The biotech industry is at the cutting edge of modern healthcare and spearheads it by developing ground-breaking therapies and technologies that cater to underserved or previously unserved markets, thereby increasing the size of the pie for the healthcare industry.
Hence, attractively valued biotech stocks Biogen Inc. (BIIB), Cidara Therapeutics, Inc. (CDTX), and Theratechnologies Inc. (THTX) with healthy growth prospects are being pursued by smart money.
While advancements in healthcare deserve the credit for increased life expectancy and decreased infant mortality, education, economic growth, and rising standards of living which have made the miracle possible, have also been responsible for falling birthrates. Consequently, the global population is seemingly on a gradual but certain course to become smaller and older.
According to the World Health Organization, given the increase in size and proportion of older people in the global population, by 2030, 1 in 6 people in the world will be aged 60 years or over. With older people set to exceed a quarter of the G7 workforce by 2031, IMF rightly termed aging the real population bomb.
Hence, to effectively manage demographic decline and keep the smaller and older global population of the future productive amid the rising toll of chronic diseases, the global biotechnology market has a critical role to play by developing innovative solutions to ensure both prevention and cure.
Moreover, with the completion of the Genome Project, the advent of Artificial Intelligence, and resulting advancements in gene therapy, personalized medicines could drive the biotech market’s growth. The personalized medicines market is expected to reach over $5.7 trillion by 2030, growing at a CAGR of 11.6%.
Despite near-term headwinds due to increased borrowing costs and the consequent credit crunch, the industry’s long-term outlook remains optimistic. The global biotechnology market in 2022 was valued at $1.37 trillion, and it is anticipated to experience a CAGR of 13.9% from 2023 to 2030.
Keeping all these factors in mind, let us now look at the fundamentals of the stocks mentioned above in detail.
Biogen Inc. (BIIB)
BIIB develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases. The company has a leading portfolio of medicines to treat multiple sclerosis, has introduced the first approved treatment for spinal muscular atrophy, and developed the first and only approved treatment to address a defining pathology of Alzheimer’s disease. Institutions own 87.9% of BIIB shares.
On July 28, BIIB and Reata Pharmaceuticals, Inc. (RETA) announced their entry into a definitive agreement, pursuant to which BIIB has agreed to acquire $172.50 per share in cash, reflecting an enterprise value of approximately $7.3 billion.
Including SKYCLARY (Somaveloxolone) is the first and only FDA-approved treatment for Friedreich’s ataxia (FA) in the United States, RETA has made significant advancements in developing therapeutics that regulate cellular metabolism and inflammation in serious neurologic diseases. Hence, the proposed acquisition would add a highly complementary innovative product to BIIB’s portfolio in an area of high unmet medical need and make a significant contribution to its adjusted bottom line beginning in 2025.
For the fiscal 2023 second quarter that ended June 30, 2023, BIIB’s total revenue came in at $2.46 billion, while the total non-GAAP net income attributable to it came in at $584.6 million, or $4.02 per share. BIIB’s total assets stood at $25.16 billion as of June 30, 2023, compared to $24.55 billion as of June 30, 2022.
BIIB’s trailing-12-month EBITDA and net income margins of 30.95% and 26.72% are significantly higher than the industry averages of 4.15% and -6.17%, respectively. Additionally, its trailing-12-month ROCE, ROTC, and ROTA of 20.23%, 8.08%, and 10.59% also compare favorably to the negative respective industry averages.
Analysts expect BIIB’s revenue and EPS for the third quarter of the fiscal year 2023 to come in at $2.38 billion and $3.99 per share. Moreover, the company is on an impressive feat, surpassing consensus EPS estimates in each of the trailing four quarters.
BIIB’s stock has gained 25.4% over the past year to close the last trading session at $267.75. Its average 10-day volume of 1.72 million exceeds its average 3-month volume of 1.14 million.
In terms of forward P/E, BIIB is trading at 17.34x, 13.9% lower than the industry average of 20.14x. Moreover, its forward EV/EBITDA multiple of 11.79 is 13.3% lower than the industry average of 13.59, while its forward Price/Book multiple of 2.62 is 8.4% lower than the industry average of 2.86.
