The pharmaceutical industry’s prospects appear bright, thanks to increasing healthcare spending worldwide amid the rising prevalence of chronic and rare diseases and the growing aging population, combined with consistent research and development (R&D) efforts. Moreover, numerous technological advancements are revolutionizing the industry.
Considering the industry’s rosy outlook, investors could consider investing in quality pharmaceutical stocks CytomX Therapeutics, Inc. (CTMX) and Wave Life Sciences Ltd. (WVE). However, struggling Tilray Brands, Inc. (TLRY) is best avoided now.
As per Statista, pharmaceuticals market revenue is expected to reach $1.16 billion in 2024. Further, the revenue is projected to grow at a CAGR of 6.2% (2024-2028), exceeding $1.48 trillion by 2028.
R&D spending in the pharmaceutical sector has grown significantly over the decades. In 2022, R&D expenditure totaled nearly $244 billion globally. In comparison, R&D spending reached $137 billion in 2012. Pharma R&D includes several steps, from the initial research of disease processes to compound testing over pre-clinical and all clinical trial stages.
In the medical segment, specialized pharmaceutical drugs have shown tremendous growth in recent years. Severe chronic diseases and discoveries of rare, uncommon disorders such as achondrogenesis, stoneman syndrome, pompe disease, and more primarily fuel the demand for specialized medicines.
The global specialty pharmaceuticals market is expected to exceed $965.54 billion by 2030, growing at a CAGR of 39.8% during the forecast period.
Advanced technologies, including big data, AI, blockchain, cloud computing, the Internet of Things (IoT), and machine learning, are transforming the pharmaceutical industry. For instance, AI is being increasingly applied in pharma R&D processes, optimizing clinical trials and enhancing patient care.
The U.S. AI in the pharmaceutical market is anticipated to be worth more than $9.24 billion by 2032, expanding at a CAGR of 29.3%.
With these favorable trends in mind, let’s look at the fundamentals of the three Medical – Pharmaceuticals stocks, beginning with the third choice.
Stock to Sell:
Stock #3: Tilray Brands, Inc. (TLRY)
Headquartered in Leamington, Canada, TLRY engages in the research, cultivation, processing, and distribution of medical cannabis products internationally. It operates through four segments: Cannabis Business; Distribution Business; Beverage Alcohol Business; and Wellness Business. It markets its products under the Tilray, Aphria, Broken Coast, and Symbios brands.
TLRY’s trailing-12-month gross profit margin is negative 23.20% is 59.2% lower than the 56.84% industry average. In addition, the stock’s trailing-12-month EBITDA margin of negative 7.68% compared to the industry average of 5.41%.
In terms of forward EV/EBITDA, TLRY is currently trading at 28.16x, 108.73% higher than the industry average of 13.49x. Likewise, the stock’s trailing-12-month Price/Cash Flow multiple of 44.39 is 158.8% higher than the industry average of 17.15.
For the fiscal 2024 first quarter that ended August 31, 2023, TLRY’s gross profit declined 9.1% year-over-year to $44.20 million. Its operating loss came in at $34.36 million during the quarter. Its adjusted EBITDA decreased 15.6% from the prior year’s quarter to $11.40 million.
Furthermore, the company incurred a net loss of $55.86 million, or $0.10 per share, respectively. Its cash and cash equivalents were reduced to $177.52 million as of August 31, 2023, compared to $206.63 million as of May 31, 2023.
Analysts expect TLRY to report a loss per share of $0.05 for the fiscal 2024 second quarter that ended November 2023. In addition, the company’s loss per share for fiscal years 2024 and 2025 are estimated to be $0.24 and $0.17, respectively.
Shares of TLRY have declined 14.2% over the past year to close the last trading session at $2.30.
TLRY’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an F grade for Sentiment. It also has a D grade for Value, Stability, Momentum, and Quality. TLRY is ranked #153 out of 156 stocks in the Medical - Pharmaceuticals industry.
Click here to access additional TLRY ratings for Growth.
Stocks to Buy:
Stock #2: CytomX Therapeutics, Inc. (CTMX)
CTMX is a clinical-stage, oncology-focused biopharmaceutical company that emphasizes developing novel conditionally activated biologics localized to the tumor microenvironment. Its pipeline consists of therapeutic candidates across treatment modalities like antibody-drug conjugates (ADCs), T-cell-engaging bispecific antibodies, and immune modulators.
During the fiscal year 2023, CTMX reported continued progress in Phase 1 dose escalation for CX-904 and the advancement of its next-generation molecules CX-2051 and CX-801 toward IND filings later last year. The company is focused on diligently managing its financial resources and driving toward value-inflecting pipeline milestones.
