Despite macro uncertainties, the biotech industry has fared relatively well over the past year thanks to consistent breakthroughs and inelastic demand. Along with increasing opportunities to serve an aging population, the Biden Administration’s National Biotechnology and Biomanufacturing Initiative is expected to bolster the industry’s growth.
The global biotechnology market is expected to grow at a CAGR of 8.7% to $1.68 trillion by 2030. Investors’ interest in biotech stocks is evident from the SPDR S&P Biotech ETF’s (XBI) 25.5% returns over the past nine months.
Given the industry’s promising prospects and resilience to uncertain economic conditions, one could invest in quality biotech stocks Gilead Sciences, Inc. (GILD), United Therapeutics Corporation (UTHR), and Jazz Pharmaceuticals plc (JAZZ).
However, given Bionano Genomics, Inc.’s (BNGO) fundamental weakness and bleak growth prospects, the stock might be best avoided now.
Stocks to Buy:
Gilead Sciences, Inc. (GILD)
GILD is a biopharmaceutical company focusing on developing and commercializing medicine for treating life-threatening diseases, including HIV, viral hepatitis, and cancer.
On February 3, GILD announced that the U.S. Food and Drug Administration (FDA) had approved Trodelvy to treat adult patients with pre-treated HR+/HER2- metastatic breast cancer who have received prior endocrine-based therapy and at least two chemotherapies.
Last month the European Medicines Agency also validated a Type II Variation Marketing Authorization Application for the same. Given the limited treatment options, such approvals significantly make Trodelvy accessible to more patients across the EU.
On January 30, Kite, a GILD company, and Arcellx, Inc. (ACLX) announced a strategic collaboration to co-develop and co-commercialize ACLX’s lead late-stage clinical CART-ddBCMA for the treatment of patients with relapsed or refractory multiple myeloma.
In the same month, GILD and EVOQ Therapeutics, Inc. announced a collaboration and licensing agreement to advance EVOQ’s proprietary technology for treating rheumatoid arthritis (RA) and lupus. Under the agreement, GILD would receive the rights to exclusively license EVOQ’s NanoDisc technology to develop and commercialize immunotherapy products clinically.
On February 2, GILD increased its quarterly cash dividend by 2.7% to $0.75 per share of common stock, payable on March 30, 2023. The company’s annual dividend of $3 yields 3.50% at the current price level. Its dividend payouts have increased at a 5% CAGR over the past three years and a 7% CAGR over the past five years. GILD has a record of seven years of consecutive dividend growth.
GILD’s total revenues increased 2% year-over-year to $7.39 billion for the fiscal fourth quarter that ended December 31, 2022. Its adjusted operating income grew 79.1% from the year-ago value to $2.70 billion, while its non-GAAP attributable net income came in at $2.11 billion, representing a 143.2% improvement year-over-year. Also, the company’s adjusted EPS increased by 142% from the prior-year value to $1.67.
For the fiscal second quarter ending on June 30, 2023, GILD’s EPS is expected to increase 8.8% year-over-year to $1.72. Its revenue for the same quarter is expected to increase by 3.6% year-over-year to 6.49 billion. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock’s trailing-12-month EBITDA margin of 47.89% is substantially higher than the 3.73% industry average. Its trailing-12-month net income margin of 16.83% compares with the negative 5.61% industry average.
Over the past year, the stock has gained 38.7% to close the last trading session at $85.05.
GILD’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Growth and Value and a B for Sentiment and Quality. Out of the 405 stocks in the Biotech industry, it is ranked #2. To see the other ratings of GILD for Momentum and Stability, click here.
United Therapeutics Corporation (UTHR)
UTHR, a biotechnology company, engages in developing and commercializing products to address the unmet medical needs of patients with chronic and life-threatening diseases in the United States and internationally.
On October 31, 2022, UTHR announced top-line data from the EXPEDITE study of Remodulin induction prior to Orenitram. A short induction of Remodulin injection allowed 79% of patients to reach double the typical doses of Orenitram extended-release tablets than patients who did not have a Remodulin induction.
Meredith Broderick, Pharm.D., J.D., Senior Director of Global Medical Affairs at UTHR, said, “We’re delighted with the preliminary results from the EXPEDITE study, which provided patients a way to reach efficacious doses in a shorter period of time without having to commit to long-term pump therapy.”
