The biotechnology sector has thrived exceptionally over the past few years, catalyzed by continued innovations that fortify its status as a vanguard in crucial sectors like healthcare, agriculture, and the environment.
Given the promising industry dynamics, investors might want to direct their attention to quality biotech stocks United Therapeutics Corporation (UTHR), Vertex Pharmaceuticals Incorporated (VRTX), Jazz Pharmaceuticals plc (JAZZ), and Gilead Sciences, Inc. (GILD) for solid investment opportunities.
The biotech industry is an evolutionary pillar in scientific research, distinguished by its exceptional potential to present wide-ranging opportunities for societal enhancement. Its expansive range of profitable applications confirms the industry's robust position for flourishing advancements.
Government initiatives are crucial in promoting the industry's viability, significantly boosting research and development activities. The proposed 2023 Budget earmarks $5 billion for the Advanced Research Projects Agency for Health (ARPA-H) to spark biomedical breakthroughs across various scales, from molecular to societal, assuring ground-breaking patient solutions.
Such financial injections streamline regulatory trajectory for medical products and standardize clinical study methodologies, expediting new vaccines and treatment approval.
Further bolstering the industry is the advent of Generative AI in biotech, paving the way for swift drug discovery, proficient disease diagnosis, personalized medication, and structural modifications in gene editing.
The global biotechnology market is expected to grow at a CAGR of 14% to reach $3.88 trillion by 2030. Furthermore, investors’ interest in biotech stocks is evident by the First Trust NYSE Arca Biotechnology Index Fund ETF’s (FBT) impressive 7.2% gains over the past year.
In light of these encouraging trends, let's look at the fundamentals of the four Biotech stock picks, beginning with number 4.
Stock #4: United Therapeutics Corporation (UTHR)
UTHR is a biotechnology company that develops and commercializes products to address the unmet medical needs of patients with chronic and life-threatening diseases in the United States and internationally.
On September 22, UTHR achieved two milestones for its xenotransplantation programs in September – the second transplant of a UHeart xenoheart into a living person and a 61-day study of the UThymoKidney xenokidney and thymus in a human pre-clinical model. This should bode well for the company.
UTHR’s trailing-12-month CAPEX/Sales of 9.20% is 104.6% higher than the industry average of 4.50%. Its trailing-12-month EBIT and levered FCF margins of 51.97% and 24.14% are significantly higher than the industry averages of 0.42% and 0.45%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 13.8% and 3.9%, respectively. Over the past three years, its net income grew at CAGRs of 26.6%.
For the fiscal second quarter that ended June 30, 2023, UTHR’s total revenues and operating income stood at $596.50 million and $313.40 million, up 27.8% and 55.3% year-over-year, respectively.
For the same quarter, its net income and net income per common share increased 123.4% and 117.4% year-over-year to $259.20 million and $5.24, respectively. As of June 30, 2023, its total cash and cash equivalents came at $1.07 billion, compared to $961.20 million as of December 31, 2022.
Street expects UTHR’s revenue and EPS in the fiscal third quarter ending September 2023 to increase 13.9% and 14% year-over-year to $587.90 million and $5.56, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 7.7% over the past year to close the last trading session at $233.16. Over the past month, it gained 5.9%.
UTHR’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UTHR has a B grade for Value and Quality. It is ranked #16 in the 359-stock Biotech industry.
In addition to the POWR Ratings highlighted above, one can access UTHR’s ratings for Growth, Momentum, Stability, and Sentiment here.
Stock #3: Vertex Pharmaceuticals Incorporated (VRTX)
VRTX develops and commercializes Cystic Fibrosis (CF) therapies, including TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO. It has a robust pipeline of investigational small molecule, cell, and genetic therapies in other serious diseases, including sickle cell disease, beta thalassemia, APOL1-mediated kidney disease, type 1 diabetes, alpha-1 antitrypsin deficiency, and muscular dystrophies.
On September 15, VRTX received the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) positive opinion for KAFTRIO (ivacaftor/tezacaftor/elexacaftor) in combination with Ivacaftor for children with cystic fibrosis (CF) ages 2 through 5 years.
VRTX’s trailing-12-month asset turnover ratio of 0.53x is 38.3% higher than the industry average of 0.38x. Its trailing-12-month EBIT and levered FCF margins of 47.04% and 38.18% are significantly higher than the industry averages of 0.42% and 0.45%, respectively.
Over the past three and five years, its EBITDA grew at 27.9% and 61.3% CAGRs, respectively, while net income grew at CAGRs of 17.4% and 52% over the same periods.
For the fiscal second quarter that ended June 30, 2023, VRTX’s net product revenues stood at $2.49 billion, up 13.5% year-over-year. Its non-GAAP operating income stood at $1.15 billion.
For the same quarter, its non-GAAP net income and non-GAAP net income per common share increased 9% and 8.1% year-over-year to $1.01 billion and $3.89, respectively. As of June 30, 2023, its total current assets came at $13.87 billion, compared to $13.23 billion as of December 31, 2022.
Street expects VRTX’s revenue in the fiscal third quarter ending September 2023 to increase 7.1% year-over-year to $2.50 billion. Its EPS is expected to come at $3.96. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.