BIIB’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BIIB has an A grade for Value and a B for Quality. It is ranked #17 of 393 stocks in the Biotech industry.
Click here for additional ratings for BIIB’s Growth, Stability, Sentiment, and Momentum.
Cidara Therapeutics, Inc. (CDTX)
CDTX is a biotechnology company focused on discovering, developing, and commercializing therapeutics for patients facing serious diseases. The company's lead product candidate is rezafungin acetate, an intravenous formulation of echinocandin, for treating and preventing serious invasive fungal infections. While institutional investors own 30.2% of CDTX shares, 35 institutions have recently increased their positions in the stock.
On June 26, CDTX announced its inclusion in the Russell Microcap® Index after the annual reconstitution of the index. The company’s inclusion in the index could attract capital inflows which could positively impact the stock price.
On June 22, CDTX announced that the U.S. Food and Drug Administration (FDA) had granted Fast Track designation to CD388, its novel drug-Fc conjugate (DFC) candidate.
CD388 is being developed in collaboration with Janssen Pharmaceuticals to prevent influenza A and B infection in adults at high risk of severe influenza, including those for whom vaccines are either ineffective or contraindicated. Catering to this underserved market could positively impact the company’s top and bottom lines.
For the fiscal 2023 second quarter that ended June 30, CDTX’s total revenue increased by 22.4% year-over-year to $7.61 million. The company’s total assets stood at $67.99 million as of June 30, 2023, compared to $47.59 million as of December 31, 2022.
CDTX’s revenue has grown at a 52.5% CAGR over the past three years. Street expects the company’s revenue and EPS for the fiscal year 2023 to increase by 19.4% and 46.5% year-over-year, respectively.
CDTX’s stock has gained 36% year-to-date to close the last trading session at $1.02. Its forward EV/Sales multiple of 0.58 is 84.1% lower than the industry average of 3.68. Its forward P/S of 1.20x is 71.3% lower than the industry average of 4.16x.
CDTX’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It also has a B grade for Growth, Value, Sentiment, and Quality.
CDTX is ranked #15 of 393 stocks in the Biotech industry. In addition to the above, CDTX’s ratings for Momentum and Stability are available here.
Theratechnologies Inc. (THTX)
THTX is a biopharmaceutical company headquartered in Montreal, Canada. The company is focused on developing and commercializing various therapies addressing unmet medical needs. Institutions own 25.4% of THTX. While four institutions added new positions in the stock, 11 increased their positions.
On July 31, THTX announced the completion of the previously announced consolidation of the issued and outstanding common shares of the company’s share capital based on one (1) post-consolidation share for each four (4) pre-consolidation shares issued and outstanding. The consolidated shares began trading on the same day.
THTX’s revenues have grown at a 6.8% CAGR over the past three years. For the fiscal second quarter that ended May 31, the company’s revenue came in at $17.55 million, negatively impacted by the build-up of larger-than-necessary inventories by specialty pharmacies at the end of 2022. During the same period, the company narrowed its adjusted EBITDA loss and net loss by 47.5% and 55.9% year-over-year, respectively.
According to Paul Lévesque, President and CEO of THTX, “With May and June sales in, we are confident this is behind us now. The new contract terms will be beneficial to Theratechnologies in the future, resulting in significant recurring savings in distribution costs.”
Consequently, analysts expect THTX’s revenue to increase by 5.3% year-over-year to $83.90 million, while its EPS is expected to increase by 45.1% year-over-year. Both metrics are expected to increase by 13.8% and 49.2% year-over-year, respectively.
THTX’s shares have gone through a 40.8% markdown over the past month to close the last trading session at $2.08.
THTX’s forward EV/Sales multiple of 1.10 is 70% lower than the industry average of 3.68. Additionally, its forward Price/Sales multiple of 0.60 is 85.5% lower than the industry average of 4.16.
THTX has an overall POWR Rating of B, which equates to Buy in our proprietary rating system. It also has B grades for Growth, Value, and Sentiment.
THTX is ranked #14 in the same industry. Additional ratings for THTX’s Momentum, Stability, and Quality are available here.
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BIIB shares were trading at $268.83 per share on Friday afternoon, up $1.08 (+0.40%). Year-to-date, BIIB has declined -2.92%, versus a 17.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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