The biopharma sector has faced uncertainty around the drug-pricing reform, regulatory surprises, and COVID-19. As a result, many biotech stocks are trading below their long-term business values, creating opportunities for investors to enter the market. Moreover, some uncertainties have started to abate.
On top of it, earnings for companies in the biopharma industry have grown 38% per year over the last three years, and their revenues have increased 10% per year, which means that these companies are subsequently increasing their profits. Moreover, analysts are bullish on pharma, expecting annual earnings growth of 10% over the next five years.
The global biopharma market is expected to cross $471.02 billion by the end of 2027, expanding at a CAGR of over 9.1%. Therefore, the biopharma stocks Gilead Sciences, Inc. (GILD) and Exelixis, Inc. (EXEL), which look undervalued at their current price levels, might be solid bets now.
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Gilead Sciences, Inc. (GILD)
GILD is a research-based biopharmaceutical company that engages in the discovery, development, and commercialization of medicines in the area of unmet medical needs internationally. The company’s offerings include Biktarvy, Genvoya, and Descovy for HIV infection treatment and Veklury for COVID-19 treatment.
On February 1, GILD declared a quarterly dividend of $0.73 per share of common stock, indicating an increase of 2.8% and payable to shareholders on March 30, 2022. This reflects upon the company’s ability to pay back shareholders.
On January 21, GILD announced that the U.S. Food and Drug Administration (FDA) granted expedited approval of a supplemental new drug application (sNDA) for Veklury® (remdesivir) for the treatment of non-hospitalized adult and adolescent patients who are at high risk of progression to severe COVID-19. This approval is expected to increase the role of the antiviral treatment.
In terms of its forward EV/EBITDA, GILD is currently trading at 5.42x, 61.2% lower than the industry average of 13.96x. Its forward EV/EBIT multiple of 6.13 is trading 64.7% lower than the industry average of 17.35.
For the fiscal year ended December 31, GILD’s total revenues increased 10.6% year-over-year to $27.31 billion. Non-GAAP net income attributable to GILD came in at $9.19 billion, while non-GAAP EPS stood at $7.28, up 2.6% and 2.7% from the prior year, respectively.
The consensus EPS estimate of $6.56 for the fiscal year 2023 indicates a 0.6% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $24.64 billion reflects a rise of 0.4% from the prior year.
The stock has declined marginally intraday to close yesterday’s trading session at $60.98.
GILD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GILD has a Value grade of A and a Quality grade of B. In the 443-stock Biotech industry, it is ranked #15. Click here to see the additional POWR Ratings for GILD (Growth, Momentum, Stability, and Sentiment).
Exelixis, Inc. (EXEL)
EXEL is a biotechnology company focused on oncology that develops and sells medicines to cure cancer. The company has research collaborations and license agreements with several notable pharmaceutical and biotech companies.
On January 6, EXEL and Iconic Therapeutics, Inc. announced that they had amended the terms of their May 2019 exclusive option and license agreement for XB002 (formerly ICON-2), a next-generation tissue factor (TF)-targeting antibody-drug conjugate (ADC). About this amendment, Michael Morrissey, Ph.D., President, and Chief Executive Officer, EXEL, stated, “Amending our agreement with Iconic provides Exelixis with an opportunity to build the foundation of a promising franchise in this area and will facilitate the discovery and development of additional TF-targeted biologics potentially addressing a wide range of oncology indications that complement and expand on those targeted by XB002.”
On October 14, EXEL announced that it had assumed responsibility for future clinical development and commercialization of a novel anti-cancer compound from biotech company Aurigene Discovery Technologies Limited. The in-license collaboration should strengthen EXEL’s pipeline.
EXEL’s forward EV/Sales multiple of 3.04 is currently trading 35.3% lower than the industry average of 4.70. In terms of forward Price/Sales, it is trading at 3.93x, 27.4% lower than the industry average of 5.42x.
EXEL’s total revenues increased 67.1% year-over-year to $451.14 million in the fourth fiscal quarter ended December 31. Income from operations rose 380.1% from the same period the prior year to $116.64 million. Non-GAAP net income and non-GAAP net income per share stood at $113.32 million and $0.35, registering a 161.6% and 150% year-over-year improvement, respectively.
Street EPS for the fiscal year 2022 of $0.87 reflects a 20.8% year-over-year increase. Likewise, Street revenue estimate of $1.62 billion for the same year indicates a rise of 13.1% from the prior year.
EXEL’s stock has gained 13.8% over the past three months to close yesterday’s trading session at $19.60. It has gained 13.2% over the past month.
It’s no surprise that EXEL has an overall A rating which translates to Strong Buy in our POWR Ratings system.
The stock has an A grade for Value and Quality and a B grade for Growth. It is ranked #3 in the same industry. To see the additional POWR Ratings for Momentum, Stability, and Sentiment for EXEL, click here.
GILD shares were trading at $61.35 per share on Wednesday afternoon, up $0.37 (+0.61%). Year-to-date, GILD has declined -15.51%, versus a -11.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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