Pharma stocks are popular with investors because they maintain stable margins regardless of economic cycles, thanks to consistent product demand. The pharma industry's outlook appears bright due to the rising number of chronic diseases, an aging population, the adoption of AI in drug manufacturing, and higher R&D investments for both common and rare conditions.
Amid this backdrop, investors could consider buying fundamentally strong pharma stocks: Collegium Pharmaceutical, Inc. (COLL), Novo Nordisk A/S (NVO), and GSK plc (GSK).
The pharmaceutical industry is thriving because there's a greater demand for treating chronic illnesses such as cancer, arthritis, diabetes, and heart disease, as well as a rising interest in precision and personalized medicines. Global pharmaceutical revenues are expected to reach $1.16 trillion this year and grow at a 6.2% CAGR, reaching $1.47 trillion by 2028.
Meanwhile, pharmaceutical companies are quickly adopting AI for cost and time savings and digital health tech for drug development, especially in virtual trials and patient monitoring. This, coupled with increased patient access to innovative immunology, endocrinology, and oncology treatments, bodes well for medicine use and spending.
Notably, global spending on medicine using list prices has increased by 35% in the past five years, and a projected 38% rise is expected by 2028.
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: Collegium Pharmaceutical, Inc. (COLL)
COLL is a specialty pharmaceutical company that develops and commercializes medicines for pain management. Its portfolio includes Xtampza ER, Nucynta ER and, Nucynta IR, Belbuca, and Symproic.
On April 29, 2024, COLL announced an authorized generic agreement with Hikma Pharmaceuticals USA Inc. for Nucynta and Nucynta ER, ensuring their continued availability in the U.S. market. COLL will manufacture and supply the products exclusively to Hikma, which will sell them under certain conditions, benefiting from shared net profits.
In terms of the trailing-12-month EBIT margin, COLL’s 33.63% is considerably higher than the 0.65% industry average. Likewise, its 48.40% trailing-12-month levered FCF margin is significantly higher than the 0.79% industry average. Furthermore, its 85.93% trailing-12-month gross profit margin is 51.9% higher than the 56.59% industry average.
COLL’s net product revenues for the fourth quarter that ended December 31, 2023, rose 15.5% year-over-year to $149.75 million. Its adjusted net income increased 52.1% year-over-year to $64.17 million. Likewise, COLL’s adjusted EPS stood at $1.58, up 45% over the prior-year quarter. Moreover, its adjusted EBITDA grew 36.2% from the year-ago value to $104.15 million.
Street expects COLL’s EPS and revenue for the quarter ended March 31, 2024, to increase 12.1% and 1.9% year-over-year to $1.48 and $147.54 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock gained 70% to close the last trading session at $36.93.
COLL’s POWR Ratings reflect strong prospects. It has an overall rating of A, 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 is ranked #14 out of 161 stocks in the Medical – Pharmaceuticals industry. It has an A grade for Quality and a B for Growth and Value. Click here to see COLL’s Momentum, Stability, and Sentiment ratings.
Stock #2: Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the research, development, manufacture, and marketing of pharmaceutical products worldwide. The company operates in two segments: Diabetes and Obesity care and Biopharm.
On March 25, 2024, NVO announced its plans to acquire Cardior Pharmaceuticals for up to €1.03 billion ($1.10 billion), enhancing its cardiovascular disease pipeline with Cardior's RNA-targeting therapies, notably the lead compound CDR132L, which is in phase 2 development for heart failure treatment.
On March 9, 2024, NVO announced that Wegovy received FDA approval in the U.S. to reduce major heart-related risks in adults with overweight or obesity and existing heart disease. This approval is backed by data from the SELECT trial demonstrating notable reductions in heart-related events, cardiovascular death, and overall mortality.
In terms of the trailing-12-month levered FCF margin, NVO’s 23.29% is significantly higher than the 0.79% industry average. Its 0.84x trailing-12-month asset turnover ratio is 111.7% higher than the 0.39x industry average. Also, its 44.77% trailing-12-month EBIT margin is significantly higher than the 0.65% industry average.
For the fiscal fourth quarter ended December 31, 2023, NVO’s net sales increased 37% year-over-year to DKK65.86 billion ($9.45 billion). Its gross profit grew 40.2% from the year-ago value to DKK55.85 billion ($8.01 billion).
For the same quarter, its operating and net profit rose 56.6% and 61.6% over the prior-year quarter to DKK26.77 billion ($3.84 billion) and DKK21.96 billion ($3.15 billion), respectively. Also, its EPS/ADR stood at DKK4.91, up 63.1% year over year.
For the quarter ended March 31, 2024, NVO’s EPS and revenue are expected to increase 17.9% and 15.9% year-over-year to $0.77 and $9.15 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 62.6% to close the last trading session at $128.31.
NVO’s POWR Ratings reflect a favorable outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Sentiment and Quality. It is ranked #13 in the same industry. To see NVO’s additional grades for Growth, Value, Momentum, and Stability, click here.
Stock #1: GSK plc (GSK)
Headquartered in Brentford, United Kingdom, GSK operates in the research, development, and manufacturing of vaccines and specialty medicines in the United Kingdom, the U.S., and internationally. The company operates through four segments: Pharmaceuticals, Pharmaceuticals R&D, Vaccines, and Consumer Healthcare.
On February 15, 2024, GSK completed the acquisition of Aiolos Bio, obtaining AIO-001, a promising anti-TSLP monoclonal antibody for asthma treatment. This expanded their respiratory biologics portfolio and aimed to address the needs of severe asthma patients with low T2 inflammation.
In terms of the trailing-12-month EBITDA margin, GSK’s 33.98% is 552.3% higher than the 5.21% industry average. Its 4.33% trailing-12-month Capex / Sales is 9.3% higher than the 3.96% industry average. Likewise, the stock’s 0.51x trailing-12-month asset turnover ratio is 29% higher than the 0.39x industry average.
GSK’s turnover for the third quarter that ended March 31, 2024, increased 5.9% year-over-year to £7.36 billion ($9.22 billion). Its adjusted operating profit rose 16.8% over the prior-year quarter to £2.44 billion ($3.06 billion).
For the same quarter, the company’s adjusted profit before taxation rose 20.3% year-over-year to £2.31 billion ($2.89 billion). Also, its adjusted earnings per share was 43.10p, up 16.5% over the prior-year quarter.
Analysts expect GSK’s revenue for the quarter ending June 30, 2024, to increase marginally year-over-year to $9.35 billion. Its EPS for the quarter ending September 30, 2024, is expected to grow 4.8% year-over-year to $1.28. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, GSK’s stock has gained 17.5% to close the last trading session at $41.44.
It’s no surprise that GSK has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has an A grade for Value and a B for Stability and Quality. It is ranked #5 in the Medical – Pharmaceuticals industry. In total, we rate GSK on eight different levels. Beyond what we stated above, we also have given GSK grades for Growth, Momentum, and Sentiment. Get all the GSK’s ratings here.
What To Do Next?
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NVO shares were trading at $128.80 per share on Wednesday morning, up $0.49 (+0.38%). Year-to-date, NVO has gained 25.14%, versus a 5.65% 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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