The pharmaceutical industry has grown substantially in recent years, and the rising demand and tech integration make its outlook promising. Moreover, the industry’s ability to maintain stability despite economic uncertainties makes it an attractive investment destination.
Given the favorable industry backdrop, investors could consider buying quality pharma stocks Shionogi & Co., Ltd. (SGIOY), Exelixis, Inc. (EXEL), and Jazz Pharmaceuticals plc (JAZZ) to beat the market.
The pharmaceutical market is experiencing robust growth driven by innovative drugs and increased healthcare demand, especially in emerging markets. Original prescription drugs dominate the market, with a few "blockbuster" drugs generating over $1 billion in revenue annually.
The industry’s growth is also propelled by innovations like cell and gene therapy, mRNA vaccine technology, improving supply chains, and evolving product offerings. As per Statista, the global pharmaceutical market revenue is projected to reach $1.16 trillion this year.
Additionally, progress in the field of cancer biology and the increasing prevalence of severe diseases make precision medicine indispensable. Moreover, ongoing technological advancements and breakthroughs in cell biology continue to drive the market forward.
The Precision Medicine market is expected to grow from $77.02 billion this year to $99.24 billion by 2028, registering a CAGR of 5.2%.
Furthermore, the pharmaceutical industry increasingly embraces artificial intelligence (AI). Strategic investments in AI partnerships are growing, underlining the importance of AI in pharmaceutical advancements. The pharmaceutical industry is also experiencing growth in generative AI for drug discovery, driven by the availability of extensive datasets and collaborative efforts.
The global generative AI in drug discovery market size is projected to surpass around $1.13 billion by 2032, expanding at a CAGR of 27.1%.
Considering these conducive trends, let’s analyze the fundamentals of three Biotech picks, beginning with the third choice.
Stock #3: Shionogi & Co., Ltd. (SGIOY)
Headquartered in Osaka, Japan, SGIOY engages in the research, development, manufacture, and distribution of pharmaceuticals, diagnostic reagents, and medical devices. The company’s offerings include Fetroja, a multidrug-resistant bacterial infection treatment; Xofluza, an influenza virus drug; and Tivicay, an anti-HIV drug.
On October 12, 2023, SGIOY presented real-world evidence (RWE) at IDWeek2023, suggesting that the use of Fetroja® (cefiderocol) effectively treats Gram-negative infections, particularly in patients who received it earlier (within 6-20 days of diagnosis), resulting in lower in-hospital all-cause mortality (IHACM).
The study highlights the clinical utility of Fetroja in the treatment of challenging Gram-negative infections, addressing a significant health concern related to antimicrobial resistance.
On October 6, SGIOY acquired 1,129,800 shares of its common stock, valued at ¥7.42 billion ($49.56 million) between September 1, 2023, and September 30, 2023. This acquisition aligns with the board's resolution on July 31, 2023, to acquire up to 12,500,000 shares with a maximum cost of ¥75 billion ($501.29 million) from August 1, 2023, to March 31, 2024. As of September 30, 2023, SGIOY had acquired 3,052,200 shares valued at ¥19.43 billion ($129.88 million).
SGIOY’s revenue grew 52.2% year-over-year to ¥109.31 billion ($730.62 million) in the fiscal first quarter that ended June 30, 2023. The company’s operating profit rose 274.9% year-over-year to ¥46.59 billion ($311.40 million).
In addition, profit attributable to owners of the parent rose 22.6% from the prior year’s quarter to ¥42.56 billion ($286.61 million), and EPS amounted to ¥144.57 billion, up 25.6% year-over-year.
SGIOY’s revenue for the current fiscal year ending March 2024 is likely to rise 5.3% year-over-year to $2.90 billion. Its EPS is expected to be $0.94 in the same year. Also, it has surpassed the consensus revenue estimates in each of the trailing four quarters, which is remarkable.
The stock has gained 7% over the past three months to close the last trading session at $11.23.
SGIOY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SGIOY has a B for Growth, Value, and Quality. It is ranked #15 in the 359-stock Biotech industry.
In addition to the highlighted POWR Ratings, one can see SGIOY’s ratings for Stability, Momentum, and Sentiment here.
Stock #2: Exelixis, Inc. (EXEL)
EXEL explores, develops, and markets novel cancer treatments. The company provides CABOMETYX tablets for advanced renal cell carcinoma patients with previous anti-angiogenic therapy and COMETRIQ capsules for progressive and metastatic medullary thyroid cancer treatment.
