Amid heightened product demand and intensified investor attention, the biotechnology sector remarkably performed during the global upheaval triggered by the COVID-19 pandemic, successfully drawing in a substantial influx of fresh capital.
Considering the ongoing momentum in the industry's expansion, fundamentally strong biotech stocks Vertex Pharmaceuticals Incorporated (VRTX), Jazz Pharmaceuticals plc (JAZZ), and Alkermes plc (ALKS), which are trading at discounts, could serve as ideal additions to your portfolio.
Before delving into the highlighted stocks, let’s explore the factors propelling the industry's growth.
Continual biotech research and development (R&D) endeavors are ushering in novel biopharma offerings and frameworks. This year, 91% of life sciences organizations intend to channel investments into R&D innovation, with almost half of them exuding optimism for the sector's imminent potential, as a recent Deloitte survey underscored.
The sector's growth is also being energized by the steady rise in personalized medicine production, accompanied by relentless technological advancements fueling accelerated drug development. Simultaneously, the industry is witnessing the dynamic expansion of versatile drug formulations, collectively shaping its evolutionary trajectory.
In addition, the National Biotechnology and Biomanufacturing Initiative, launched by the Biden Administration last year, is poised to propel biotechnological innovation and foster the augmentation of America's bio-economy across numerous sectors.
President Biden's 2024 Budget also allocates an augmented $1 billion for Advanced Research Projects Agency for Health (ARPA-H), totaling $2.5 billion, to propel pioneering health research and hasten the integration of breakthroughs set to revolutionize the approach to treating, preventing, and early detecting cancers and other ailments.
According to a report by Vantage Market Research, the global biotechnology market is projected to grow at a CAGR of 14.2% and reach $2.77 trillion by 2030.
Let’s now delve into the fundamentals of robust biotech stocks VRTX, JAZZ, and ALKS to examine what could make them worthwhile investments.
Vertex Pharmaceuticals Incorporated (VRTX)
VRTX formulates treatments that target cystic fibrosis’s root cause. The company's pipeline comprises advanced sickle cell, beta thalassemia, acute and neuropathic pain, APOL1 kidney ailment, type 1 diabetes, alpha-1 antitrypsin deficiency trials, and early-stage muscular dystrophy programs.
On June 26, VRTX and Lonza Group AG (LZAGY) joined forces to manufacture VRTX's stem cell-derived insulin-producing islet cell therapies for type 1 diabetes (T1D) patients. Forging a vital partnership with premier manufacturer LZAGY marks a pivotal stride, reinforcing VRTX's enduring dedication to T1D patients.
On Mar 27, VRTX and CRISPR Therapeutics AG (CRSP) announced a non-exclusive licensing agreement utilizing CRSP's CRISPR/Cas9 gene editing tool. This accelerates VRTX's hypoimmune cell therapies progress for T1D, a significant step toward generating insulin-producing hypoimmune islet cells.
In terms of forward P/E, VRTX is trading at 27.47x, 6.6% lower than the industry average of 29.41x. Also, its forward non-GAAP PEG of 2.07x is 1.9% lower than the industry average of 2.11x.
For the second quarter that ended June 30, 2023, VRTX’s product revenues increased 13.5% from the year-ago value to $2.49 billion. Its non-GAAP net income and non-GAAP EPS grew 9% and 8.1% year-over-year to $1.01 billion and $3.89, respectively.
As of June 30, 2023, the company’s cash, cash equivalents, and marketable securities came in at $11.24 billion, compared to $10.78 billion as of December 31, 2022.
For the fiscal year ending December 2024, VRTX’s revenue is expected to increase 6.8% year-over-year to $10.53 billion. The company’s EPS for the same period is expected to come in at $16.15, up 10.3% from the prior year. Moreover, the company topped the consensus EPS estimates in all four trailing quarters, which is impressive.
Shares of VRTX have gained 26.4% over the past year to close the last trading session at $347.74.
VRTX’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
VRTX has an A grade for Quality and a B for Value and Sentiment. It has ranked #5 in the 393-stock Biotech industry.
