The growing global aging population has led to an elevated prevalence of chronic diseases. This demographic shift is fueling an increasing demand for pharmaceutical products and services. Moreover, the pharmaceutical industry tends to be less susceptible to economic turbulence, offering stability to companies operating within this space.
In such a scenario, owning the shares of three fundamentally sound pharma stocks, GoodRx Holdings, Inc. (GDRX), CytomX Therapeutics, Inc. (CTMX), and Neurocrine Biosciences, Inc. (NBIX) could prove to be beneficial for investors.
The pharma industry is expected to remain in a favorable spot with rising cases of chronic diseases. As per the World Health Organization (WHO), chronic diseases are responsible for the deaths of 41 million people annually, constituting 74% of all global fatalities.
On top of it, among all industries, the pharmaceutical sector is particularly reliant on research and development (R&D), with companies allocating approximately 20% or more of their sales revenues to R&D initiatives. Uncovering new drugs is crucial for the sustained advancement of pharmaceutical companies, and the sales of newly branded drugs can significantly contribute to their overall revenues.
In 2022, the global market for drug discovery reached $55.46 billion, and it is further projected to reach approximately $133.11 billion by 2032, growing at an impressive CAGR of 9.2% from 2023 to 2032.
Moreover, as we approach 2024, the global pharmaceutical industry is on the brink of an exciting new era driven by the integration of Artificial Intelligence (AI) into drug discovery processes. Notably, a substantial statistic in the pharmaceutical sector underscores the expectation that investments in AI will reach $3 billion by 2025.
This emphasizes the industry's dedication to adopting technology that holds the potential to streamline the timelines and costs associated with bringing new drugs to the market. Projections indicate that the global market for AI in the pharmaceutical industry will surpass $11.81 billion by 2032, demonstrating a robust CAGR of 29.3% from 2023 to 2032.
In light of these encouraging trends and growth prospects, let’s dive deeper into the fundamentals of the featured Medical - Pharmaceuticals stocks, beginning with number three.
Stock #3: GoodRx Holdings, Inc. (GDRX)
GDRX offers information and tools that enable consumers to compare prices and save on their prescription drug purchases in the United States. In addition, it offers healthcare products and services, including subscriptions, pharma manufacturer solutions, and telehealth services.
On October 19, GDRX announced a collaboration with Sanofi (SNY), a global leader in diabetes care. Together, they aim to introduce a new avenue for individuals managing diabetes to obtain Lantus® (insulin glargine injection) in the United States for only $35.
This partnership expands on SNY's recent commitment to reduce the list price for Lantus and cap out-of-pocket expenses at $35 for all patients with commercial insurance, effective January 1, 2024. By leveraging GDRX’s extensive reach and scale, the collaboration seeks to enhance accessibility and affordability for people living with diabetes.
In the same month, GDRX partnered with Navitus Health Solutions, LLC, a pharmacy benefit manager dedicated to cost efficiency in the drug supply chain. Together, they launched “Savings Connect,” a program offering customers seamless access to GDRX prices on generic drugs at the pharmacy counter.
With this program, consumers are relieved from the dilemma of choosing between insurance and discounted prices, as the system automatically compares both options and delivers the lowest cost directly to the consumer. Such collaborations should benefit the company.
GDRX’s trailing-12-month levered FCF margin of 17.19% is significantly higher than the 0.26% industry average. Its trailing-12-month EBIT margin of 4.17% is 433.1% higher than the industry average of 0.78%. Furthermore, the stock’s trailing-12-month EBITDA margin of 11.38% is 115.1% higher than the 5.29% industry average.
For the fiscal third quarter, which ended on September 30, 2023, GDRX’s revenue amounted to $179.96 million, while its adjusted EBITDA improved 2.8% from the year-ago value to $53.47 million.
During the same period, the company’s adjusted net income and adjusted EPS came in at $25.54 million and $0.06, respectively. Also, its cash and cash equivalents stood at $794.91 million, up 4.9% compared to $757.17 million as of December 31, 2022.
Street expects GDRX’s revenue for the fiscal fourth quarter (ending December 2023) to increase 3.7% year-over-year to $190.83 million. Its revenue for the fiscal period ending December 2023 is predicted to come in at $748.57 million. Additionally, the company has an excellent surprise history, surpassing the EPS and revenue estimates in three of the trailing four quarters.
GDRX’s shares have surged 28.1% year-to-date to close the last trading session at $5.97.
