The biotech industry thrived during the pandemic with rising demand for drugs, therapies, and vaccines. However, various macroeconomic and regulatory challenges have hampered the industry’s growth since last year, prompting massive layoffs and shutdowns.
Regardless of the challenges being faced by the industry, investors should not shy away from buying fundamentally sound biotech stocks Gilead Sciences, Inc. (GILD), Vertex Pharmaceuticals Incorporated (VRTX), and Biogen Inc. (BIIB) for solid returns.
Before delving deeper into the fundamentals of these stocks, let’s discuss various factors that make Biotech one of the worst-rated industries in our POWR Ratings system.
The COVID-19 pandemic led to increased interest and funding in the biotech industry. Many companies in this space rushed to develop therapeutics and vaccines to help the world fight the deadly virus. Moreover, the growing need for breakthroughs amid the rising prevalence of chronic diseases and a worldwide aging population created numerous opportunities for the industry.
After an outstanding 2020 and 2021, overall early-stage financing for small- and mid-size biotechs plunged significantly last year. With the pandemic in the rearview mirror, investors shifted their focus from life sciences to more stable sectors. This, combined with growing regulatory concerns, high inflation, and rising interest rates, has caused biotech valuations to decline and made access to new capital harder.
For much of the past decade, biotech companies were flushed with abundant funding from venture capital (VC) firms and other investors, fueled by excitement over new technologies such as cell therapy, gene editing, and messenger RNA. However, after years of easy money and steady growth, funding is slim and scarce capital is prompting layoffs and shutdowns across the industry.
Furthermore, there are new regulatory and structural obstacles that are hampering the biotech industry’s growth. In its December omnibus legislation, Congress made explicit the FDA’s authority to require lengthy and expensive approval trails related to accelerated approval. The new changes around accelerated approvals would add cost and risk to players in the biotech space.
Meanwhile, the Inflation Reduction Act of 2022, passed by Congress last year, contains several drug pricing measures, including restrictions on price increases and Medicare negotiations which might affect the biotech industry.
With the Biotech industry being high-growth in nature, a rising rate environment weighed heavily, as evidenced by the SPDR S&P Biotech ETF’s (XBI) more than 17% decline over the past year. The Biotech industry is ranked #119 out of 124 in our POWR Ratings system.
Let’s discuss the featured stocks in detail:
Gilead Sciences, Inc. (GILD)
Biopharmaceutical company GILD discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally.
On February 22, 2023, Kite, a GILD company, acquired Tmunity Therapeutics, a clinical-stage biotech startup focused on next-generation CAR T-therapies and technology. This acquisition will complement Kite’s in-house cell therapy research capabilities by adding additional pipeline assets, platform capabilities, and a unique partnership with the University of Pennsylvania.
On February 3, GILD announced that the U.S. Food and Drug Administration (FDA) approved Trodelvy® (sacituzumab govitecan-hziy) to treat adult patients with HR+/HER2- metastatic breast cancer who had received prior endocrine-based therapy and at least two chemotherapies.
Also, on February 2, GILD announced that its board of directors declared an increase of 2.7% in its quarterly cash dividend to $0.75 per share of common stock, payable on March 30, 2023.
The company’s annual dividend of $3 yields 3.71% at the current price level. Its dividend payouts have increased at a 4.6% CAGR over the past three years and a 6.7% CAGR over the past five years. GILD has raised its dividend for seven consecutive years.
GILD’s total revenues increased 2% year-over-year to $7.39 billion for the fourth quarter that ended December 31, 2022. Its non-GAAP operating income grew 79.1% year-over-year to $2.70 billion. Non-GAAP net income attributable to Gilead was $2.11 billion, up 143.2% year-over-year. Also, the company’s non-GAAP EPS rose 142% from the year-ago value to $1.67.
Analysts expect GILD’s revenue to increase 3.5% year-over-year to $6.48 billion for the second quarter ending June 2023. The company’s EPS for the same quarter is expected to grow 8.5% year-over-year to $1.71. Moreover, it surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 26.7% over the past six months and 36.8% over the past year to close the last trading session at $80.97.
