The use of advanced technologies in drug development, the rise in chronic diseases, the growing popularity of personalized medicine, the progression in gene therapy, an aging population, and expanding healthcare needs are some of the factors boosting the long-term growth prospects of the biotech industry.
Therefore, it could be wise to consider buying fundamentally strong biotech stocks Innoviva, Inc. (INVA), Foghorn Therapeutics Inc. (FHTX), and Vertex Pharmaceuticals Incorporated (VRTX).
Before diving deeper into their fundamentals, let’s discuss what’s shaping the biotech industry’s prospects.
Biotech is one of the most exciting sectors today as it uses advanced technologies to develop precise and targeted treatments for various diseases. The industry played a crucial role in vaccine development during the pandemic and is working to meet people's unmet medical needs and improve patient outcomes.
With a rapidly aging global population, an increase in chronic diseases, and a rise in life-threatening and debilitating diseases, the biotech industry is striving to improve the health and quality of life of people. The industry is spending heavily on research and development (R&D) and clinical trials to come up with effective and innovative treatments and therapies.
Another factor that makes the biotech industry attractive is the growing popularity of personalized medicines. Personalized medicines provide tailored treatments to a patient, which helps improve the efficacy and reduce side effects at the same time. The global personalized medicine market size was estimated at $2.48 trillion in 2023 and is expected to grow at a CAGR of 11.2% over the forecast period of 2024 to 2032.
The industry is also utilizing the power of advanced technologies like artificial intelligence (AI), big data analytics, and machine learning. The use of such technologies helps accelerate drug discovery, identify targeted diseases, develop therapies, etc. The global biotechnology market is expected to grow at a CAGR of 14.2% to reach $2.77 trillion by 2030.
In light of these encouraging trends, let’s look at the fundamentals of the three best Biotech stocks, beginning with number 3.
Stock #3: Innoviva, Inc. (INVA)
INVA engages in the development and commercialization of pharmaceutical products in the United States and internationally. The company's products include RELVAR/BREO ELLIPTA, ANORO ELLIPTA, and TRELEGY ELLIPTA.
On November 1, 2023, The Global Antibiotic Research & Development Partnership (GARDP), in collaboration with Innoviva Specialty Therapeutics, INVA’s subsidiary, announced that zoliflodacin, a first-in-class antibiotic, met its primary endpoint in an unprecedented global pivotal Phase 3 clinical trial. If approved, zoliflodacin will become the first new antibiotic for treating gonorrhea in decades.
In terms of the trailing-12-month EBITDA margin, INVA’s 48.80% is 819.2% higher than the 5.31% industry average. Likewise, its 42.10% trailing-12-month EBIT margin compares to the negative 0.21% industry average. Its 35.65% trailing-12-month levered FCF margin compares to the negative 0.09% industry average.
INVA’s total revenue for the third quarter that ended September 30, 2023, rose marginally year-over-year to $67.26 million. The company’s net product sales increased 168.3% over the prior-year quarter to $13.70 million. In addition, its net income attributable to INVA’s stockholders and net income per share came in at $82.05 million and $0.98, respectively.
Analysts expect INVA’s revenue for the quarter ended December 31, 2023, to increase 14.8% year-over-year to $75.52 million. Its EPS for the quarter ending June 30, 2024, is expected to increase significantly year-over-year to $0.22. Over the past year, the stock has gained 28.6% to close the last trading session at $16.
INVA’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #35 out of 357 stocks in the Biotech industry. It has a B grade for Value and Quality. Click here to see INVA’s Growth, Momentum, Stability, and Sentiment ratings.
Stock #2: Foghorn Therapeutics Inc. (FHTX)
FHTX is a clinical-stage biopharmaceutical company that engages in the discovery and development of medicines targeting genetically determined dependencies within the chromatin regulatory system. The company uses its proprietary Gene Traffic Control platform to identify, validate, and potentially drug targets within the system. It develops FHD-286 and FHD-609.
In terms of the trailing-12-month Capex/Sales, FHTX’s 4.47% is 8% higher than the 4.14% industry average.
For the fiscal third quarter, which ended September 30, 2023, FHTX’s collaboration revenue increased 163.5% year-over-year to $17.48 million. Its total operating expenses declined 1% over the prior-year quarter to $34.56 million. The company’s total liabilities stood at $370.81 million, compared to $404.77 million at the end of the fiscal year ended December 31, 2022.
For the quarter ended December 31, 2023, FHTX’s revenue is expected to increase 36.3% year-over-year to $5.70 million. Over the past three months, the stock has gained 69.8% to close the last trading session at $6.81.
FHTX’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Sentiment and Quality. Within the same industry, it is ranked #32. To see the other ratings of FHTX for Growth, Value, Momentum, and Stability, click here.
Stock #1: Vertex Pharmaceuticals Incorporated (VRTX)
VRTX is a biotechnology company that develops and commercializes therapies for treating cystic fibrosis (CF). It markets TRIKAFTA/KAFTRIO and SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO. The company’s pipeline includes VX-522, VX-548, Exa-cel, and VX-147, VX-880, VX-970, and VX-803 and VX-984.
On January 16, 2024, VRTX announced that the U.S. FDA approved CASGEVY, a CRISPR/Cas9 gene-edited cell therapy, for the treatment of transfusion-dependent beta thalassemia (TDT) in patients 12 years and older.
VRTX’s M.D., CEO, and President Reshma Kewalramani said, “On the heels of the historic FDA approval of CASGEVY for sickle cell disease, it is exciting to now secure approval for TDT well ahead of the PDUFA date. TDT patients deserve new, potentially curative treatment options, and we look forward to bringing CASGEVY to eligible patients who are waiting.”
In terms of the trailing-12-month EBITDA margin, VRTX’s 45.41% is 755.4% higher than the 5.31% industry average. Likewise, its 0.48x trailing-12-month asset turnover ratio is 23.7% higher than the 0.39x industry average. Likewise, its 40.60% trailing-12-month levered FCF margin compares to the negative 0.09% industry average.
VRTX’s net product revenues for the fiscal fourth quarter ended December 31, 2023, increased 9.3% year-over-year to $2.52 billion. Its non-GAAP operating income rose marginally year-over-year to $1.15 billion. The company’s non-GAAP net income increased 12.1% over the prior-year quarter to $1.10 billion. Also, its non-GAAP EPS came in at $4.20, representing an increase of 11.7% year-over-year.
Street expects VRTX’s EPS and revenue for the quarter ending March 31, 2024, to increase 33.3% and 8.9% year-over-year to $4.07 and $2.59 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 42.7% to close the last trading session at $426.29.
VRTX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #9 in the Biotech industry. It has an A grade for Quality and a B for Value. Click here to see the additional ratings of VRTX for Growth, Momentum, Stability, and Sentiment.
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VRTX shares rose $2.82 (+0.66%) in premarket trading Friday. Year-to-date, VRTX has gained 5.46%, versus a 5.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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