Despite the slowdown over the past year, the biotech sector is well-positioned for long-term growth due to increasing demand for agro-based products, personalized healthcare, and synthetic biology solutions. Additionally, government initiatives and growing healthcare needs reinforce its promising outlook.
Amid this backdrop, it could be wise to buy fundamentally strong biotech stocks Gilead Sciences, Inc. (GILD) and Jazz Pharmaceuticals plc (JAZZ). On the other hand, it could be wise to avoid Bionano Genomics, Inc. (BNGO), given its weak fundamentals and poor growth prospects.
Before diving deeper into their fundamentals, let’s discuss why the biotech industry is well-positioned for growth.
Biotech companies have significant growth potential. Although regulatory risks exist, the industry is expected to thrive due to a rapidly aging population, rising healthcare costs, products under development and the demand for quality healthcare.
Rising investments in research and development are helping drive advanced drug and therapy development, contributing to the industry's success. Moreover, last year, the Biden administration signed an executive order implementing the National Biotechnology and Biomanufacturing Initiative, which aims to encourage biotech production and research in the U.S.
The White House’s move would help boost the prospects of the domestic biotech industry. The global biotechnology market is expected to grow at a CAGR of 14.2% to reach $2.77 trillion by 2030.
Let's take a closer look at the fundamentals of the featured stocks.
Stocks to Buy:
Gilead Sciences, Inc. (GILD)
GILD discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally.
On July 27, 2023, GILD’s announced that the European Commission approved Trodelvy for treating certain advanced breast cancer patients. It showed better overall survival and reduced disease progression risk compared to standard chemotherapy. More patients were progression-free at one year with Trodelvy compared to chemotherapy.
Bill Grossman, M.D., Ph.D., Senior Vice President, Therapeutic Area Head at GILD Oncology, said, "Trodelvy could change the outlook for women with pre-treated HR+/HER2- metastatic breast cancer by replacing the standard-of-care chemotherapy that has been their only option for decades, we look forward to working with European authorities to ensure access for these patients who need new treatment options."
In terms of the trailing-12-month EBITDA margin, GILD’s 44.42% is 872.7% higher than the 4.57% industry average. Likewise, its 79.42% trailing-12-month gross profit margin is 43.4% higher than the 55.37% industry average. Additionally, its 0.44x trailing-12-month asset turnover ratio is 20.1% higher than the 0.36x industry average.
GILD’s revenues for the fiscal second quarter ended June 30, 2023, rose 5.4% year-over-year to $6.60 billion. The company’s non-GAAP operating income came in at $2.28 billion. Its non-GAAP net income came in at $1.69 billion. Additionally, its adjusted EPS came in at $1.34.
For the quarter ending September 30, 2023, GILD’s EPS is expected to increase 0.5% year-over-year to $1.91. Its revenue for the fiscal 2024 is expected to increase 2.5% year-over-year to $27.45 billion. Over the past year, the stock has gained 32.1% to close the last trading session at $80.67.
GILD’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to a Strong 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 Value and Quality and a B for Growth and Stability. It is ranked #2 out of 390 stocks in the Biotech industry. To see GILD’s ratings for Momentum and Sentiment, click here.
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.
In terms of the trailing-12-month EBITDA margin, JAZZ’s 44.90% is significantly higher than the 4.57% industry average. Likewise, its 92.40% trailing-12-month gross profit margin is 66.9% higher than the 55.37% industry average. Likewise, its 28.66% trailing-12-month EBIT margin is significantly higher than the 0.35% industry average.
For the fiscal first quarter that ended March 31, 2023, JAZZ’s total revenues increased 9.7% year-over-year to $892.81 million. Its non-GAAP net income rose 8.9% year-over-year to $285.26 million. The company’s income from operations rose 44% year-over-year to $126.06 million. Moreover, its adjusted EPS increased 5.9% year-over-year to $3.95.
Analysts expect JAZZ’s EPS and revenue for the quarter ended June 30, 2023, to increase 3.1% and 1% year-over-year to $4.43 and $942.16 million, respectively. Over the past month, the stock has gained 7.8% to close the last trading session at $131.51.
JAZZ’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Quality. It is ranked #5 in the same industry. Click here to see JAZZ’s Momentum, Stability, and Sentiment ratings.
Stock to Avoid:
Bionano Genomics, Inc. (BNGO)
BNGO provides genome analysis software enabling genomics labs to analyze and interpret data across various platforms to generate informative visualizations for streamlined and simple reporting of causal variants.
In terms of the trailing-12-month gross profit margin, BNGO’s 24.23% is 56.2% lower than the 55.37% industry average. Additionally, its 0.09x trailing-12-month asset turnover ratio is 74.7% lower than the 0.36x industry average.
BNGO’s total non-GAAP operating expenses for the first quarter ended March 31, 2023, rose 38.8% year-over-year to $33.60 million. The company’s net loss widened 23.9% year-over-year to $37.12 million. Its loss from operations widened 26.4% year-over-year to $37.84 million.
For the fiscal quarter ended June 30, 2023, its EPS is expected to remain negative. It failed to surpass the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 93.8% to close the last trading session at $4.67.
BNGO’s poor fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
Within the Biotech industry, it is ranked #379. It has an F grade for Stability and Quality and a D for Momentum and Sentiment. To see BNGO’s ratings for Growth and Value, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
GILD shares were trading at $79.31 per share on Tuesday morning, down $1.36 (-1.69%). Year-to-date, GILD has declined -5.84%, versus a 17.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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