As the global population ages and the incidence of chronic diseases rises, the demand for cutting-edge healthcare solutions remains unwavering. This persistent and growing need is set to establish a resilient and thriving market for biotech products.
Amid such heightened demand, three fundamentally sound biotech stocks, Vanda Pharmaceuticals Inc. (VNDA), Organogenesis Holdings Inc. (ORGO), and Exelixis, Inc. (EXEL) could be better buys than Bionano Genomics, Inc. (BNGO). Let us understand why.
BNGO, a biotech company specializing in genome analysis software and solutions for genomics labs, recently announced its second-quarter results (ended June 30, 2023). Despite a notable 29.9% year-over-year increase in total revenue, the company faced disappointment as its operating loss and net loss expanded by 22.3% and 21.2% from its prior-year quarter, reaching $39.24 million and $38.91 million, respectively.
On top of it, the company's profitability lags behind the industry average. For instance, the stock’s trailing-12-month gross profit margin of 25.35% is 54.5% lower than the 55.72% industry average. While its trailing-12-month asset turnover ratio of 0.11x is 71.7% lower than the industry average of 0.38x.
On the flip side, the industry prospects remain strong. Forecasts indicate that the worldwide biotechnology market will reach a whopping $3.21 trillion by 2030, demonstrating an impressive CAGR of 12.8% from 2023 to 2030. The rise in demand for personalized medicine and the development of more orphan drug formulations are expected to drive market growth.
Furthermore, the integration of generative Artificial Intelligence (AI) is anticipated to enhance the industry's outlook. Generative AI's ability to simulate and generate novel molecules, proteins, and genetic sequences has significant potential in fields such as drug discovery, protein engineering, and personalized medicine.
The generative AI market within the biotech sector is projected to hit $472 million by 2032, reflecting a robust CAGR of 24.9% from 2022 to 2032.
Given the solid industry prospects and bleak fundamentals of BNGO, investors looking to capitalize on the industry tailwinds could check out VNDA, ORGO, and EXEL instead. Let’s delve deeper into the fundamentals of these Biotech picks, beginning with number three.
Stock #3: Vanda Pharmaceuticals Inc. (VNDA)
VNDA is a biopharmaceutical company that focuses on the development and commercialization of therapies to address high unmet medical needs worldwide. The company’s marketed products are used to treat non-24-hour sleep-wake disorders, schizophrenia, jet lag disorder, insomnia, delayed sleep phase disorder, sleep disturbances, etc.
On June 1, VNDA received an Orphan Drug Designation from the Food and Drug Administration (FDA) for VCA-894A, a potential treatment for Charcot-Marie-Tooth disease, axonal, type 2S (CMT2S). CMT2S is a rare subtype of Charcot-Marie-Tooth (CMT) disease.
This Orphan Drug Designation represents a significant milestone for the company, potentially paving the way for individualized treatments based on patients’ genetic variants. Mihael H. Polymeropoulos, M.D., VNDA’s CEO, believes this designation is a crucial step forward for addressing CMT2S.
The stock’s trailing-12-month gross profit margin of 91.26% is 63.8% higher than the 55.72% industry average. Its trailing-12-month levered FCF margin of 14.34% is significantly higher than the industry average of 0.26%. Furthermore, VNDA’s trailing-12-month EBIT margin of 4.06% is 868.9% higher than the 0.42% industry average.
For the fiscal second quarter, which ended on June 30, 2023, VNDA’s total revenues amounted to $46.06 million. While its total operating expense came in at $48.92 million versus a total operating expense of $60.93 million in the prior-year quarter.
During the same period, the company’s net income stood at $1.52 million and $0.03 per share, respectively. In addition, its cash and cash equivalents amounted to $150.03 million, up 11.1% compared to $135.03 million as of December 31, 2022.
Analysts expect VNDA’s revenue for the third quarter (ending September 2023) to be $44.50 million, while its revenue for the fiscal period ending December 2023 is forecasted to be $198.70 million. Moreover, the company’s EPS is projected to improve by 36.1% per annum over the next five years.
The stock has gained marginally intraday to close the last trading session at $4.46.
VNDA’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to 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 Quality. In the 361-stock Biotech industry, it is ranked #23. Click here to see VNDA ratings for Growth, Momentum, Stability, and Sentiment.
Stock #2: Organogenesis Holdings Inc. (ORGO)
ORGO is a regenerative medicine company that develops, manufactures, and commercializes solutions for the advanced wound care, surgical, and sports medicine markets in the United States. It offers a portfolio of bioactive and acellular biomaterials products in advanced wound care and surgical biologics, including orthopedics and spine.
ORGO’s trailing-12-month gross profit margin of 76.78% is 37.8% higher than the 55.72% industry average. Its trailing-12-month EBIT margin of 4.59% is significantly higher than the industry average of 0.35%. Likewise, the stock’s trailing-12-month asset turnover ratio of 1.01x is 168.9% higher than the 0.38x industry average.
For the six-month period that ended June 30, 2023, ORGO’s net revenue increased 2.9% year-over-year to $224.96 million. Its gross profit grew 3.1% from the year-ago value to $172.03 billion. In the same period, the company’s net income amounted to $2.35 million and $0.02 per share. Also, its adjusted EBITDA stood at $19.17 million.
Street expects ORGO’s revenue and EPS to amount to $111.40 million and $0.01, respectively, in the current quarter ending September 30, 2023. Its EPS is projected to increase by 2.4% annually over the next five years.
Over the past six months, the stock has surged 18.6% to close the last trading session at $2.42.
ORGO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Sentiment. Within the same industry, it is ranked #18. Click here to see the other ratings of ORGO for Growth, Momentum, Stability, and Quality.
Stock #1: Exelixis, Inc. (EXEL)
EXEL is an oncology-focused biotechnology company engaged in the discovery, development, and commercialization of new medicines to treat cancers. The company offers CABOMETYX tablets to treat patients with advanced renal cell carcinoma and COMETRIQ capsules for metastatic medullary thyroid cancer.
On March 20, backed by its strong fundamentals, the company’s Board of Directors approved a plan to buy back its common stock. The authorization allows for the repurchase of up to $550 million worth of the company’s shares by the end of 2023.
EXEL’s trailing-12-month gross profit margin of 96.31% is 72.9% higher than the 55.72% industry average. Its trailing-12-month EBITDA margin of 9.67% is 84.3% higher than the 5.25% industry average. Furthermore, its trailing-12-month levered FCF margin of 4.03% is significantly higher than the 0.26% industry average.
For the fiscal second quarter that ended June 30, 2023, EXEL’s total revenues increased 12% year-over-year to $469.85 million, while its income from operations came in at $77.85 million. In addition, the company’s non-GAAP net income amounted to $100.29 million and $0.25 per share, up 11.8% and 7.1% from the prior-year quarter, respectively.
Analysts expect EXEL’s revenue for the third quarter (ending September 2023) to increase 14.5% year-over-year to $471.56 million. While its EPS for the ongoing quarter is expected to be $0.18. Moreover, its EPS is projected to improve by 46% per annum over the next five years.
EXEL’s shares have gained 36.9% over the past nine months to close the last trading session at $21.58.
It’s no surprise that EXEL has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Value and Quality and a B for Sentiment. Out of 361 stocks in the same industry, it is ranked #9.
In addition to the POWR Ratings we’ve stated above, we also have EXEL’s ratings for Growth, Momentum, and Stability. Get all EXEL ratings here.
What To Do Next?
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EXEL shares were trading at $21.60 per share on Friday afternoon, up $0.02 (+0.09%). Year-to-date, EXEL has gained 34.66%, versus a 14.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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