In this article, we will delve into the fundamental analysis of leading pharma stocks Catalyst Pharmaceuticals, Inc. (CPRX) and Teva Pharmaceutical Industries Limited (TEVA). Through this analysis, it becomes apparent that TEVA is a better value stock for August. However, before delving into the factors that underlie this positive outlook for TEVA, let's first explore the broader landscape of the pharmaceutical industry.
The pharmaceutical sector has flourished due to robust demand, particularly for COVID-19 treatments and vaccines. The emergence of novel approaches like cell and gene therapy, mRNA vaccine technology, evolving supply chains, and shifts in the product landscape further fuels this growth.
The global pharmaceutical market revenue is projected to reach $1.16 trillion this year.
Furthermore, the abundance of ongoing clinical trials offers a multitude of chances for market growth and innovation. Also, the pharmaceutical sector has experienced a notable upswing in mergers and acquisitions (M&As) in recent times.
Moreover, the global pharmaceuticals market is poised to grow at a CAGR of 5.9% until 2030. Both CPRX and TEVA are expected to thrive in the upcoming months.
CPRX has gained marginally over the past month, while TEVA returned 22.8%. Also, CPRX’s 19% decline over the past six months is lower than TEVA’s 5.1% returns. Moreover, in terms of year-to-date performance, TEVA is the clear winner with 1.4% gains versus CPRX’s 27.6% decline.
Given below are the reasons why I think TEVA is a better pick:
Latest Developments
On July 19, 2023, CPRX announced the completion of its acquisition from Santhera Pharmaceuticals Holdings of an exclusive license for North America for vamorolone, a potential treatment for patients suffering from Duchenne Muscular Dystrophy.
The license is for exclusive commercial rights in the U.S., Canada, and Mexico, as well as the right of first negotiation in Europe and Japan should Santhera pursue partnership opportunities. Additionally, CPRX will hold North American rights for any future approved indications of vamorolone.
On the other hand, on July 24, TEVA’s U.S. affiliate Teva Pharmaceuticals, Inc. and Alvotech (ALVO), a global biotech company specializing in the development and manufacture of biosimilar medicines for patients worldwide, announced that they had agreed to expand their existing strategic partnership agreement. Teva will also acquire subordinated convertible bonds to be issued by Alvotech.
The collaboration primarily revolves around their efforts to gain approval for AVT02, a high-concentration biosimilar of Humira® (adalimumab), in the U.S. They are also working on four other biosimilar candidates, including AVT04, a proposed biosimilar for Stelara® (ustekinumab), which is currently awaiting approval from the U.S. FDA.
On June 30, TEVA announced further positive data from the pan-European PEARL study investigating the impact of AJOVY® (fremanezumab) on the prevention of migraine in a real-world setting, due to be completed in 2024. Not only was fremanezumab effective in preventing migraine attacks in patients with chronic and episodic migraine, but also in reducing the severity and duration of remaining migraine attacks.
Recent Financial Results
CPRX reported total revenue of $85.37 million for the fiscal first quarter that ended March 31, 2023. The company’s operating income increased 105.1% year-over-year to $35.61 million. However, its total operating costs and expenses rose 93.4% year-over-year to $49.76 million.
On the contrary, during the fiscal second quarter that ended June 30, 2023, TEVA’s net revenues increased 2.4% year-over-year to $3.88 billion, while its gross profit came in at $1.80 billion, up marginally year-over-year. The company’s non-GAAP net income attributable to TEVA and non-GAAP EPS amounted to $629 million and $0.56.
Moreover, TEVA’s net cash provided by operating activities rose 163.4% year-over-year to $324 million. Its free cash flow grew 110% from the previous-year quarter to $632 million. Furthermore, the company’s cash and cash equivalents increased 29.7% year-over-year to $2.67 billion.
Past and Expected Financial Performance
CPRX’s tangible book value grew at a CAGR of 14.4% over the past three years. Analysts expect CPRX’s revenue to amount to $91.71 million in the current quarter, $97.64 million in the next quarter, and $380.23 million in the current year. The company’s EPS is expected to come in at $0.25 in the current quarter and $1.12 in the current year.
On the other hand, TEVA’s levered cash flow grew at CAGR of 1.1% over the past three years. Analysts expect TEVA’s revenue to amount to $3.77 billion in the current quarter, $3.97 billion in the next quarter, and $15.18 billion in the current year. The company’s EPS is expected to come in at $0.61 in the current quarter and $2.27 in the current year.
Valuation
In terms of forward EV/Sales, TEVA is currently trading at 1.93x, lower than CPRX, which is currently trading at 3.47x. TEVA’s forward EV/EBIT multiple of 7.24 is lower than CPRX’s 8.23. Moreover, TEVA’s forward P/S multiple of 0.62 is lower than CPRX’s 3.85.
Thus, TEVA is more affordable.
Profitability
TEVA is more profitable, with a trailing-12-month levered FCF margin of 17.59%, compared to CPRX’s negative 28.92%. TEVA’s trailing-12-month CAPEX/Sales of 3.55% is higher than CPRX’s 0.04%. Moreover, CPRX’s trailing-12-month cash from operations of $119.64 million is lower than TEVA’s $1.49 billion.
POWR Ratings
CPRX has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. TEVA, on the other hand, has an overall rating of B, which translates to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. TEVA has a grade of B for Growth, consistent with its robust financial performance. CPRX, conversely, has a Growth grade of C, consistent with the company’s mixed financial performance.
Moreover, TEVA has an A grade for Value. Its forward EV/Sales of 1.93x is 47.3% lower than the industry average of 3.65x. Its forward P/S multiple of 0.62 is 85.1% lower than the industry average of 4.15.
In contrast, CPRX has a B grade for Value. Its forward EV/Sales of 3.47x is 5% lower than the industry average of 3.65x. Its forward P/S multiple of 3.85 is 7.2% lower than the industry average of 4.15.
In the 165-stock Medical – Pharmaceuticals industry, CPRX is ranked #57, while TEVA is ranked #35.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Value, and Sentiment. Get all CPRX ratings here. To access TEVA Ratings click here.
Winner
In recent years, the pharmaceutical sector has witnessed remarkable expansion and is poised to sustain this growth through the incorporation of advanced technologies. Amidst economic uncertainty, the pharmaceutical sector's resilience presents an appealing chance for investment.
Both TEVA and CPRX are positioned to benefit in this favorable industry climate. Yet, TEVA stands out as a more enticing choice due to its robust financial track record, strategic alliances, profitability, and relative affordability.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical-Pharmaceutical industry here.
What To Do Next?
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TEVA shares were trading at $9.39 per share on Thursday morning, up $0.14 (+1.51%). Year-to-date, TEVA has gained 2.96%, versus a 18.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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