The pharma industry’s growth prospects look promising thanks to favorable government initiatives, rising healthcare expenditures, the growing need for quality healthcare and personalized treatments, and the rise in lifestyle-related diseases.
Amid this backdrop, investors could consider diversifying their portfolios by buying fundamentally strong pharma stocks such as Elanco Animal Health Incorporated (ELAN), Viatris Inc. (VTRS), and Astellas Pharma Inc. (ALPMY). These stocks are top-rated in our proprietary POWR Ratings system.
Investors closely track the pharmaceutical industry due to its constant innovations and improvements, which enable people to live healthier and longer lives. According to Statista, worldwide pharmaceutical revenues are expected to grow at a CAGR of 6.2% to reach $1.47 trillion by 2028.
The rise of chronic diseases such as cancer, arthritis, asthma, COPD, etc., and growth in the elderly population is boosting healthcare spending. Pharmaceutical companies are looking to manage and treat these diseases effectively. The U.S. pharmaceutical market is expected to grow at a 5.5% CAGR, reaching $760 million by 2030.
Additionally, rising investments in R&D and manufacturing facilities and incorporating digital technologies like artificial intelligence (AI), the Internet of Things, and big data analytics have bolstered the pharma industry by optimizing manufacturing processing and enhancing quality.
AI applications can create between $350 billion and $410 billion in annual value for pharmaceutical companies by 2025. Meanwhile, the global animal health market is expected to grow due to rising pet populations, the requirement for productivity improvement in existing herds, and the emergence of new animal diseases.
The global animal health market’s revenue is predicted to reach $112.30 billion by 2030, growing at a CAGR of 9%.
Considering these factors, let’s examine the fundamentals of the Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #3: Elanco Animal Health Incorporated (ELAN)
ELAN innovates, develops, manufactures, and markets products for pets and farm animals. It offers pet health disease prevention products, such as parasiticide and vaccine products, that protect pets from worms, fleas, and ticks under the Seresto, Advantage, Advantix, and Advocate brands.
ELAN’s trailing-12-month EBIT margin of 5.61% is 321.7% higher than the industry average of 1.33%. Likewise, its trailing-12-month EBITDA margin and levered FCF margin of 20.11% and 1.94% are 247.6% and 120.4% higher than the industry averages of 5.79% and 0.88%, respectively.
ELAN’s revenue for the fiscal first quarter that ended March 31, 2024, stood at $1.21 billion. Its adjusted EBITDA came in at $294 million. Moreover, its non-GAAP net income stood at $167 million. Also, its non-GAAP earnings per share amounted to $0.34.
Analysts expect ELAN’s revenue and EPS for the quarter ending June 30, 2024, to increase 9% and 33.8% year-over-year to $1.15 billion and $0.24, respectively. The company surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 88.9%, closing the last trading session at $17.
ELAN’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ELAN has a B grade for Growth, Value, and Sentiment. It is ranked #40 out of 161 stocks in the Medical - Pharmaceuticals industry. Beyond what we stated above, we have also rated ELAN for Momentum, Stability, and Quality. Get all the ELAN ratings here.
Stock #2: Viatris Inc. (VTRS)
VTRS offers prescription brand drugs, generic drugs, complex generic drugs, biosimilars, and active pharmaceutical ingredients (APIs). The company operates in four segments: Developed Markets, Greater China, JANZ, and Emerging Markets.
On April 15, 2024, VTRS announced the launch of PrGlatiramer Acetate Injection 20 mg/mL in Canada, the first generic bioequivalent version of Teva's Copaxone 20 mg/mL, indicated for the treatment of patients with Relapsing-Remitting Multiple Sclerosis, a chronic inflammatory disease of the central nervous system.
On April 1, 2024, VTRS launched RYZUMVI in the U.S. It's the sole FDA-approved eye drop that helps reverse medication-induced dilation, helping in eye exams and spotting eye/systemic issues. It takes effect in around 30 minutes.
VTRS’ trailing-12-month EBIT margin of 13.63% is 923.7% higher than the industry average of 1.33%. Its trailing-12-month EBITDA margin and levered FCF margin of 30.81% and 6.64% are 432.5% and 654.5% higher than the industry averages of 5.79% and 0.88%, respectively.
For the fiscal first quarter that ended March 31, 2024, VTRS’ total revenues and adjusted gross profit stood at $3.66 billion and $2.15 billion, respectively. Its adjusted EBITDA amounted to $1.19 billion. For the same quarter, its adjusted net earnings and EPS stood at $812.70 million and $0.67, respectively.
Street expects VTRS’ EPS for the quarter ending December 31, 2024, to increase 9.7% year-over-year to $0.68. VTRS’ stock has gained 21.3% over the past six months, closing the last trading session at $11.16.
VTRS’ POWR Ratings reflect its positive prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
VTRS has an A grade for Value and a B for Growth. Within the same industry, it is ranked #39. Click here for the additional POWR Ratings for VTRS (Momentum, Stability, Sentiment, and Quality).
Stock #1: Astellas Pharma Inc. (ALPMY)
Headquartered in Tokyo, Japan, ALPMY manufactures, markets, imports, and exports pharmaceuticals in Japan and internationally. The company mainly operates in the Pharmaceutical Products business segment.
On May 1, 2024, ALPMY and Poseida announced a research collaboration to develop novel convertibleCAR programs targeting solid tumors, combining Poseida's allogeneic CAR-T platform with ALPMY’s Xyphos ACCELTM technology, aiming to address significant unmet needs in cancer therapy.
On April 23, 2024, ALPMY announced that the European Commission approved a label extension for XTANDI as monotherapy or in combination with androgen deprivation therapy for the treatment of adult men with high-risk biochemical recurrent non-metastatic hormone-sensitive prostate cancer who are unsuitable for salvage-radiotherapy.
ALPMY’s trailing-12-month asset turnover ratio of 0.53x is 33.7% higher than the industry average of 0.40x. Similarly, its trailing-12-month gross profit margin and EBITDA margin of 81.76% and 15.26% are 44.5% and 163.7% higher than the industry averages of 56.59% and 5.79%, respectively.
ALPMY’s revenue for the fiscal year that ended March 31, 2024, increased 5.6% year-over-year to ¥1.60 trillion ($10.29 billion). The company’s gross profit rose 6.6% from the year-ago value to ¥1.31 trillion ($8.42 billion). ALPMY’s core profit for the year stood at ¥150.98 billion ($969.04 million) or ¥84.19 per share.
In addition, as of March 31, 2024, ALPMY’s total current assets amounted to ¥1.19 trillion ($7.67 billion), compared to ¥1.05 trillion ($6.74 billion) as of March 31, 2023.
For the quarter ending June 30, 2024, ALPMY’s revenue is expected to increase 2.1% year-over-year to $2.67 billion. Its EPS for fiscal 2025 is expected to increase 382% year-over-year to $0.30. It surpassed consensus revenue estimates in each of the trailing four quarters. The stock has declined 1.8% intraday to close the last trading session at $9.72.
ALPMY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Stability and a B for Value. It is ranked #36 in the Medical - Pharmaceuticals industry. To see ALPMY’s Growth, Momentum, Sentiment, and Quality ratings, click 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.
ALPMY shares were trading at $9.61 per share on Monday morning, down $0.11 (-1.09%). Year-to-date, ALPMY has declined -19.24%, versus a 10.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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