On October 18, CTMX presented data characterizing the preclinical profile of its EpCAM-targeting ADC, CX-2051, at the World ADC conference that took place in San Diego, CA. The preclinical data expresses a favorable predicted therapeutic index and efficacy across multiple EpCAM-expressing tumors, including colorectal cancer (CRC).
CX-2051 could potentially address a large patient population as EpCAM is highly expressed across various indications, such as colorectal, gastric, endometrial, and ovarian cancers. CX-2051 Phase 1 dose escalation in solid tumors is expected this year, with metastatic colorectal cancer as a priority indication.
CTMX’s trailing-12-month gross profit margin and levered FCF margin of 100% and 55.59% are significantly higher than the respective industry averages of 56.84% and 0.29%. Likewise, the stock’s trailing-12-month asset turnover ratio of 0.42x is 8.9% higher than the industry average of 0.39x.
For the third quarter that ended September 30, 2023, CTMX’s revenues increased 136.7% year-over-year to $26.38 million. The company’s income from operations came in at $3.12 million, compared to a loss from operations of $29.71 million in the prior year’s quarter.
In addition, CTMX’s EBITDA was $3.60 million versus an EBITDA loss of $23.31 million in the prior year’s quarter. Its net income was $2.99 million, or $0.04 per share, compared to a net loss of $29.06 million, or $0.44 per share a year ago, respectively.
Street expects CTMX’s revenue for the fourth quarter (ended December 2023) to increase 2,063.1% year-over-year to $20.46 million. Similarly, the company’s revenue for the fiscal year 2023 to grow 78.8% year-over-year to $95.06 million. Moreover, the company surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
Shares of CTMX have gained 14.8% over the past month and 9.9% over the past six months to close the last trading session at $1.55.
CTMX’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Quality, Sentiment, and Value. Within the Medical - Pharmaceuticals industry, CTMX is ranked #17 of 156 stocks.
Click here to access additional ratings of CTMX for Momentum and Stability.
Stock #1: Wave Life Sciences Ltd. (WVE)
Based in Singapore, WVE is a clinical-stage genetic medicine company engaged in designing, optimizing, and producing novel stereopure oligonucleotides through PRISM, a discovery and drug-developing platform. The company is developing oligonucleotides that target ribonucleic acid (RNA) to correct disease-causing mutations and modulate protein activity.
On December 15, WVE announced the initiation of dosing Phase 2 FORWARD-53 clinical trial, evaluating WVE-N531 as a treatment for boys with Duchenne muscular dystrophy (DMD) who are amenable to exon 53 skipping. FORWARD-53 is designed to assess functional dystrophin protein at 24 and 48 weeks with every other week dosing of WVE-N531.
“Following encouraging data from the WVE-N531 proof-of-concept trial, we believe we are on the right path toward addressing a significant unmet need in DMD – the generation of endogenous dystrophin protein to levels that meaningfully impact the trajectory of the disease,” said Anne-Marie Li-Kwai-Cheung, MChem, MTOPRA, RAPS, Chief Development Officer at WVE.
On December 6, WVE commenced the initiation of dosing in healthy volunteers in the RestorAATion clinical trial program, evaluating WVE-006 for alpha-1 antitrypsin deficiency (AATD).
WVE-006 is uniquely designed to treat the disease-causing RNA mutation in AATD, thereby restoring circulation of wild-type M-AAT protein and reducing Z-AAT protein levels to address both lung and liver manifestations of the disease.
In the third quarter that ended September 30, 2023, WVE’s revenue increased significantly year-over-year to $49.21 million. Its income from operations was $4.44 million, compared to a loss from operations of $38.90 million for the prior year’s quarter.
Further, the company’s net income came in at $7.25 million, compared to a net loss of $39 million for the same period of 2022. Also, its earnings per share were $0.07, compared to a loss per share of $0.42 in the previous year’s quarter.
Analysts expect WVE’s revenue for the fiscal year (ended December 2023) to increase 2,751.7% year-over-year to $104.06 million. Likewise, the consensus revenue estimate for the first quarter (ending March 2024) of $19.74 million indicates an improvement of 52.7% year-over-year.
WVE’s stock has surged 39.9% over the past six months to close the last trading session at $5.05.
WVE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Sentiment, and Quality. WVE is ranked #14 of 156 stocks within the Medical - Pharmaceutical industry.
To see additional POWR Ratings of WVE for Value, Stability, and Momentum, click here.
What To Do Next?
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TLRY shares fell $0.02 (-0.87%) in premarket trading Tuesday. Year-to-date, TLRY has declined 0.00%, versus a 0.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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