On September 12, EXEL and Insilico Medicine, a global clinical-stage biotechnology company powered by generative AI, unveiled an exclusive license agreement, granting EXEL global rights to develop and commercialize ISM3091, a potentially best-in-class small molecule inhibitor of USP1, which has emerged as a synthetic lethal target in the context of BRCA-mutated tumors.
The partnership leverages EXEL's clinical development expertise and highlights ISM3091's potential in addressing various BRCA-mutant tumors, including those found in ovarian, prostate, and breast cancer.
On August 24, the Alliance for Clinical Trials in Oncology’s independent Data and Safety Monitoring Board (DSMB) unanimously recommended prematurely concluding the phase 3 CABINET pivotal trial due to an exceptional surge in efficacy observed at an interim analysis.
This outcome positions EXEL as an oncology innovator, particularly in addressing advanced pancreatic or extra-pancreatic neuroendocrine tumors where no established standard of care exists post-therapy.
In the second quarter that ended June 30, 2023, EXEL’s total revenues increased 12% year-over-year to $469.85 million. Its income before income taxes rose 13.4% from the year-ago quarter to $100.39 million. The company’s non-GAAP net income and non-GAAP net income per share stood at $100.30 million and $0.31, up 11.8% and 10.7% year-over-year, respectively.
EXEL reaffirms its fiscal year 2023 financial guidance, with expectations of total revenues between $1.78 billion and $1.88 billion. Net product revenues are estimated to fall within the range of $1.58 billion to $1.68 billion, while the cost of goods sold is projected to be 4.0% to 5.0% of net product revenues.
Analysts expect EXEL’s revenue to increase 14.7% year-over-year to $472.33 million in the fiscal third quarter that ended September 2023. The company’s EPS for the to-be-announced quarter is expected to be $0.18. Moreover, EXEL exceeded the consensus revenue and EPS estimates in three of the four trailing quarters.
The stock has gained 36.4% over the past year and 10.4% over the past three months, closing the last trading session at $21.36.
EXEL’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
EXEL has an A grade for Value and Quality and a B for Sentiment. It is ranked #11 in the same industry. Click here to access EXEL’s additional ratings for Growth, Momentum, and Stability.
Stock #1: 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 September 21, JAZZ announced that the European Commission had granted marketing authorization for Enrylaze (JZP458), a recombinant Erwinia asparaginase, for the treatment of acute lymphoblastic leukemia (ALL) and lymphoblastic lymphoma (LBL) in patients who are hypersensitive or have silent inactivation to E. coli-derived asparaginase.
Enrylaze, known as Rylaze in the United States and Canada, is a new Erwinia-derived asparaginase with a safe profile. This approval is significant in ensuring patients can complete their asparaginase treatment regimen for improved outcomes in ALL and LBL.
On August 2, JAZZ announced that it had entered into a Letter of Intent (LOI) with the Pan-Canadian Pharmaceutical Alliance (pCPA) for Rylaze in Canada.
During the fiscal second quarter that ended June 30, 2023, JAZZ’s total revenues increased 2.6% year-over-year to $957.32 million. Its income from operations rose 84.3% year-over-year to $157.64 million, and non-GAAP net income rose 6.4% year-over-year to $325.13 million.
Moreover, its adjusted earnings per share increased 4.9% from the year-ago quarter to $4.51.
JAZZ anticipates strong performance across key metrics in its non-GAAP financial guidance for 2023. The company expects a gross margin of 93% and SG&A expenses in the range of $1.05 billion to $1.11 billion, representing 27% to 30% of total revenues. Research and development (R&D) expenses are projected to be between $675 million and $725 million, comprising 17% to 19% of total revenues.
Additionally, the company had projected a net income of $1.29 billion to $1.34 billion, resulting in a net income per diluted share between $18.15 and $19.00.
Street expects JAZZ’s revenue for the quarter that ended September 2023 to increase 3.1% year-over-year to $970.04 million. Its EPS for the same quarter is likely to amount to $4.90.
Shares of JAZZ rose marginally intraday to close the last trading session at $129.12.
Unsurprisingly, JAZZ has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. It is ranked #3 in the same industry. Click here to access JAZZ’s Momentum, Stability, and Sentiment ratings.
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SGIOY shares were trading at $11.40 per share on Monday morning, up $0.17 (+1.51%). Year-to-date, SGIOY has declined -7.92%, versus a 14.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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