UTHR’s revenues increased 16% year-over-year to $516 million in the fiscal third quarter ended September 30, 2022. Its operating income grew 37.4% year-over-year to $314.30 million over the period, while its net income and net income per share increased 47.1% and 43.6% from its year-ago values to $239.30 million and $4.91, respectively.
The consensus EPS estimate of $5.21 for the fiscal fourth quarter (ended December 31, 2022) represents a 48.4% improvement year-over-year. The consensus revenue estimate of $519.20 million for the about-be-reported quarter represents a 25.1% increase from last year. It surpassed the consensus revenues estimates in three of the trailing four quarters.
Moreover, UTHR’s trailing-12-month EBITDA margin of 55.43% is significantly higher than the 3.73% industry average. Its trailing-12-month CAPEX/Sales of 9.13% is 98.1% higher than the 4.6% industry average.
The stock has gained 38.1% over the past nine months to close the last trading session at $253.36.
It is no surprise that UTHR has an overall rating of A, equating to Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, and Quality. Also, it is ranked first among 405 stocks in the same industry.
In addition to the POWR Rating grades I’ve just highlighted, you can see UTHR’s Momentum, Stability, and Sentiment ratings here.
Jazz Pharmaceuticals plc (JAZZ)
JAZZ is a biopharmaceutical company focused on developing and commercializing products that address various unmet medical needs. Its leading products include Xyrem for cataplexy and excessive daytime sleepiness; Sunosi for EDS and obstructive sleep apnea; Erwinaze for acute lymphoblastic leukemia; Defitelio for hepatic veno-occlusive disease; and Zepzelca for small cell lung cancer.
On December 21, 2022, JAZZ and Zymeworks Inc. (ZYME) advanced their partnership to continue with its exclusive development and commercialization of ZYME's zanidatamab in the U.S., Europe, and Japan.
This collaboration should enable both companies to grow and rapidly advance the usage of zanidatamab for treating patients with cancer with significant unmet needs.
During the fiscal third quarter (ended September 30, 2022), JAZZ's net revenues increased 12.2% year-over-year to $940.65 million. Its non-GAAP adjusted net income rose 41.7% from the year-ago value to $370.44 million, while its non-GAAP adjusted EPS came in at $5.17, representing a 23.1% increase year-over-year.
For the fiscal first quarter (ending March 2023), JAZZ's EPS and revenue are expected to increase 15.2% and 9.7% year-over-year to $4.30 and $892.42 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
JAZZ’s trailing-12-month EBITDA margin of 45.14% is 1,111.6% higher than the 3.73% industry average. Its trailing-12-month levered FCF margin of 42.96% compares with the negative 2.61% industry average.
The shares of JAZZ have gained 3.4% over the past year to close the last trading session at $149.41.
JAZZ's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It also has an A grade for Growth and Value and a B for Sentiment. Within the Biotech industry, it is ranked #6.
Click here to see the other JAZZ ratings for Momentum, Stability, and Quality.
Stock to Avoid:
Bionano Genomics, Inc. (BNGO)
BNGO BNGO provides genome analysis software solutions. It offers Saphyr, Saphyr instruments, Saphyr Chip, Bionano Prep Kits, and DNA labeling kits.
BNGO’s total operating expenses increased 55.5% year-over-year to $33.96 million for the fourth quarter that ended December 31, 2022. Its loss from operations widened 55.5% from the prior-year quarter to $32.15 million. The company’s net loss and net loss per share came in at $31.81 million and $0.11, widening 53.3% and 100% year-over-year, respectively.
In terms of forward EV/Sales, BNGO is trading at 11.36x, 181% higher than the industry average of 4.04x. Likewise, its forward Price/Sales multiple of 17.50 is 274.1% higher than the industry average of 4.68.
BNGO’s trailing-12-month gross profit margin of 16.91% is 69.5% lower than the industry average of 55.48%. Its trailing-12-month levered FCF margin of negative 218.05% is substantially lower than the negative industry average of 2.61%.
Analysts expect BNGO’s EPS to remain negative in the fiscal years 2023 and 2024. It failed to surpass the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has declined 54.7% to close the last trading session at $1.63.
BNGO’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Quality and a D for Growth, Momentum, and Sentiment. Out of 405 stocks in the same industry, BNGO is ranked last. Click here to see BNGO’s rating for Value.
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GILD shares were trading at $83.58 per share on Thursday afternoon, down $1.47 (-1.73%). Year-to-date, GILD has declined -2.64%, versus a 7.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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