GILD’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong 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 an A grade for Growth and Value and a B for Quality and Sentiment. The stock has topped among 280 stocks in the Biotech industry. To see the other ratings of GILD for Momentum and Stability, click here.
Vertex Pharmaceuticals Incorporated (VRTX)
Biotechnology company VRTX develops and commercializes therapies for treating cystic fibrosis (CF). The company sells the products to specialty pharmacies and specialty distributors in the United States as well as retail pharmacies, hospitals, and clinics.
On March 27, VRTX and CRISPR Therapeutics (CRSP) entered a new non-exclusive licensing agreement to use CRSP’s gene editing technology, CRISPR/Cas9, to accelerate the development of VRTX’s hypoimmune cell therapies for type 1 diabetes (T1D).
On March 9, VRTX announced that the U.S. Food and Drug Administration cleared its Investigational New Drug (IND) application for VX-264, a stem cell-derived, fully differentiated pancreatic islet cell therapy encapsulated into a Vertex-developed, immunoprotective device with the potential to treat T1D.
This development aligns with the company’s strategy to develop transformative medicines for people with serious diseases.
For the fourth quarter that ended December 31, 2022, VRTX’s net product revenues increased 11.1% year-over-year to $2.30 billion. Its non-GAAP operating income grew 18% from the year-ago value to $1.15 billion. Also, the company’s non-GAAP net income rose 25.9% year-over-year to $978 million, and its non-GAAP EPS came in at $3.76, up 24.5% year-over-year.
Analysts expect VRTX’s revenue for fiscal 2023 to increase 8.7% year-over-year to $9.71 billion. Furthermore, the company’s revenue and EPS for fiscal 2024 are expected to grow 7.2% and 9.4% from the previous year to $10.41 billion and $15.82, respectively. Also, VRTX has topped the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 22.5% to close the last trading session at $313.25. Also, it gained 9% over the past month.
VRTX’s POWR Ratings reflect its strong outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
VRTX has an A grade for Quality and a B for Value. Within the Biotech industry, it is ranked #7 out of 380 stocks.
Beyond what we stated above, we also have VRTX’s ratings for Growth, Stability, Sentiment, and Momentum. Get all VRTX ratings here.
Biogen Inc. (BIIB)
BIIB discovers, develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases.
On February 6, BIIB and Sage Therapeutics (SAGE) announced that the FDA had accepted the filing of a New Drug Application (NDA) for zuranolone in the treatment of the major depressive disorder (MDD) and postpartum depression (PPD). The application had been granted priority review, and the FDA had assigned a Prescription Drug User Fee Act (PDUFA) action date of August 5, 2023.
The FDA filing acceptance and granting priority review are important milestones in the mission BIIB and SAGE share to advance the understanding and treatment of depression.
On January 4, BIIB and Alcyone Therapeutics announced their license and collaboration agreement to evaluate a novel device to improve patient experience and access to neurological ASO therapies.
With this agreement, BIIB aims to leverage the ThecaFlex DRx system to improve the patient treatment experience and accessibility for a broader population suffering from neurological disorders, such as spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis (ALS).
In the third quarter that ended September 30, 2022, BIIB’s income before income tax expense and equity in loss of investee, net of tax, increased 370.7% year-over-year to $1.37 billion. Net income attributable to BIIB grew 244.7% from the year-ago value to $1.13 billion, while earnings per share attributable to BIIB came in at $7.84, an increase of 253.2% year-over-year.
Analysts expect BIIB’s EPS to increase 4.7% year-over-year to $16.24 for the fiscal year (ending December 2024). Also, the company has surpassed the consensus EPS estimates in three of the trailing four quarters. Shares of BIIB have gained 27.7% over the past year to close the last trading session at $270.25.
BIIB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
BIIB has an A grade for Value and a B for Sentiment, Growth, and Quality. It is ranked #3 out of 380 stocks in the same industry.
Click here to see the additional ratings of BIIB for Momentum and Stability.
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GILD shares were trading at $81.67 per share on Wednesday morning, up $0.70 (+0.86%). Year-to-date, GILD has declined -3.96%, versus a 4.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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