The pharmaceutical industry is well-poised for substantial growth and profitability in the upcoming years, backed by expanding medical needs globally, growing research and development (R&D) efforts, and rising adoption of the latest digital technologies.
Given the industry’s bright growth prospects, fundamentally sound pharma stocks AbbVie Inc. (ABBV), Collegium Pharmaceutical, Inc. (COLL), and Merck & Co., Inc. (MRK) could be ideal investments for solid returns.
The pharmaceutical industry is well-positioned to witness significant growth and expansion in the foreseeable future, driven by growing medical needs amid a rapidly aging population worldwide and increasing prevalence of chronic diseases, ongoing R&D efforts, and several technological advancements.
The pharmaceutical market is projected to reach $1.48 trillion by 2028, growing at a CAGR of 5.8% during the forecast period (2023-2028). For the current year, revenue is expected to total $1.12 trillion, with Oncology Drugs being the largest market segment, reaching a projected market volume of $188.20 billion.
The discovery of new medicines and the improvement of existing ones is critical for the continued growth of the pharma industry. In 2023, more than 21,000 drugs were in the global R&D pipeline. Nearly 5,500 pharma companies worldwide had active R&D pipelines as of January 2023.
Further, the latest technologies, such as AI, big data, additive manufacturing, blockchain, and AR/VR, are transforming several aspects of the industry, creating ample opportunities for drug development, supply chain management, and patient outcomes.
The United States is the leading nation in AI adoption within the pharma industry, boosting the highest number of AI-related patents, jobs, and deals. For the third quarter of 2023, AI-related deals in the pharmaceutical market increased by 14% compared with the third quarter of 2022.
On a quarterly basis, there was a 27% increase in the number of deals during the third quarter of 2023 compared to the prior quarter.
The global AI in pharmaceutical market is projected to reach $11.81 billion by 2032, growing at a CAGR of 29.3% from 2023 to 2032.
With these favorable trends in mind, let’s look at the fundamentals of the three best Medical - Pharmaceuticals stocks, beginning with the third choice.
Stock #3: Merck & Co., Inc. (MRK)
MRK is a global healthcare company. It operates through two segments: Pharmaceutical and Animal Health. The Pharmaceutical segment provides human health pharmaceutical products and vaccine products. The Animal Health segment discovers, develops, manufactures, and markets veterinary pharmaceuticals.
On December 15, MRK announced the approval of its KEYTRUDA, an anti-PD-1 therapy, in combination with Padcev (enfortumab vedotin-ejfv), an antibody-drug conjugate by the U.S. Food and Drug Administration (FDA). This solution is for the treatment of adult patients with locally advanced or metastatic urothelial cancer.
This approval expands the use of KEYTRUDA plus Padcev for locally advanced or metastatic urothelial cancer regardless of cisplatin eligibility.
On December 14, MRK announced that the FDA approved WELIREG, an oral hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor, to treat adult patients with advanced renal cell carcinoma (RCC) following a programmed death receptor-1 (PD-1) or programmed death-ligand 1 (PD-L1) inhibitor and a vascular endothelial growth factor tyrosine kinase inhibitor (VEGF-TKI).
On November 21, MRK and Caraway Therapeutics, Inc., a preclinical biopharmaceutical company pursuing innovative approaches to treat genetically defined neurodegenerative and rare diseases, announced a definitive agreement under which Merck, through a subsidiary, will acquire Caraway for a total potential consideration of up to $610 million.
This acquisition reaffirms Merck’s ongoing commitment to developing treatments for neurodegenerative diseases.
MRK’s sales increased 6.7% year-over-year to $15.96 billion for the third quarter that ended September 30, 2023. Its income before taxes came in at $5.62 billion, up 56.9% from the prior year’s quarter. Also, the company’s non-GAAP net income and non-GAAP EPS rose 15.4% and 15.1% year-over-year to $5.43 billion and $2.13, respectively.
The company updated its full-year 2023 guidance. MRK expects sales of $59.70 to $60.20 billion, compared with the previously forecasted $58.60 to $59.60 billion. Further, its EPS is expected to grow between $1.33 to $1.38.
Analysts expect MRK’s revenue and EPS for the first quarter (ending March 2024) to increase 3% and 42% year-over-year to $14.93 billion and $1.99, respectively. Also, the company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
MRK’s stock has gained 3.9% over the past month to close the last trading session at $105.11.
MRK’s solid 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. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value, Stability, and Quality. It is ranked #14 of 158 stocks within the Medical - Pharmaceuticals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MRK’s ratings for Growth, Sentiment, and Momentum here.
Stock #2: Collegium Pharmaceutical, Inc. (COLL)
COLL operates as a specialty pharmaceutical company that develops and commercializes pain management medicines. The company’s portfolio includes Xtampza ER, an abuse-deterrent and oil formulation of oxycodone; Nucynta ER and Nucynta IR, which are formulations of tapentadol; Belbuca, a buccal film that contains buprenorphin; and Symproic.
