Despite facing various challenges, including clinical trial complexities, lengthy approval processes, and regulatory hurdles, the biotech industry thrives due to consistent innovations and sustained demand for quality drugs and therapies.
Therefore, investors could consider waiting for a better entry point in Moderna, Inc. (MRNA). On the other hand, given its poor fundamentals and growth prospects, Arrowhead Pharmaceuticals, Inc. (ARWR) is best avoided.
Before diving deeper into their fundamentals, let’s discuss what’s shaping the prospects of the biotech industry.
Despite its potential, the biotech industry faces several challenges, including higher research and development (R&D) costs. Development of drugs involves significant investments in R&D over several years and even then, there is no guarantee that the drug under development will make it to the market.
Additionally, the industry faces stringent regulations from regulatory agencies, and the approval process is usually lengthy. The industry is also facing increased competition from biosimilars.
Furthermore, there exists concern that the U.S. is potentially losing its leadership position due to challenges such as government-imposed price controls, weakening IP protections, and neglect of supportive policies for innovation.
Despite the challenges, the biotech sector's growth prospects appear promising due to a rapidly aging population and the growing demand for effective treatments for various illnesses. These include personalized medicine and orphan drug formulations to address chronic and rare diseases, which create opportunities for biotech firms and ensure sustained industry growth.
The sector is expanding due to more clinical trials, new drugs under development, and increased investments in pharmaceutical research and development. The clinical trial market is expected to grow at a CAGR of 4.3% to reach $184.61 billion by 2034.
The global biotechnology market is projected to reach $3.88 trillion by 2030, expanding at a CAGR of 14% till 2030.
Furthermore, the industry is leveraging cutting-edge technologies like artificial intelligence (AI) and Big Data analytics to drive innovation and drug development. The global AI for Pharma and Biotech market, valued at $850 million this year, is projected to grow at a 30.5% CAGR to reach $4.20 billion by 2027.
Considering this backdrop, let’s take a look at the fundamentals of the two biotech stocks.
Stock to Hold:
Moderna, Inc. (MRNA)
MRNA is a biotechnology company that discovers, develops, and commercializes messenger RNA therapeutics and vaccines for the treatment of infectious diseases, immuno-oncology, rare diseases, autoimmune disorders, and cardiovascular diseases internationally.
In terms of the trailing-12-month Capex/Sales, MRNA’s 10.32% is 154.1% higher than the 4.06% industry average. However, its 0.31x trailing-12-month asset turnover ratio is 21.2% lower than the industry average of 0.39x.
For the fourth quarter that ended December 31, 2023, MRNA’s total revenue came in at $2.81 billion. Its interest income rose 18.4% over the prior-year quarter to $103 million.
However, its income from operations declined 99.6% year-over-year to $6 million. Moreover, its net income and EPS stood at $217 million and $0.55, respectively, down 85.2% and 84.8% from the year-ago value.
Analysts expect MRNA’s EPS for the quarter ending March 31, 2024, to remain negative. Its revenue for fiscal 2025 is expected to increase 16.7% year-over-year to $4.93 billion. Over the past three months, the stock has gained 20.5% to close the last trading session at $103.46.
MRNA’s bleak fundamentals are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Momentum, Sentiment, and Quality. Within the Biotech industry, it is ranked #148 out of 363 stocks. In total, we rate MRNA on eight different levels. Beyond what we stated above, we also have given MRNA grades for Growth, Value, and Stability. Get all the MRNA ratings here.
Stock to Sell:
Arrowhead Pharmaceuticals, Inc. (ARWR)
ARWR develops medicines for the treatment of intractable diseases in the United States. The company's products in the pipeline include Plozasiran, Zodasiran, ARO-PNPLA3, ARO-RAGE, and ARO-MUC5AC.
In terms of the trailing-12-month asset turnover ratio, ARWR’s 0.24x is 39% lower than the industry average of 0.39x. Its negative 174.56% trailing-12-month levered FCF margin compares to the industry average of 0.49%. Furthermore, its negative 157.01% trailing-12-month EBITDA margin compares to the 5.90% industry average.
ARWR’s revenue for the fiscal year that ended December 31, 2023, decreased 94.3% year-over-year to $3.55 million. Its operating loss widened 224.1% from the year-ago value to $136.55 million. Moreover, the company’s net loss and net loss per share attributable to ARWR widened 221.5% and 217.9% over the prior-year quarter to $132.86 million and $1.24, respectively.
Street expects ARWR’s EPS for the quarter ending March 31, 2024, to remain negative. Its revenue for the same quarter is expected to decrease 61.2% year-over-year to $56.83 million. It failed to surpass the Street EPS estimates in three of the trailing four quarters. Over the past nine months, ARWR’s stock has declined 22.4% to close the last trading session at $27.42.
ARWR’s weak outlook justifies its overall rating of D, which translates to a Sell in our proprietary POWR Ratings system.
It is ranked #334 in the same industry. It has an F grade for Growth and a D for Stability, Sentiment, and Quality. Click here to see ARWR’s ratings for Value and Momentum.
What To Do Next?
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MRNA shares were trading at $102.03 per share on Friday morning, down $1.43 (-1.38%). Year-to-date, MRNA has gained 2.59%, versus a 7.50% 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.
Biotech Investors: Should You Buy, Hold, or Sell Moderna (MRNA) and Arrowhead Pharmaceuticals (ARWR)? StockNews.com
