Biotech companies are profound for developing groundbreaking treatments and therapies for diverse medical conditions and life-threatening diseases. Buoyed by successful commercial sales that help yield quick returns, biotech companies are rebounding from their last year’s lows.
Below, I have evaluated two quality biotech stocks, Bionano Genomics, Inc. (BNGO) and Cidara Therapeutics, Inc. (CDTX), to determine the better choice. Before analyzing these stocks, let’s discuss what’s happening in the biotech sector.
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.
Moreover, the global aging population, rising healthcare spending, and successful trial results have created fruitful growth opportunities for the biotech sector. Furthermore, driven by the development of promising treatments and potential breakthroughs in therapeutics and devices, the global biotechnology market is expected to grow at a CAGR of 13.9% to $3.88 trillion by 2030.
During the first five months of 2023, pharmaceutical and biotech companies spent $85 billion on acquisitions as they sought to replenish their drug pipelines, compared to a measly $35.6 billion in the same period of 2022.
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.
While the biotech sector is not immune to short-term fluctuations and challenges, such as clinical trial setbacks or regulatory hurdles, the long-term prospects remain positive due to its non-cyclical nature as a healthcare component. Moreover, the sector’s popularity is evident from the SPDR S&P Biotech ETF’s (XBI) 4.8% returns over the past year, which could benefit CDTX and BNGO.
In terms of price performance, CDTX has gained 37.5% year-to-date compared to BNGO’s 58.3% decline. Over the past nine months, CDTX has surged 74.5%, while BNGO has lost 74.4%, closing the last trading session at $1.04 and $0.61, respectively. Moreover, in terms of past year’s performance, CDTX is the clear winner with 35.1% gains versus BNGO’s 67.1% decline.
But which stock is a better buy now? Let’s find out.
Latest Developments
On July 31, CDTX announced that its U.S. partner Melinta Therapeutics had initiated the commercial launch of REZZAYO (rezafungin for injection), which the U.S. Food and Drug Administration (FDA) approved earlier this year.
By launching the injection in the United States, CDTX can treat patients suffering from deadly fungal infections while aiming to expand its reach globally. As of June 30, 2023, the company received the $30 million up-front payment and a $20 million regulatory milestone payment for FDA approval, further strengthening its balance sheet.
On June 29, BNGO announced two new products to accelerate the adoption of OGM by higher volume users and expand utilization: the Stratys system for OGM and VIA software with a powerful workflow for hematologic malignancies.
Erik Holmlin, Ph.D., president and chief executive officer of BNGO, believes that these products would aid in overcoming barriers faced by high-volume users seeking to run OGM on a routine basis in clinical research for faster data generation and streamlined analysis and reporting.
Recent Financial Results
CDTX’s total revenue increased substantially by 265.6% year-over-year to $25.99 million in the first quarter (ended on March 31, 2023), while its income from operations amounted to $2.98 million compared to a loss of $18.26 million in the year-ago period. Also, the company’s net income and EPS came in at $3.21 million and $0.03 versus the prior-year quarter’s net loss of $18.28 million and $0.27 per share.
In addition, as of March 31, 2023, CDTX’s cash and cash equivalents amounted to $47.98 million, representing an improvement of 46.6% from $32.73 million for the period ended December 31, 2022.
In the fiscal first quarter that ended March 31, 2023, BNGO’s total operating expenses increased 29.6% year-over-year to $39.91 million. Its loss from operations and net loss widened by 26.4% and 23.9% from the year-ago values to $37.84 million and $37.12 million, respectively. The company’s cash and cash equivalents came in at $4.10 million, declining 19.4% from $5.09 million as of December 31, 2022.
Past and Expected Financial Performance
Over the past three years, CDTX’s revenue has grown at a CAGR of 52.5%, while its total assets declined at a marginal CAGR over the same period. Analysts expect CDTX’s revenue to be $76.76 million in the fiscal year 2023 (ending December 31), registering a 19.4% year-over-year growth. Its EPS is expected to improve by 46.5% in the current year and grow by 61.2% per annum over the next five years.
BNGO’s revenue and total assets improved at CAGRs of 46.4% and 148.2% over the past three years, respectively. Street expects BNGO’s revenue to increase by 30.5% for the fiscal year 2023 (ending December 31) and 63% in the fiscal 2024.
However, its loss per share is expected to amount to $0.42 in the current year and $0.34 in the next year.
Profitability
CDTX’s trailing-12-month revenue is 2.8 times what BNGO generates. Also, CDTX’s trailing-12-month asset turnover ratio and cash per share of 1.21x and $0.53 are relatively higher than BNGO’s 0.09x and $0.01, respectively.
However, BNGO’s trailing-12-month gross profit margin of 24.23% is higher than CDTX’s 10.94%. In addition, BNGO’s trailing-12-month CAPEX/Sales ratio of 8.73% is significantly higher than CDTX’s 0.15%.
Valuation
In terms of forward EV/Sales, CDTX is trading at 0.61x, 78.3% lower than BNGO, which is trading at 2.81x. Moreover, CDTX’s forward Price/Sales of 1.22x is 76.3% lower than BNGO’s 5.14x.
Hence, CDTX is relatively more affordable.
POWR Ratings
CDTX has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. BNGO, on the other hand, has an overall rating of F, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CDTX has a B grade for Value, in sync with its lower-than-industry valuation. In terms of forward EV/Sales and Price/Sales, CDTX is trading at 0.61x and 1.22x, 83.3% and 70.6% lower than the industry averages of 3.64x and 4.16x, respectively.
Conversely, BNGO has a grade of C for Value, justified by its mixed valuation. BNGO’s forward EV/Sales multiple of 2.81 is 22.9% lower than the industry average of 3.64x. However, its forward Price/Sales ratio of 5.14x is 23.7% higher than the industry average of 4.16x.
In addition, CDTX has a B grade for Quality, justified by its higher-than-industry profitability. Its trailing-12-month asset turnover ratio of 1.21x is 242.3% higher than the industry average of 0.35x.
On the other hand, BNGO has an F grade for Quality, consistent with its weak profitability. The stock’s trailing-12-month asset turnover ratio of 0.09x is 74% lower than the industry average of 0.35x.
Of the 394 stocks in the Biotech industry, CDTX is ranked #13, while BNGO is ranked #383.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Quality. Click here to view CDTX Ratings. Get all BNGO ratings here.
The Winner
The biotech market is poised to thrive thanks to successful trials, breakthrough therapies, and drug discovery. With accelerating advancement and increased tech integration in healthcare, renowned companies such as CDTX and BNGO are expected to grow significantly in the long run.
However, given BNGO’s relatively poor financials and dim growth outlook, its competitor CDTX might be a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Biotech industry here.
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BNGO shares were trading at $0.58 per share on Wednesday afternoon, down $0.03 (-4.21%). Year-to-date, BNGO has declined -60.27%, versus a 18.71% 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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