The long-term growth prospects of the pharmaceutical sector look promising due to the prevalence of chronic diseases, rising healthcare demands, an aging global population, and advancements in medical research and technological improvements.
Amid this backdrop, it could be wise to buy fundamentally strong pharmaceutical stocks Kamada Ltd. (KMDA), Neurocrine Biosciences, Inc. (NBIX), and Novartis AG (NVS).
Before delving deeper into the stock fundamentals, let’s explore the industry landscape first.
Thanks to the growing demand for drugs and therapies, the pharmaceutical industry is well-positioned for long-term growth. Pharmaceutical companies have been investing heavily in research and development (R&D) and expanding their manufacturing capabilities to develop advanced medicines and therapies to cater to the requirements of the fast-growing global population.
Pharma companies are considered stable businesses given their consistent product demand, making them less susceptible to economic cycles. The aging global population and the rise in chronic diseases like diabetes, cardiovascular diseases, arthritis, cancer, etc., are driving the demand for pharmaceutical products and healthcare services.
Moreover, the adoption of the latest technologies like AI is revolutionizing the pharma industry. AI is helping accelerate drug discovery processes and reduce costs, analyze and optimize medical research, enhance manufacturing procedures, streamline and expedite novel therapeutic candidates, etc. The use of generative AI in drug development is projected to grow at a CAGR of 27.1% to reach $1.13 billion by 2032.
The global pharmaceutical market is expected to reach $1.48 trillion by 2028, exhibiting a CAGR of 5.8%. Moreover, the pharmaceutical industry in the United States is projected to bring in $601.10 billion in revenue this year, growing at a CAGR of 6%. Investors’ interest in pharmaceutical stocks is evident from the VanEck Pharmaceutical ETF’s (PPH) 11.1% over the past six months.
Given these encouraging trends and projections, let’s take a closer look at the fundamentals of the three stocks from the Medical – Pharmaceuticals industry, starting with number three.
Stock #3: Kamada Ltd. (KMDA)
Based in Rehovot, Israel, KMDA provides plasma-derived protein therapeutics. It operates in two segments: Proprietary Products and Distribution. The company offers WINRHO SDF, HEPAGAM B, VARIZIG, GLASSIA, KamRho (D) IM, KamRho (D) IV, BRAMITOB, FOSTER, PROVOCHOLINE, AEROBIKA, RUPAFIN, IVIG, VARITECT, ZUTECTRA, HEPATECT CP, MEGALOTECT CP etc.
On December 6, 2023, KMDA announced the execution of a binding memorandum of understanding with Kedrion for the amendment and extension of the KEDRAB® U.S. distribution agreement between the parties.
Within the first four years of the eight-year term, which begins in January 2024, Kedrion will purchase minimum quantities of KEDRAB with revenues to KMDA of approximately $180 million.
Amir London, CEO of KMAD, said, “Based on Kedrion’s extensive market coverage and on-going success in marketing KEDRAB in the U.S., as well as the significant market share growth achieved to date, we are confident that the continuation of this partnership maximizes the future growth and value potential of this important product.”
“Moreover, this agreement most effectively maximizes our U.S. business by allowing us to focus our own internal sales efforts on the commercialization of our other specialized FDA-approved IgG products, primarily in transplant centers, while Kedrion continues to promote KEDRAB in numerous hospitals and medical centers across the U.S.” he added.
In terms of the trailing-12-month EBIT margin, KMDA’s 7.46% is 725.1% higher than the 0.90% industry average. Likewise, its 15.05% trailing-12-month EBITDA margin is 178.7% higher than the industry average of 5.40%. Furthermore, the stock’s 0.46x trailing-12-month asset turnover ratio is 17.8% higher than the industry average of 0.39x.
For the fiscal third quarter that ended September 30, 2023, KMDA’s total revenues increased 17.7% year-over-year to $37.93 million. Its gross profit increased 15% over the prior year quarter to $14.80 million. In addition, adjusted EBITDA grew 31.4% year-over-year to $7.86 million.
Also, its net income increased 565.9% over the prior year quarter to $3.22 million. In addition, its EPS came in at $0.06, registering an increment of 500% year-over-year.
Analysts expect KMDA’s revenue for the fiscal 2023 to increase 12.4% year-over-year to $145.41 million. The company’s EPS for fiscal 2024 is expected to increase 133.3% year-over-year to $0.28. It surpassed the consensus EPS estimates in three out of the trailing four quarters.
Over the past nine months, the stock has gained 29.3% to close the last trading session at $5.95.
KMDA’s strong fundamentals are reflected in its POWR Ratings. 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 has an A grade for Sentiment and a B for Value. It is ranked #30 out of 161 stocks within the Medical - Pharmaceuticals industry. Click here to see the additional ratings of KMDA for Growth, Momentum, Stability, and Quality.
