The pharmaceutical industry’s growth prospects appear promising due to advances in the manufacturing of personalized medicines, expanding healthcare needs, a robust drug pipeline, growing investments in research and development, and favorable government policies.
Given the industry’s solid growth prospects, investors could consider buying fundamentally strong pharma stocks Viatris Inc. (VTRS), Wave Life Sciences Ltd. (WVE), and MEI Pharma, Inc. (MEIP).
Before delving deeper into their fundamentals, let’s discuss what’s shaping the pharma industry’s prospects.
The pharma industry is undergoing a significant transformation as a result of large investments in R&D, the use of advanced technologies, patent expiration, collaborations, and a favorable regulatory climate, paving the way for an exciting future. Moreover, the rise in the number of elderly population and the growing prevalence of chronic diseases boost the pharma sector’s growth prospects.
The pharmaceutical industry is adopting Pharma 4.0, which involves the use of advanced technologies such as big data analytics, artificial intelligence (AI), the Internet of Things (IoT), collaborative robotics, and automation, to enhance quality control, streamline production, minimize costs, avoid downtimes, in its manufacturing processes.
The global pharma 4.0 market is estimated to reach $54.43 billion by 2031, growing at a CAGR of 18.3%.
Furthermore, personalized medicine offers pharmaceutical companies the opportunity to tap into newer markets and patients, thereby boosting their growth prospects. By utilizing emerging technologies, pharmaceutical companies can develop tailored therapies for patients with specific genetic profiles. The global personalized medicine market is projected to grow at a CAGR of 11.2% by 2032.
The global pharmaceutical manufacturing market is expected to grow at a CAGR of 12.5% to $1.47 trillion by 2032. Moreover, the pharmaceutical drugs market is predicted to expand to $2.93 trillion by 2028, growing at a CAGR of 13.4%.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from VanEck Pharmaceutical ETF’s (PPH) 21.1% returns over the past year.
With these encouraging trends in mind, let’s delve into the fundamentals of the three best Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #3: Viatris Inc. (VTRS)
VTRS is a healthcare company that operates in four segments: Developed Markets, Greater China, JANZ, and Emerging Markets. It offers prescription brand drugs, generic drugs, complex generic drugs, biosimilars, and active pharmaceutical ingredients (APIs). The company offers drugs in various therapeutic areas, biosimilars, and APIs.
On February 28, 2024, VRTS and Idorsia Ltd. (IDIA) announced a significant global research and development collaboration in which Viatris will receive exclusive global development and commercialization rights to two Phase 3 assets, with the possibility of adding additional innovative assets in the future.
This collaboration will leverage Viatris' global reach and commercial capabilities with Idorsia's expertise in drug discovery and development. The partnership aims to bring new treatment options to patients worldwide.
In terms of the trailing-12-month EBIT margin, VTRS’ 14.12% is considerably higher than the 0.88% industry average. Likewise, its 31.48% trailing-12-month EBITDA margin is 457.8% higher than the industry average of 5.64%. Furthermore, its 7.16% trailing-12-month levered FCF margin is 848.7% higher than the 0.75% industry average.
VTRS’ total revenue for the fourth quarter ended December 31, 2023, came in at $3.83 billion. Its Brands product sales rose 3.9% year-over-year to $2.40 billion. The company’s adjusted gross profit stood at $2.21 billion. Also, its adjusted net earnings amounted to $746.60 million. In addition, its adjusted EBITDA came in at $1.12 billion.
For fiscal 2025, VRTS’ EPS is expected to increase marginally year-over-year to $2.77. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 25.9% to close the last trading session at $11.87.
VTRS’ POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VTRS has an A grade for Growth and Value. Within the Medical - Pharmaceuticals industry, it is ranked #36 out of 165 stocks. To see the additional ratings of VTRS for Momentum, Stability, Sentiment, and Quality, click here.
Stock #2: Wave Life Sciences Ltd. (WVE)
Headquartered in Singapore, WVE is a clinical-stage genetic medicine company that designs and produces novel stereopure oligonucleotides via PRISM, a discovery and drug-developing platform. It is developing oligonucleotides that target ribonucleic acid (RNA) to correct disease-causing mutations, modulate protein activity, and restore production of functional proteins.
WVE’s trailing-12-month levered FCF margin of 56.58% is significantly higher than the industry average of 0.75%. Its trailing-12-month asset turnover ratio of 0.54x is 36.6% higher than the industry average of 0.39x.
For the fourth quarter that ended December 31, 2023, WVE reported revenue of $29.06 million, increased considerably year-over-year. As of December 31, 2023, WVE had $200.35 million in cash and cash equivalents compared to $88.50 million as of December 31, 2022.
In addition, as of December 31, 2023, the stock had $235.37 million total current assets compared to $98.54 million as of December 31, 2022.
For the quarter ending March 31, 2024, WVE’s revenue is expected to increase 77.5% year-over-year to $22.95 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 51.7% to close the last trading session at $5.93.
WVE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #34 in the same industry. It has a B grade for Value, Sentiment, and Quality. Click here to see the additional ratings of WVE for Growth, Momentum, and Stability.
Stock #1: MEI Pharma, Inc. (MEIP)
MEIP is a late-stage pharmaceutical company that is focused on developing and commercializing novel cancer therapies. The company’s portfolio of clinical drug candidates includes Zandelisib, Voruciclib, ME-344, and Pracinostat.
MEIP’s trailing-12-month gross profit margin 135.73% is 138.4% higher than the industry average of 56.94%. Likewise, the stock’s trailing-12-month EBIT margin of 20.67% is significantly higher than the industry average of 0.88%. Additionally, its 21.18% trailing-12-month EBITDA margin is 275.2% higher than the industry average of 5.64%.
For the six months that ended December 31, 2023, MEIP reported revenue of $65.30 million, up 57.5% year-over-year. Its income from operations came in at $43.35 million, compared to a loss from operations of $9.29 million for the prior year’s period.
In addition, the company’s net income was $45.31 million, or $6.80 per share, compared to a net loss of $6.37 million, or $0.96 per share, in the previous year’s quarter, respectively.
Analysts expect MEIP’s EPS and revenue for fiscal 2024 to increase 168.6% and 33.9% year-over-year to $3.28 and $65.38 million, respectively. MEIP shares have declined 0.23% over the past year to close the last trading session at $3.72.
It’s no surprise that MEIP has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Value and a B for Sentiment and Quality. It is ranked #30 in the Medical - Pharmaceuticals industry. Beyond what is stated above, we’ve also rated MEIP for Growth, Momentum, and Stability. Get all MEIP ratings here.
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VTRS shares were trading at $11.82 per share on Wednesday morning, down $0.05 (-0.42%). Year-to-date, VTRS has gained 10.21%, versus a 8.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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