The biotech industry is prospering due to advancements in technology that have led to breakthroughs in gene editing, personalized medicine, and the development of novel therapies. With the increasing prevalence of diseases and the need for quality therapies, the biotech industry is well-positioned for long-term growth.

Considering this backdrop, Gilead Sciences, Inc. (GILD) could be a solid portfolio addition, while keeping Biogen Inc. (BIIB) on one’s watchlist could be wise. On the other hand, Karuna Therapeutics, Inc. (KRTX) can be avoided, given its poor growth prospects.

Before diving deeper into the fundamentals of these stocks, let’s understand the industry’s landscape better and discuss why it is expected to perform well.

Biotech is one of the most exciting sectors today as it uses advanced technology to develop precise and targeted treatments for various diseases. The industry played a pivotal role in vaccine development during the pandemic, highlighting its potential in addressing global healthcare needs.

There are many lucrative applications of biotechnology, especially in the medical field. The industry receives significant investments in its research and development (R&D) initiatives. These investments will likely drive groundbreaking developments in gene therapies, regenerative medicine, and precision medicine, ensuring continued industry expansion.

The increase in the geriatric population will support the biotech sector’s growth. The number of people aged 60 and older is expected to grow to 1.4 billion in 2030, equating to one in six people worldwide.

Additionally, the prevalence of chronic diseases, rising healthcare spending, the need for quality treatments, a robust drug pipeline, supportive government policies, and the use of advanced technologies in drug discovery will drive the industry’s long-term growth.

The global biotechnology market is expected to reach $2.77 trillion by 2030, growing at a CAGR of 14.2%.

Amid these industry trends, let’s evaluate the above-mentioned stocks.

Stock to Buy:

Gilead Sciences, Inc. (GILD)

GILD discovers, develops, and commercializes medicines for unmet medical needs in the United States, Europe, and internationally. The company provides Biktarvy, Genvoya, Descovy, Odefsey, Truvada, Complera/ Eviplera, Stribild, and Atripla products, Veklury, and Epclusa, Harvoni, Vosevi, Vemlidy, and Viread. It also offers Yescarta, Tecartus, Trodelvy, and Zydelig products.

On November 15, 2023, Kite, a GILD Company, and Arcellx, Inc. announced the expansion of their existing collaboration, with Kite exercising its option to license Arcellx’s ARC-SparX program in multiple myeloma.

The deal includes an equity investment of $200 million in Arcellx, extending its cash runway, and strengthening GILD's position in the growing field of CAR T-cell therapies, potentially impacting its business positively in the oncology sector.

Kite’s Executive VP, Cindy Perettie, said, “Given this, we are deepening our relationship with Arcellx to further support advancement of CART-ddBCMA, bolster our pipeline in multiple myeloma, as well as access opportunities in lymphoma.”

“In expanding our strategic partnership with Arcellx, we are building upon the established synergy between Arcellx’s platform technologies and Kite’s industry-leading position in CAR T manufacturing and commercialization," she added.

On August 24, 2023, GILD announced that the FDA approved a supplemental new drug application (sNDA) or the use of Veklury (remdesivir) with no dose adjustments to treat COVID-19 patients with mild, moderate, and severe hepatic impairment, marking it as the first and only approved antiviral COVID-19 treatment that can be used across all stages of liver disease.

In terms of forward non-GAAP P/E, GILD’s 11.51x is 36.7% lower than the 18.17x industry average. Its 0.98x forward non-GAAP PEG is 51.2% lower than the 2.01x industry average. Likewise, its 10.54x forward EV/EBIT is 38.3% lower than the 17.08x industry average.

For the fiscal third quarter that ended September 30, 2023, GILD’s total revenues increased marginally year-over-year to $7.05 billion. Its non-GAAP operating income stood at $3.22 billion.

Its non-GAAP net income attributable to GILD increased 20.4% over the prior year quarter to $2.88 billion. Its adjusted EPS came in at $2.29, registering an increase of 20.5% year-over-year.

Street expects GILD’s EPS for the ending December 31, 2023, to increase 7.6% year-over-year to $1.80. Its revenue for the quarter ending March 31, 2024, is expected to increase 2% year-over-year to $6.48 billion. Over the past three months, the stock has gained 5.6% to close the last trading session at $78.05.