Stock #2: Neurocrine Biosciences, Inc. (NBIX)
NBIX discovers, develops, and markets pharmaceuticals for neurological, endocrine, and psychiatric disorders. The company’s commercial products include INGREZZA, DYSVAL, ONGENTYS, ORILISSA, ORIAHNN, and ALKINDI SPRINKLE, while its products in clinical development include NBI-921352, NBI-827104, NBI-1065846 and NBI-1117568.
On December 5, 2023, NBIX obtained Breakthrough Therapy designation from the U.S. Food and Drug Administration (FDA) for crinecerfont in congenital adrenal hyperplasia.
NBIX’s Chief Medical Officer, Eiry W. Roberts, said, “We are very pleased that the FDA granted Breakthrough Therapy designation for crinecerfont, thus recognizing both the seriousness of congenital adrenal hyperplasia and the significant unmet need currently faced by patients and families living with this condition.”
"The outstanding safety and efficacy results from the Phase 3 CAHtalyst™ studies in pediatric and adult patients suggest that crinecerfont has the potential to represent a substantial improvement over current standard of care in CAH by controlling androgen levels and allowing for reduced steroid doses. We remain on track to submit the new drug application in 2024." she added.
In terms of the trailing-12-month gross profit margin, NBIX’s 67.24% is 18.3% higher than the 56.84% industry average. Likewise, its 26.18% trailing-12-month levered FCF margin is substantially higher than the industry average of 0.29%. Furthermore, the stock’s 0.71x trailing-12-month asset turnover ratio is 82.5% higher than the industry average of 0.39x.
NBIX’s total revenues for the fiscal third quarter, which ended on September 30, 2023, increased 28.6% year-over-year to $498.80 million. Its operating income rose 60.8% over the prior year quarter to $141.20 million. The company’s non-GAAP net income increased 46.3% year-over-year to $156.10 million. Also, its non-GAAP EPS came in at $1.54, representing an increase of 42.6% year-over-year.
Street expects NBIX’s revenue and EPS for the quarter ended December 31, 2023, to increase 25.7% and 21.6% year-over-year to $517.66 million and $1.51, respectively. Over the past six months, NBIX’s shares have gained 33% to close the last trading session at $130.58.
NBIX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the same industry, it is ranked #10. In addition to the POWR Ratings we’ve stated above, we have also rated NBIX for Growth, Momentum, Stability, and Sentiment. Get all the NBIX ratings here.
Stock #1: Novartis AG (NVS)
Based in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products. The company offers prescription medicines for patients and physicians. It focuses on therapeutic areas, such as cardiovascular, renal and metabolic, immunology, neuroscience, and oncology, as well as ophthalmology and hematology.
On September 29, 2023 NVS announced that it has successfully concluded the divestment of its 'front of eye' ophthalmology assets to Bausch + Lomb for up to $2.5 billion. The deal includes an upfront cash payment of USD 1.75 billion, with the potential for an additional USD 750 million tied to sales milestones for Xiidra and specific commercialization and sales goals for pipeline products.
“The closing of this transaction is a further step forward as we advance our focused portfolio, investing in prioritized therapeutic areas that address high disease burden and hold the greatest potential for Novartis,” said Ronny Gal, Chief Strategy & Growth Officer of NVS.
In terms of the trailing-12-month EBIT margin, NVS’ 29.83% is significantly higher than the 0.90% industry average. Likewise, its 39.83% trailing-12-month EBITDA margin is 637.8% higher than the industry average of 5.40%. Furthermore, the stock’s 41.30% trailing-12-month levered FCF Margin is substantially higher than the industry average of 0.29%.
For the fiscal third quarter that ended September 30, 2023, NVS’ net sales increased 12.3% year-over-year to $11.78 billion. The company’s net income from continuing operations increased 13.8% year-over-year to $1.51 billion. Its EPS came in at $0.85, representing an increase of 18.1% year-over-year.
Additionally, its net cash flows from operating activities from continuing operations increased 24.1% over the prior year quarter to $5.30 billion.
NVS’s revenue for the fiscal 2024 is expected to increase 3.3% year-over-year to $47.82 billion. Its EPS for the quarter ended December 31, 2023, is expected to increase 8% year-over-year to $1.64. It surpassed the Street EPS estimates in three of the trailing four quarters, which is impressive. Over the past year, the stock has gained 19% to close the last trading session at $107.60.
It's no surprise that NVS has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It has an A grade for Quality and a B for Growth, Value, Stability, and Sentiment. It is ranked #5 in the Medical - Pharmaceuticals industry. Click here to access NVS’s rating for Momentum.
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NVS shares were trading at $107.37 per share on Friday afternoon, down $0.23 (-0.21%). Year-to-date, NVS has gained 6.34%, versus a 0.09% 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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