On November 9, COLL and Jefferies LLC entered an Accelerated Share Repurchase (ASR) agreement to repurchase $25 million of the company’s common stock. This ASR execution is part of the $100 million share repurchase program authorized by its Board of Directors in January 2023.
“Our record financial performance in 2023 year-to-date puts Collegium on track to deliver a banner year. Our financial strength, underscored by robust cash generation, enables us to execute on our capital deployment strategy,” said Joe Ciaffoni, President and Chief Executive Officer of Collegium.
On August 24, COLL announced the approval of New Patient Population exclusivity for Nucynta®, an immediate-release formulation of tapentadol, by the FDA. This grant will extend the period of U.S. exclusivity for Nucynta from June 27, 2025, to July 3, 2026.
The grant of additional exclusivity recognizes the importance of Nucynta in treating acute, severe pain in adults and pediatric patients.
For the third quarter that ended September 30, 2023, COLL’s net product revenues increased 7.6% year-over-year to $136.71 million. Its gross profit grew 36.5% from the year-ago value to $80.31 million. The company’s adjusted EBITDA was $89.40 million, up 19.4% from the prior year’s quarter.
In addition, COLL’s adjusted net income rose 29.3% from the prior year’s quarter to $55 million, and its adjusted EPS came in at $1.34, an increase of 21.9% year-over-year.
The company updated its full-year 2023 guidance. COLL now projects net product revenues to range between $565 million and $570 million. Its adjusted EBITDA is expected to be in the range of $360 million to $365 million.
Street expects COLL’s revenue for the fourth quarter (ending December 2023) to increase 14% year-over-year to $147.80 million. The consensus EPS estimate of $1.40 for the ongoing quarter indicates an improvement of 28.8% year-over-year.
For the fiscal year 2024, the company’s revenue and EPS are estimated to grow 3.6% and 14.3% from the prior year to $585.26 million and $6.02, respectively.
Shares of COLL have gained 33.9% over the past six months and 31.8% over the past year to close the last trading session at $29.64.
COLL’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and B for Growth and Value. COLL is ranked #12 out of 158 stocks in the Medical - Pharmaceuticals industry.
Click here to access additional COLL ratings for Stability, Sentiment, and Momentum.
Stock #1: AbbVie Inc. (ABBV)
ABBV discovers, develops, manufactures, and sells pharmaceuticals globally. The company product portfolio includes Humira, a therapy for autoimmune, intestinal Behçet’s diseases; Skyrizi to treat moderate to severe plaque psoriasis; Rinvoq, a JAK inhibitor to treat rheumatoid and psoriatic arthritis; Imbruvica to treat blood cancers; and more.
On December 6, ABBV announced a definitive agreement to acquire Cerevel Therapeutics and its robust neuroscience pipeline of multiple clinical-stage and preclinical candidates with potential across several diseases, including schizophrenia, Parkinson’s disease (PD), and mood disorders.
The acquisition complements AbbVie’s neuroscience portfolio and will add a wide range of potentially best-in-class assets that may transform standards of care across psychiatric and neurological disorders.
On December 5, ABBV announced a research collaboration with BigHat Biosciences to discover and develop next-generation therapeutic antibodies in oncology and neuroscience.
“This collaboration further demonstrates our commitment to integrate AI/ML-based approaches in drug discovery and development, as we strive to accelerate our oncology and neuroscience pipeline, and deliver better medicines faster,” said Jonathon Sedgwick, Ph.D., vice president and global head of discovery research at AbbVie.
ABBV reported net revenues of $13.93 billion during the third quarter that ended September 30, 2023. Global net revenues from the neuroscience portfolio were $2.04 billion, up 22.1% year-over-year. Net earnings attributable to ABBV and adjusted EPS were $1.78 billion and $2.95, respectively.
Furthermore, the company’s cash and cash equivalent came in at $13.29 billion as of September 30, 2023, compared to $9.20 billion as of December 31, 2022. Its total current assets were $136.22 billion versus $28.46 billion as of December 31, 2022.
Analysts expect ABBV’s EPS for the first quarter (ending March 2024) to increase marginally year-over-year to $2.46. Moreover, the company topped the consensus EPS estimates in three of the trailing four quarters.
ABBV’s stock gained 12.8% over the past month and 13.4% over the past six months to close the last trading session at $154.04.
ABBV’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Stability, Sentiment and Value. ABBV is ranked #2 of 158 stocks in the Medical- Pharmaceuticals industry.
To access additional ratings of ABBV for Growth and Momentum, click here.
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ABBV shares fell $1.28 (-0.83%) in premarket trading Monday. Year-to-date, ABBV has declined -0.83%, versus a 24.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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