The stock has gained 28.5% year-to-date to close the last trading session at $371. Over the past year, it gained 26.5%.
VRTX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Stability. Within the same industry, it is ranked #8.
Beyond what we have highlighted above, to view VRTX’s additional ratings (Growth, Momentum, and Sentiment), click here.
Stock #2: Jazz Pharmaceuticals plc (JAZZ)
Based in Dublin, Ireland, JAZZ identifies, develops, and commercializes pharmaceutical products to address unmet medical needs. The company’s portfolio centers on neuroscience, encompassing sleep medicine and movement disorders, and oncology, such as hematologic and solid tumors.
On September 21, the European Commission (EC) granted marketing authorization for Enrylaze® as part of a multi-agent chemotherapy regimen for acute lymphoblastic leukemia (ALL) and lymphoblastic lymphoma (LBL) patients with hypersensitivity to E. coli-derived asparaginase.
Healthcare professionals in the European Union can now access Enrylaze, expanding JAZZ’s portfolio and enhancing its reputation as a leader in tailored treatment solutions for diverse patient needs, ultimately driving growth and market prominence.
Also, JAZZ’s diligent and strategic performance has enabled robust growth across all three primary growth drivers in its commercial business in the fiscal second quarter. Consequently, the firm has revised its full-year 2023 guidance, anticipating revenues between $3.73 billion and $3.88 billion, up from the previous range of $3.68 billion to $3.88 billion.
JAZZ’s trailing-12-month EBITDA margin of 43.3% is 723% higher than the industry average of 5.23%. Its trailing-12-month EBIT and levered FCF margins of 26.80% and 34.37% are significantly higher than the industry averages of 0.42% and 0.45%, respectively.
Over the past three and five years, its revenue grew at CAGRs 19.3% and 16%, respectively. Over the past three years, total assets and levered free cash flow grew at CAGRs of 22.9% and 54.7%, respectively.
Additionally, non-GAAP net income and non-GAAP net income per share are expected to reach $1.29 billion to $1.34 billion and $18.15 to $19.00, respectively, compared to the earlier projections of $1.24 billion to $1.31 billion and $16.90 to $17.85. This upward revision reflects JAZZ’s robust performance and outlook for sustained growth.
For the fiscal second quarter that ended June 30, 2023, JAZZ’s total revenues and income from operations stood at $957.32 million and $157.64 million, up 2.6% and 84.3% year-over-year, respectively.
For the same period, its non-GAAP adjusted net income and non-GAAP adjusted EPS increased 6.4% and 4.9% from the prior-year quarter to $325.13 million and $4.51, respectively. As of June 30, 2023, its total current assets came at $3.01 billion, compared to $2.61 billion as of December 31, 2022.
Street expects JAZZ’s revenue in the fiscal third quarter ending September 2023 to increase 3.1% year-over-year to $970.04 million. Its EPS is expected to come at $4.90.
The stock has gained 1.9% over the past three months to close the last trading session at $129.12. Over the past five days, it gained marginally.
JAZZ’s strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
JAZZ has an A grade for Value and a B for Growth and Quality. It is ranked #3 within the Biotech industry.
Click here to access additional JAZZ ratings for Momentum, Stability, and Sentiment.
Stock #1: Gilead Sciences, Inc. (GILD)
GILD discovers, develops, and commercializes medicines for unmet medical needs in the United States, Europe, and internationally.
On September 19, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) granted a positive opinion for the use of Veklury (remdesivir) to treat people with COVID-19 with mild to severe hepatic impairment. This should bode well for the company.
Its annualized dividend rate of $3 per share translates to a dividend yield of 3.86% on the current share price. Its four-year average yield is 4.02%. GILD’s dividend payments have grown at CAGRs of 3.7% and 6% over the past three and five years, respectively.
GILD’s trailing-12-month asset turnover ratio of 0.44x is 14.3% higher than the industry average of 0.38x. Its trailing-12-month EBIT and levered FCF margins of 35.75% and 35.14% are significantly higher than the industry averages of 0.42% and 0.45%, respectively.
Over the past three years, its revenue and EBITDA grew at CAGRs of 7.3% and 7.4%, respectively. For the same period, its levered free cash flow stood at 12.7%.
For the fiscal second quarter that ended June 30, 2023, GILD’s total revenues stood at $6.60 billion, up 5.4% year-over-year. Its non-GAAP operating income stood at $2.28 billion.
For the same period, its non-GAAP net income attributable to GILD and non-GAAP adjusted earnings per share stood at $1.69 billion and $1.34, respectively. Its free cash flow increased 32.5% year-over-year to $2.20 billion.
Street expects GILD’s EPS in the fiscal third quarter ending September 2023 to increase marginally year-over-year to $1.92. Its revenue is expected to come at $6.80 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters.
Over the past year, the stock has gained 17.4% to close the last trading session at $77.65. It gained 3.5% over the past five days.
GILD’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Stability, and Quality. It is ranked first in the Biotech industry.
To see GILD’s ratings for Momentum and Sentiment, click here.
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GILD shares were trading at $79.39 per share on Monday afternoon, up $1.74 (+2.24%). Year-to-date, GILD has declined -4.82%, versus a 15.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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