The pharmaceutical industry’s growth prospects look promising due to the adoption of advanced technologies, growth in research and development (R&D) initiatives, rise in chronic diseases, a rapidly aging population, and the development of drugs for rare conditions.
Therefore, it could be wise to consider buying fundamentally strong pharma stocks: Amphastar Pharmaceuticals, Inc. (AMPH), Bausch Health Companies Inc. (BHC), and ACADIA Pharmaceuticals Inc. (ACAD).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the pharmaceutical industry is well-positioned for growth.
Pharma remains one of the most-tracked sectors by investors due to its constant innovations and developments. Pharma stocks happen to be investor favorites due to the stable demand for their products, which helps them maintain their margins during any economic cycle.
The rising incidence of chronic diseases such as cancer, arthritis, diabetes, heart disease, etc, require patients to undergo frequent treatments and medications, which leads to a sustained demand for drugs and therapies. This year, global pharmaceutical revenue is expected to reach $1.16 trillion and is projected to grow at a CAGR of 6.2% to reach $1.47 trillion by 2028.
According to a report by IQIVIA, it forecasts a 2% increase in global medicine spending despite reduced expectations for COVID-19 treatments. The greater utilization of advanced medications in critical fields like immunology, endocrinology, and oncology drives this. The global spending on medicine using list prices is forecasted to grow by 38% through 2028.
On top of it, AI is transforming the pharmaceutical sector by revolutionizing drug discovery, improving manufacturing processes, and fostering strategic partnerships. Companies are prioritizing innovation to bolster patent portfolios and make strategic AI investments. The global market for AI in drug discovery is forecasted to grow to $13 billion by 2032.
Considering these conducive trends, let’s take a look at the fundamentals of the three Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #3: Amphastar Pharmaceuticals, Inc. (AMPH)
AMPH manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products in the United States, China, and France. The company operates through two segments: Finished Pharmaceutical Products and Active Pharmaceutical Ingredients (API).
In terms of the trailing-12-month EBITDA margin, AMPH’s 35.86% is 591.3% higher than the 5.19% industry average. Its 5.83% trailing-12-month Capex/Sales is 38.1% higher than the 4.22% industry average. Likewise, the stock’s 0.53x trailing-12-month asset turnover ratio is 36.7% higher than the 0.39x industry average.
For the third quarter ended September 30, 2023, AMPH net revenues increased 50.3% year-over-year to $180.56 million, and the company’s gross profit came in at $108.40 million, up 85.3% from the same period a year ago. Additionally, its non-GAAP net income and EPS rose 205.9% and 202.6% over the prior-year quarter to $61.90 million and $1.15, respectively.
Analysts expect AMPH’s EPS and revenues for the quarter ended December 31, 2023, to increase 24.7% and 28.4% year-over-year to $0.91 and $173.33 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, AMPH’s stock has gained 76.3% to close the last trading session at $56.02.
AMPH’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Quality. It is ranked #36 out of 161 stocks in the Medical – Pharmaceuticals industry. In total, we rate AMPH on eight different levels. Beyond what we stated above, we also have given AMPH grades for Value, Momentum, Stability, and Sentiment. Get all the AMPH’s ratings here.
Stock #2: Bausch Health Companies Inc. (BHC)
Headquartered in Laval, Canada, BHC operates as a diversified pharmaceutical company, developing, manufacturing, and marketing a range of products, primarily in gastroenterology, hepatology, neurology, dermatology, international pharmaceuticals, and eye health. The company operates through five segments: Salix, International, Solta Medical, Diversified, and Bausch + Lomb.
On January 30, 2024, BHC announced the U.S. launch of CABTREO Topical Gel for treating acne vulgaris in patients aged 12 and older. CABTREO simplifies dosing and has proven efficacy with significant reductions in lesions, as shown in Phase 3 studies.
In terms of the trailing-12-month EBITDA margin, BHC’s 33.21% is 540.2% higher than the 5.19% industry average. Likewise, its 70.66% trailing-12-month gross profit margin is 24% higher than the 57% industry average.
BHC’s revenues for the third quarter ended September 30, 2023, increased 9.4% year-over-year to $2.24 billion. The company’s adjusted net income attributable to BHC rose 36.1% year-over-year to $377 million. In addition, its adjusted EBITDA attributable to BHC came in at $830 million, representing an increase of 8.4% year-over-year.
Moreover, as of September 30, 2023, its cash, cash equivalents, and restricted cash stood at $780 million, compared to $591 million as of December 31, 2022.
Street expects BHC’s EPS for the quarter ended December 31, 2023, to increase 1.6% and 4.6% year-over-year to $1.04 and $2.29 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock gained 46.5% to close the last trading session at $8.38.
It’s no surprise that BHC has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #34 in the same industry. It has an A grade for Growth and a B for Value. Click here to see BHC’s Momentum, Stability, Sentiment, and Quality ratings.
Stock #1: ACADIA Pharmaceuticals Inc. (ACAD)
ACADIA is a biopharmaceutical company that focuses on developing and commercializing innovative medicines to address unmet medical needs in central nervous system (CNS) disorders and rare diseases. Its offerings include NUPLAZID and Trofinetide for Alzheimer's disease psychosis and Rett Syndrome, as well as treatments and programs for neuropsychiatric symptoms.
In terms of the trailing-12-month asset turnover ratio, ACAD’s 1.02x is 164.2% higher than the 0.39x industry average.
For the fiscal third quarter that ended on September 30, 2023, ACAD’s total revenues increased 62% year-over-year to $211.70 million. Its net interest income increased 79.7% year-over-year to $4.13 million. Also, as of September 30, 2023, its total assets stood at $632.54 million compared to $587.81 million as of December 31, 2022.
For the quarter ended December 31, 2023, ACAD’s revenue is expected to increase 64% year-over-year to $223.80 million. Likewise, its EPS for the quarter ending June 30, 2024, is expected to increase significantly year-over-year to $0.32. Over the past year, the stock has gained 41.1% to close the last trading session at $26.76.
ACAD’s POWR Ratings reflect a favorable outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Sentiment. It is ranked #30 in the Medical - Pharmaceuticals industry. To see ACAD’s Momentum, Stability, and Quality ratings, click here.
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ACAD shares were trading at $26.04 per share on Tuesday afternoon, down $0.72 (-2.69%). Year-to-date, ACAD has declined -16.83%, versus a 3.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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