GDRX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to 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 Growth. In the 157-stock Medical - Pharmaceuticals industry, it is ranked #27. Click here to see GDRX’s ratings for Value, Momentum, Stability, Sentiment, and Quality.
Stock #2: CytomX Therapeutics, Inc. (CTMX)
CTMX is a clinical-stage, oncology-focused biopharmaceutical company that focuses on developing novel conditionally activated biologics localized to the tumor microenvironment. The company's pipeline comprises therapeutic candidates across multiple treatment modalities.
The stock’s trailing-12-month levered FCF margin of 55.59% is significantly higher than the 0.26% industry average. Its trailing-12-month gross profit margin of 100% is 76.4% higher than the industry average of 56.70%. Furthermore, CTMX’s trailing-12-month asset turnover ratio of 0.42x is 8% higher than the 0.39x industry average.
In the fiscal third quarter, which ended on September 30, 2023, CTMX’s revenues increased 136.7% year-over-year to $26.38 million. Its income from operations amounted to $3.12 million versus a loss from operations of $29.71 million in the prior-year quarter.
Furthermore, the company’s net income came in at $2.99 million and $0.04 per share compared to a net loss of $29.06 million and $0.44 per share in the same period last year.
Analysts predict CTMX’s revenue for the fourth quarter (ending December 2023) to increase significantly year-over-year to $20.46 million, while its EPS for the same quarter is expected to be $0.03. Moreover, the company surpassed its EPS and revenue estimates in three of the trailing four quarters, which is impressive.
The stock has surged 17.6% over the past month to close the last trading session at $17.60.
CTMX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Sentiment, and Quality. Within the same industry, it is ranked #17. Click here to see the other ratings of CTMX for Momentum and Stability.
Stock #1: Neurocrine Biosciences, Inc. (NBIX)
NBIX discovers, develops, and markets pharmaceuticals for neurological, endocrine, and psychiatric disorders. The company's portfolio includes treatments for tardive dyskinesia, Parkinson's disease, endometriosis, and uterine fibroids, as well as clinical programs in various therapeutic areas.
On December 5, NBIX obtained Breakthrough Therapy designation from the U.S. Food and Drug Administration (FDA) for crinecerfont in congenital adrenal hyperplasia. NBIX’s Chief Medical Officer, Eiry W. Roberts, expressed satisfaction with the FDA's decision to grant this designation for crinecerfont, highlighting the severity of congenital adrenal hyperplasia and the substantial challenges faced by patients and their families.
On November 8, NBIX unveiled DISCOVER TD™, an interactive digital tool aimed at assisting healthcare providers in understanding and recognizing tardive dyskinesia. DISCOVER TD employs gameplay, artistic elements, and state-of-the-art technology to vividly depict patient visits with realistic detail.
Featuring avatars exhibiting different manifestations of tardive dyskinesia or other drug-induced movement disorders, each avatar comes with a distinct patient history. Users can engage in posing questions, screening, diagnosing, and establishing suitable management plans by interacting with these virtual patients.
The stock’s trailing-12-month EBIT and levered FCF margins of 19.50% and 26.18% are significantly higher than the 0.78% and 0.26% industry averages, respectively. Furthermore, NBIX’s trailing-12-month asset turnover ratio of 0.71x is 82.5% higher than the 0.39x industry average.
For the fiscal third quarter, which ended on September 30, 2023, NBIX’s total revenues increased 28.6% year-over-year to $498.80 million, while its operating income rose 60.8% from the year-ago value to $141.20 million.
During the same period, the company’s net income and EPS amounted to $83.10 million and $0.82, up 21.3% and 18.8% from the year-ago value, respectively. Also, its total current assets stood at $1.65 billion, increasing 13.5% compared to $1.45 billion as of December 31, 2022.
The consensus EPS estimate of $1.49 for the fiscal fourth quarter (ending December 2023) represents a 20.5% increase year-over-year. While the consensus revenue estimate of $518.03 million for the same quarter reflects a 25.7% year-over-year improvement. Moreover, the company topped its revenue estimates in each of the trailing four quarters, which is promising.
Over the past six months, NBIX’s shares have gained 24.7% to close the last trading session at $117.28.
It’s no surprise that NBIX has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Quality and a B for Value and Sentiment. In the same industry, it is ranked #12.
In addition to the POWR Ratings we’ve stated above, we also have NBIX’s ratings for Growth, Momentum, and Stability. Get all NBIX ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NBIX shares were trading at $117.46 per share on Monday afternoon, up $0.18 (+0.15%). Year-to-date, NBIX has declined -1.66%, versus a 21.79% 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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