The pharmaceutical industry is a robust and continually evolving sector, poised for sustained growth in the coming years, driven by several factors, including an aging global population, the rising incidence of chronic illnesses, and technological advancements.
Considering the solid industry prospects, I think Teva Pharmaceutical Industries Limited (TEVA), Eli Lilly and Company (LLY), and Merck & Co., Inc. (MRK) could be quality buys now.
But before we delve into the fundamentals of the stocks, let’s understand the industry landscape better.
The demographic shift towards an increasingly aging population, with approximately 21% of the global population expected to be aged 60 and above by 2050, underscores the escalating demand for healthcare and pharmaceutical products.
Improved purchasing power and enhanced access to quality healthcare and medications for lower and middle-income families worldwide further contribute to the industry’s expansion.
Moreover, pharmaceutical companies’ growing focus on addressing rare and specialty diseases is another vital growth driver. Additionally, substantial investments in cutting-edge technologies like biologics, nucleic acid therapeutics, cell therapies, bioelectronics, and implantable devices are bolstering the industry’s growth globally.
According to Statista, the pharmaceuticals market is anticipated to grow at a CAGR of 5.8%, resulting in a market volume of $1.48 trillion by 2028.
Also, as per the IQVIA Institute Report, the global spending on medicines will reach $1.9 trillion by 2027, excluding spending on COVID-19 vaccines and therapeutics. Oncology spending is set to be a major driver of innovation, reaching $370 billion by 2027.
Let’s delve into the fundamentals of the listed Medical – Pharmaceuticals stocks, starting with the third choice.
Stock #3: Teva Pharmaceutical Industries Limited (TEVA)
TEVA is a global pharmaceutical company based in Israel that specializes in generic and specialty medicines, including products for CNS, respiratory, and oncology treatment areas. They also offer contract manufacturing services and collaborate on long-acting injectable products.
On September 6, TEVA announced that it would present 16 data presentations at Psych Congress, showcasing advancements in its neuroscience portfolio, including once-daily AUSTEDO XR and UZEDY, both recently FDA-approved treatments. This highlights TEVA’s commitment to enhancing patient treatment options, potentially strengthening its position in the mental health and neurology pharmaceutical market.
On July 24, TEVA declared that it is expanding its strategic partnership with Alvotech, focusing on biosimilars and acquiring $40 million in subordinated convertible bonds from Alvotech. This move underscores TEVA’s commitment to biosimilar development and its goal to strengthen its position in the pharmaceutical market, especially in the area of biologics and biosimilars.
TEVA’s trailing-12-month EBITDA margin of 24.72% is substantially higher than the 5.15% industry average.
TEVA’s revenues for the fiscal second quarter ended June 30, 2023, came in at $3.88 billion, increasing 2.4% year-over-year, while gross profit increased marginally year-over-year to $1.80 billion.
Net cash provided by operating activities improved by 163.4% to $324 million, and Cash, cash equivalents, and restricted cash balance at the end of the period came in at $2.67 billion, registering an increment of 27.7%.
Street expects TEVA’s EPS to increase 5.61% year-over-year to $0.62 in the current quarter, while its revenue is estimated to increase 4.4% from a year ago value to $3.75 billion.
The stock has gained 37% over the past three months to close the last trading session at $10.04.
TEVA’s POWR Ratings reflect its 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.
It has an A grade for Growth and Value. Out of 159 stocks in the Medical – Pharmaceuticals industry, it is ranked #27. In addition to the POWR Ratings we’ve stated, we also have TEVA’s ratings for Momentum, Stability, Sentiment, and Quality. Get all TEVA ratings here.
Stock #2: Eli Lilly and Company (LLY)
Eli Lilly and Company is a global pharmaceutical firm known for its diverse range of medications, including those for diabetes, cancer, autoimmune diseases, mental health, and more. The company collaborates with various partners and plays a significant role in developing treatments for conditions like COVID-19.
On August 14, LLY successfully acquired Versanis Bio, expanding its portfolio with bimagrumab, a potential treatment for obesity, enhancing cardiometabolic disease research.
On the same day, LLY also successfully completed its acquisition of Sigilon Therapeutics, focusing on the development of encapsulated cell therapies, including SIG-002, for type 1 diabetes treatment. This acquisition enhances Lilly’s capabilities to provide innovative solutions for type 1 diabetes patients, potentially revolutionizing disease management.
LLY’s trailing-12-month gross profit margin of 77.77% is 39.7% higher than the 55.67% industry average. Its trailing-12-month EBITDA margin of 33.08% is substantially higher than the industry average of 5.15%.
For the fiscal second quarter that ended June 30, 2023, LLY’s revenue amounted to $8.31 billion, reflecting a 28.1% rise year-over-year. Its operating income improved 75.7% from the year-ago value to $2.13 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $1.90 billion and $2.11, representing an increase of 68.3% and 68.8%, respectively, from the prior-year quarter.
The consensus revenue estimate of $8.83 billion for the third quarter (ending September 2023) represents a 27.1% increase year-over-year. The consensus EPS estimate of $2.91 for the current quarter indicates a 47.1% improvement year-over-year. The company has an impressive surprise history, surpassing the consensus revenue and EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 89.1% to close the last trading session at $595.56.
LLY’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 Growth and a B for Stability, Sentiment, and Quality.
Within the same industry, it is ranked #21. Click here to view LLY’s ratings for Value and Momentum.
Stock #1: Merck & Co., Inc. (MRK)
MRK is a global healthcare company with two segments: Pharmaceutical, offering a range of human health pharmaceuticals and vaccines, and Animal Health, specializing in veterinary pharmaceuticals, vaccines, and digital health solutions. The company collaborates with various partners to develop long-acting treatments for HIV and serves a wide range of healthcare providers and professionals.
On September 7, MRK received expanded approval from the European Commission for ERVEBO, its Ebola vaccine, for use in individuals as young as one year old, expanding its previous approval for those 18 and older. This marks a significant boost to its product portfolio.
On August 29, MRK received European Commission approval for KEYTRUDA, its anti-PD-1 therapy, in combination with trastuzumab and chemotherapy for the first-line treatment of HER2-positive gastric or gastroesophageal junction adenocarcinoma in adults with PD-L1 expression.
This approval expands treatment options and strengthens MRK’s position in the field of immunotherapy for challenging-to-treat cancers, potentially impacting the company’s market presence and revenue in this therapeutic area.
MRK’s trailing-12-month levered FCF margin of 6.10% compared with the 0.23% industry average. Its trailing-12-month EBITDA margin of 21.14% is higher than the industry average of 5.15%.
MRK’s sales increased 3% year-over-year to $15.04 billion for the fiscal second quarter ended on June 30, 2023. The total pharmaceutical segment sales also increased 5.5% from year-ago value to $13.46 billion.
For the fiscal third quarter ending September 2023, MRK’s EPS is estimated to grow 5.1% year-over-year to $1.94, while its revenue is projected to reach $15.24 billion, up 1.9% from last year's quarter. The company topped both EPS and revenue estimates for each of the trailing four quarters.
The stock has gained 24.3% over the past year to close the last trading session at $108.60.
It’s no surprise that MRK has an overall rating of B, which translates to a Buy in our proprietary rating system.
MRK has a B grade for Growth, Stability, Sentiment, and Quality. It is ranked #14 in the same industry. Click here to see the other ratings Of MRK for Value and Momentum.
What To Do Next?
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LLY shares rose $1.09 (+0.18%) in premarket trading Tuesday. Year-to-date, LLY has gained 64.40%, versus a 17.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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