi-functional, conditional protein therapies for oncology and inflammatory conditions.
These therapies aim to selectively target disease-related immune cells while avoiding activating other cells that could lead to unwanted effects, improving therapeutic effectiveness and safety.
On July 27, the company announced that the European Commission approved Trodelvy® (sacituzumab govitecan) as a monotherapy for treating certain advanced breast cancer patients. It showed better overall survival and reduced disease progression risk compared to standard chemotherapy. This approval could benefit the company.
GILD’s total revenues increased 5.4% year-over-year to $6.59 billion for the second quarter ended June 30, 2023, while its product sales grew 6.9% from the year-ago value to $6.56 billion. The company’s attributable non-GAAP net income and non-GAAP EPS amounted to $1.69 billion and $1.34, respectively.
Also, its cash and cash equivalents at the end of the period stood at $5.70 billion, up 20.4% from the prior year quarter. In addition, its free cash flow improved by 32.5% year-over-year to $2.20 billion.
For the fiscal quarter ending March 2024, GILD’s revenue is expected to improve 1.8% year-over-year to $6.47 billion. Its EPS estimate of $1.79 for the same quarter reflects a 30.3% year-over-year growth. Additionally, it topped the consensus revenue estimates in each of the trailing four quarters.
GILD’s trailing-12-month EBIT and levered FCF margins of 35.75% and 35.14% are significantly higher than the 0.24% and 0.16% industry averages, respectively. Likewise, its trailing-12-month gross profit margin of 79.42% is 43.4% higher than the industry average of 55.37%.
The stock has gained 20% over the past year to close the last trading session at $76.33.
GILD’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GILD also has an A grade for Value and a B for Growth, Stability, and Quality. It is ranked #2 out of 378 stocks in the Biotech industry. Click here to see the other ratings of GILD for Momentum and Sentiment.
Jazz Pharmaceuticals plc (JAZZ)
JAZZ, headquartered in Dublin, Ireland, identifies, develops, and commercializes pharmaceutical products in neuroscience, including sleep medicine and movement disorders, and oncology, such as hematologic and solid tumors. Its notable products include Xywav and Xyrem for narcolepsy treatment, Epidiolex for seizure conditions, and Zepzelca for metastatic small-cell lung cancer.
On August 2, JAZZ announced a Letter of Intent (LOI) with the pan-Canadian Pharmaceutical Alliance (pCPA) for Rylaze® (crisantaspase recombinant) in Canada. This move facilitates the company in addressing the unmet need of acute lymphoblastic leukemia and lymphoblastic lymphoma patients across Canada.
On July 21, JAZZ received the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) positive opinion for the marketing authorization of JZP458 (a recombinant Erwinia asparaginase or crisantaspase) for the treatment of acute lymphoblastic leukemia (ALL) and lymphoblastic lymphoma (LBL).
On June 2, in another significant development, the company unveiled encouraging pivotal trial results from the Phase 2b HERIZON-BTC-01 trial of the bispecific antibody zanidatamab, including fresh data on progression-free survival (PFS) for previously treated HER2-amplified biliary tract cancers (BTC).
Such positive outcomes should bode well for the company and accelerate further innovations in drugs and therapies.
For the fiscal second quarter that ended June 30, 2023, JAZZ’s total revenues increased 2.6% to $957.32 million, while its income from operations improved 84.3% from the year-ago value to $157.64 million. Its non-GAAP net income amounted to $325.13 million and $4.51 per share, representing increases of 6.4% and 4.9% year-over-year, respectively.
Additionally, as of June 30, 2023, JAZZ’s cash and cash equivalents of $1.28 billion increased 45.5% compared to $881.48 million for the period ended December 31, 2022.
Based on this performance, JAZZ updated the full-year 2023 revenue guidance to between $3.73 billion and $3.87 billion. The company projects non-GAAP net income of approximately $1.29-1.34 billion, up from the prior projection of $1.24-1.31 billion, and raised its non-GAAP adjusted EPS by $1.20 at the mid-point to $18.15-$19.
Street expects JAZZ’s revenue to increase 2.9% year-over-year in the current quarter (ending September 2023) to $968.36 million. For the fiscal year 2023, its revenue and EPS are projected to reach $3.82 billion and $18.57, registering increases of 4.5% and 40.6%, respectively, from the prior-year period.
JAZZ’s trailing-12-month EBIT and levered FCF margins of 26.80% and 34.37% are significantly higher than the 0.24% and 0.16% industry averages, respectively. Likewise, its trailing-12-month gross profit margin of 92.09% is 66.3% higher than the industry average of 55.37%.
Over the past three months, the stock has gained 7.5% to close the last trading session at $138.77.
It is no surprise that JAZZ has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Growth and Quality. Of 378 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have JAZZ’s ratings for Momentum, Stability, and Sentiment. Get all JAZZ ratings here.
Alkermes plc (ALKS)
Headquartered in Dublin, Ireland, ALKS develops and commercializes pharmaceutical products to address patients’ unmet medical needs in neuroscience and oncology. Its portfolio includes treatments for schizophrenia, bipolar disorder, alcohol dependence, and opioid dependence and a pipeline of candidates for neurological disorders and cancer.
On June 6, the company received a ‘the Final Award’ from the arbitral tribunal in its arbitration proceedings with Janssen Pharmaceutica N.V. In connection with this, the company raised its financial expectations for 2023 by approximately $425 million, reflecting royalties and associated interest paid related to 2022 U.S. net sales of the long-acting INVEGA products and CABENUVA and anticipated royalty revenues related to 2023 global net sales of these products.
Richard Pops, Chief Executive Officer of ALKS, said, “This outcome reestablishes significant cash flows to Alkermes, provides strategic capital to our balance sheet, and strengthens our longer-term financial profile by clarifying the distinct royalty term for each product covered by the license agreements.”
In the fiscal second quarter that ended June 30, 2023, ALKS’ total revenue improved 123.5% year-over-year to $617.39 million, while its non-GAAP net income improved significantly from the year-ago value to $94.28 million.
The company’s operating income amounted to $239.19 million compared to an operating loss of $34.46 million in the prior year quarter. Additionally, ALKS’ non-GAAP earnings per share stood at $0.55, up significantly year-over-year.
The consensus revenue estimate of $363.85 million for the third quarter (ending September 30, 2023) represents a 44.2% increase year-over-year. The consensus EPS estimate of $0.44 for the current quarter indicates a significant improvement year-over-year. The company has an impressive surprise history, surpassing the consensus revenue estimate in three of the trailing four quarters.
The stock’s trailing-12-month EBIT and levered FCF margins of 7.56% and 10.04% are significantly higher than the 0.24% and 0.16% industry averages, respectively. Likewise, its trailing-12-month asset turnover ratio of 0.71x is 87.1% higher than the industry average of 0.38x.
ALKS’ shares have gained 13.6% over the past nine months, closing the last trading session at $27.56.
ALKS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It also has an A grade for Growth, Value, and Quality and a B for Sentiment.
Within the same industry, it is ranked first. Click here to view ALKS’ ratings for Momentum and Stability.
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GILD shares were trading at $76.91 per share on Friday afternoon, up $0.58 (+0.76%). Year-to-date, GILD has declined -8.69%, versus a 15.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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