GILD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong 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 Value and a B for Stability and Quality. It is ranked #4 out of the 345 stocks in the Biotech industry. To see GILD’s ratings for Growth, Momentum, and Sentiment, click here.

Stock to Hold:

Biogen Inc. (BIIB)

BIIB discovers, develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases. It offers TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI, and FAMPYRA for treating multiple sclerosis; SPINRAZA for spinal muscular atrophy; ADUHELM for treating Alzheimer’s; and FUMADERM for the treatment of severe plaque psoriasis.

On September 26, 2023, BIIB completes the acquisition of Reata Pharmaceuticals, gaining access to SKYCLARYS® (omaveloxolone) that was approved for treating Friedreich’s ataxia.

This strategic move aligns with BIIB's rare disease portfolio, contributing to its mission of serving patients and is expected to bring significant accretive value to BIIB's earnings starting in 2025, potentially strengthening its position in the neurology and rare diseases therapeutics market.

BIIB’s forward non-GAAP P/E of 15.94x is 12.3% lower than the industry average of 18.17x. Its forward EV/EBIT of 15.43x is 9.7% lower than the industry average of 17.08x.

On the other hand, its forward non-GAAP PEG of 5.68x is 182.2% higher than the industry average of 2.01x. Its forward 4.04x EV / Sales is 16.3% higher than the industry average of 3.47x.

BIIB’s total revenue for the third quarter that ended September 30, 2023, increased marginally year-over-year to $2.53 billion. Its total assets, as of September 30, 2023, stood at $28.19 billion, compared to $24.55 billion for the fiscal year ended December 31, 2022. The company’s contract manufacturing, royalty and other revenue rose 134.9% year-over-year to $304.20 million.

On the other hand, the company’s non-GAAP total net income attributable to BIIB declined 8.1% year-over-year to $635.50 million. Also, its non-GAAP EPS came in at $4.36, representing a decline of 8.6% year-over-year.

For the fiscal year ending December 31, 2024, BIIB’s EPS is expected to increase 3.5% year-over-year to $15.52. On the other hand, its revenue for the quarter ending December 31, 2023, is expected to decline 3.3% year-over-year to $2.46 billion. It has surpassed EPS estimates in all the trailing four quarters.

Over the past month, the stock has declined 2.6% to close the last trading session at $239.12.

BIIB’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, which translates to Neutral in our proprietary rating system.

It has a C grade for Stability, Sentiment, and Quality. Within the same industry, it is ranked #39. Beyond what is stated above, we’ve also rated BIIB for Growth, Value, and Momentum. Get all the BIIB ratings here.

Stock to Sell:

Karuna Therapeutics, Inc. (KRTX)

KRTX is a clinical-stage biopharmaceutical company, that creates and delivers transformative medicines for people living with psychiatric and neurological conditions. Its lead product candidate includes KarXT. It also focuses on developing other muscarinic-targeted drug candidates, and intends to develop lead candidature TRPC4/5 and KAR-2618 for the treatment of mood and anxiety disorders.

In terms of forward EV/Sales, KRTX’s 4,202.35x is significantly higher than the 3.47x industry average. Likewise, its 5,065.50x forward Price / Sales is substantially higher than the 3.76x industry average. Its 5.42x forward Price/Book is 114.5% higher than the 2.53x industry average.

For the fiscal third quarter ended September 30, 2023, KRTX’s total operating expenses increased 68% year-over-year to $136.22 million. Its net loss attributable to common stockholders widened 54.8% over the prior-year quarter to $119.12 million. Its net loss per share stood at $3.16, widening 32.8% year-over-year. Also, its loss from operations widened 68.2% year-over-year to $136.22 million.

Analysts expect KRTX’s EPS for the quarter ending December 31, 2023, to remain negative. Its revenue for the same quarter is expected to decline 85.6% over the prior-year quarter to $760.96K. Over the past six months, the stock has declined 11.1% to close the last trading session at $206.25.

KRTX’s weak prospects are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system.

It has a D grade for Growth, Momentum, Stability, Sentiment, and Quality. It is ranked #333 in the Biotech industry. Click here to see KRTX’s rating for Value.

What To Do Next?

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GILD shares were trading at $78.31 per share on Friday morning, up $0.26 (+0.33%). Year-to-date, GILD has declined -6.11%, versus a 21.20% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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