In addition to the POWR Ratings I’ve just highlighted, you can see VRTX’s ratings for Momentum, Growth, and Stability here.
Jazz Pharmaceuticals plc (JAZZ)
Based in Dublin, Ireland, JAZZ discovers, develops, and markets pharmaceuticals to address unmet medical requirements. The company possesses a lineup of products and candidates concentrated on neuroscience, covering sleep ailments, movement disorders, and oncology encompassing hematologic and solid tumors.
On January 19, JAZZ and Zymeworks Inc. (ZYME) disclosed Phase 2 trial outcomes for zanidatamab, an investigational HER2-targeted bispecific antibody, combined with chemotherapy in first-line HER2-expressing metastatic gastroesophageal adenocarcinoma (mGEA) patients.
Gastroesophageal adenocarcinoma, a frequent tumor type with high mortality rates, saw compelling overall survival improvements with zanidatamab-chemotherapy combo, targeting HER2's expression, signaling positive prospects. Such medical developments should bode well for the company's growth and reputation.
In terms of forward non-GAAP P/E, JAZZ is trading at 7.44x, 63.6% lower than the industry average of 20.42x. Also, its forward EV/EBITDA of 7.40x is 45.5% lower than the industry average of 13.58x. Moreover, the stock’s forward Price/Sales multiple of 2.21 is 46.7% lower than the 4.15 industry average.
During the first quarter that ended March 31, 2023, JAZZ’s total revenues increased 9.7% year-over-year to $892.81 million. Its income from operations rose 44% from the year-ago value to $126.06 million.
Also, its non-GAAP adjusted net income grew 8.9% year-over-year to $285.26 million, while non-GAAP adjusted net income per share came in at $1.04, a significant rise from the prior year’s period.
The consensus revenue estimate of $3.78 billion for the fiscal year ending December 2023 reflects a 3.2% year-over-year improvement. Similarly, the consensus EPS estimate of $17.49 indicates a 32.5% growth from the previous year. Over the past month, the stock has gained 4.4%, closing the last trading session at $129.55.
JAZZ’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
JAZZ has an A grade for Growth and Value. It is ranked #2 out of 393 stocks within the same industry.
Click here to access additional JAZZ ratings (Momentum, Sentiment, and Stability).
Alkermes plc (ALKS)
Headquartered in Dublin, Ireland, ALKS engages in pharmaceuticals tailored to patients in neuroscience and oncology. The company's commercial offerings focus on alcohol and opioid dependence, schizophrenia, and bipolar I disorder, complemented by an ongoing pipeline of product candidates for neurodegenerative disorders and cancer.
In terms of forward non-GAAP P/E, ALKS is trading at 18.51x, 9.4% lower than the industry average of 20.42x. Moreover, its forward EV/EBITDA of 12.12x is 10.7% lower than the industry average of 13.58x. Also, the stock’s forward Price/Sales multiple of 2.87 is 30.9% lower than the 4.15 industry average.
For the second quarter that ended June 30, 2023, ALKS’ total revenues increased 123.5% year-over-year to $617.40 million. Its operating income stood at $239.19 million, compared to $34.46 million in the prior year’s quarter.
Moreover, the company’s non-GAAP net income rose 798.1% year-over-year to $94.28 million, whereas non-GAAP EPS stood at $0.55, indicating an 816.7% rise from the previous year’s period.
The consensus revenue estimate of $1.62 billion for the fiscal year ending December 2023 indicates a 45.9% year-over-year improvement. Likewise, the consensus EPS estimate of $1.51 for the ongoing year reflects a 344.1% rise year-over-year. Furthermore, ALKS surpassed the consensus revenue estimates in three of the four trailing quarters.
Over the past year, the stock has gained 9.1%, closing the last trading session at $27.63.
ALKS’ robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
ALKS has an A grade for Growth, Quality, and Value and a B for Sentiment. It has topped the 393-stock Biotech industry.
Click here to access additional ALKS ratings for Stability and Momentum.
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VRTX shares were trading at $345.43 per share on Friday afternoon, down $2.31 (-0.66%). Year-to-date, VRTX has gained 19.62%, versus a 19.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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