The biotech sector assumes a crucial role in propelling the advancement of healthcare by spearheading the creation of innovative therapies and technologies aimed at addressing unmet medical requirements.
Against this backdrop, it could be wise to invest in fundamentally sound biotech stocks Gilead Sciences, Inc. (GILD), Biogen Inc. (BIIB), and Alkermes plc (ALKS), which are trading at a discount relative to their peers.
Driven by the advent of advanced and revolutionary technologies, substantial investments, government initiatives fostering the industry, and rising demand from a progressively aging population, the global biotechnology market is estimated to be worth $1.68 trillion in 2030, growing at a CAGR of 8.7% from 2023.
On top of it, in 2022, the global personalized medicine market reached a value of $538.93 billion, and it is expected to expand at a CAGR of 7.2% from 2023 to 2030, which should bode well for the biotech industry.
Moreover, despite experiencing short-term fluctuations, the sector's long-term prospects remain optimistic. Early indications of advancement have been observed in the first quarter of 2023, including a rise in Series A funding with an average round size of $54 million and positive improvements in Series B and C rounds.
These developments suggest a resurgence in capital markets and a renewed interest in investing in the biotech industry.
Considering all the above factors, let us look at the fundamentals of the featured stocks in detail:
Gilead Sciences, Inc. (GILD)
GILD is a biopharmaceutical company that discovers, develops, and commercializes medicines to prevent and treat life-threatening diseases, including Human Immunodeficiency Virus (HIV), viral hepatitis, and cancer. Its product portfolio includes Odefsey, Truvada, Complera/ Eviplera, Stribild, Oncology, and Vekulaery.
On May 15, GILD and Arcus Biosciences, Inc. (RCUS) extended their previously announced research collaboration, originally centered on oncology, to encompass therapies targeting inflammatory diseases. This partnership is expected to significantly accelerate the company’s progress in developing new transformative therapies for inflammatory diseases.
In the same month, GILD announced the acquisition of XinThera, a privately held biotech company. With this acquisition, GILD aims to enhance its existing clinical development initiatives by incorporating additional pipeline assets focused on well-established targets in the fields of oncology and inflammation.
In terms of forward non-GAAP P/E, GILD is trading at 11.28x, 44.2% lower than the industry average of 20.21x. Its forward EV/EBITDA multiple of 8.55 is 36.2% lower than the industry average of 13.40x. Also, its forward EV/EBIT ratio of 10.03 is 40.4% lower than the industry average of 16.83.
GILD’s total revenues for the first quarter (ended March 31, 2023) amounted to $6.35 billion, while its total costs and expenses declined 27.3% from the year-ago value to $4.65 billion.
The company’s attributable net income and EPS increased significantly from the prior-year quarter to $1.01 billion and $0.80, respectively. Also, its operating income rose 765.48% from the year-ago value to $1.71 billion.
The consensus EPS estimate of $1.70 for the second quarter (ending June 30, 2023) represents a 7.6% improvement year-over-year. The consensus revenue estimate of $6.47 billion for the current quarter indicates a 3.3% increase from the same period last year.
Additionally, the company surpassed the revenue estimates in each of the trailing four quarters and EPS estimates in three of the trailing four quarters, which is promising.
Over the past year, the stock has gained 21.4% to close the last trading session at $76.56.
GILD’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, translating 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 a B for Stability and Quality. In the 383-stock Biotech industry, it is ranked #3. To see additional ratings of GILD for Growth, Momentum, and Sentiment, click here.
Biogen Inc. (BIIB)
BIIB focuses on discovering, developing, manufacturing, and delivering therapies for treating neurological and neurodegenerative diseases globally. It has a portfolio of medicines to treat Multiple Sclerosis (MS), Spinal Muscular Atrophy (SMA), and Alzheimer’s disease.
On April 12, BIIB and Denali Therapeutics Inc. (DNLI) jointly announced that BIIB had exercised its option to license DNLI’s Antibody Transport Vehicle (ATV): Amyloid beta program (ATV: Aβ).
“This decision is an important next step of our collaboration with Denali on ATV: Aβ that aims to advance the next generation of Aβ immunotherapies for the treatment of Alzheimer’s disease,” said Dominic Walsh, Head of the Neurodegenerative Research Unit at BIIB.
On January 4, BIIB and Alcyone Therapeutics forged a license and collaboration agreement to jointly develop Alcyone’s ThecaFlex DRx™ System, an implantable medical device that is designed for the subcutaneous delivery of Anti-Sense Oligonucleotide (ASO) therapies into the intrathecal space.
Through the agreement, BIIB aims to utilize the capabilities of the ThecaFlex DRx™ System to enhance the treatment experience for patients and increase accessibility for a broader population suffering from neurological disorders like SMA and Amyotrophic Lateral Sclerosis (ALS).
BIIB’s forward non-GAAP P/E of 18.22x is 9.9% lower than the 20.21x industry average. Its forward Price/Cash Flow multiple of 12.21 is 22.4% lower than the industry average of 15.73x. Also, its forward EV/EBIT ratio of 15.29 is 9.2% lower than the industry average of 16.83x.
For the fiscal first quarter that ended March 31, 2023, BIIB’s total revenues amounted to $2.46 billion, while its total costs and expenses declined 7.3% from the year-ago value to $2.02 billion. The company’s attributable net income and EPS amounted to $387.90 million and $2.67, representing increases of 27.7% and 29.6% from the prior-year quarter, respectively.
Street expects BIIB’s revenue and EPS for the second quarter (ending June 30, 2023) to be $2.38 billion and $3.74, respectively. Moreover, its EPS is expected to improve by 2.5% per annum over the next five years. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 32.9% over the past year to the last trading session at $281.58.
BIIB’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 has an A grade for Value and a B for Growth, Sentiment, and Quality. Within the same industry, it is ranked first. Click here to see BIIB’s ratings for Momentum and Stability.
Alkermes plc (ALKS)
Headquartered in Dublin, Ireland, ALKS is a biopharmaceutical company that researches, develops, and commercializes pharmaceutical products to address patients' unmet medical needs in neuroscience and oncology. Some of its marked products are ARISTADA, ARISTADA INITIO, VIVITROL, LYBALVI, etc.
In terms of forward non-GAAP PEG, the stock is trading at 0.81x, 61.6% lower than the industry average of 2.10x. Additionally, its forward Price/Sales multiple of 3.87 is 8.9% lower than the industry average of 4.25x.
In the first quarter that ended March 31, 2023, ALKS’ total revenues increased 3.3% year-over-year to $287.59 million, while its non-GAAP net income amounted to $2.42 million. The company’s non-GAAP EPS came in at $0.01 for the same period.
Analysts expect ALKS’ revenue and EPS for the second quarter (ending June 30, 2023) to increase 65.4% and 392.9% year-over-year to $456.97 million and $0.30, respectively. Moreover, it surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
ALKS’ shares have gained 9.9% over the past year and 25% year-to-date to close the last trading session at $32.66.
It’s no surprise that ALKS has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Sentiment, and Quality. Out of 383 stocks in the same industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have ALKS’ ratings for Momentum and Stability. Get all ALKS ratings 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 unchanged in premarket trading Tuesday. Year-to-date, GILD has declined -9.10%, versus a 13.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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