The pharmaceutical sector’s long-term prospects look promising, given the increasing need to treat age-related and chronic diseases. The industry's growth is expected to be significantly propelled by technological advancements in the drug discovery and development process, in addition to the increasing demand.
Given this backdrop, it could be wise to add fundamentally strong pharma stocks Supernus Pharmaceuticals, Inc. (SUPN), Eton Pharmaceuticals, Inc. (ETON), and Viatris Inc. (VTRS) to one’s portfolio.
Before diving deeper into their fundamentals, let’s discuss what’s shaping the pharma industry’s prospects.
Pharma stocks are investor favorites because of the stability in their fundamentals regardless of economic cycles, thanks to the inelastic demand for their products.
Increasing chronic diseases, such as cancer, arthritis, and diabetes, and a rise in the elderly population that’s susceptible to severe diseases are anticipated to propel the pharma industry’s growth. Technological advancements in drug discovery and development also boost the industry’s prospects.
The industry’s revenue is expected to reach $1.16 trillion this year and grow at a CAGR of 6.2% to reach $1.47 trillion by 2028.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from VanEck Pharmaceutical ETF’s (PPH) 13.1% returns over the past three months.
In light of these encouraging trends, let’s look at the fundamentals of the three best Medical - Pharmaceuticals stocks, beginning with number 3.
Stock #3: Supernus Pharmaceuticals, Inc. (SUPN)
SUPN focuses on the development and commercialization of products for the treatment of central nervous system diseases in the United States. Its commercial products are Trokendi XR and Oxtellar XR. The company’s commercial products also comprise Qelbree, APOKYN, XADAGO, MYOBLOC, GOCOVRI, and Osmolex ER. In addition, its product candidates include SPN-830, SPN-817, and SPN-820.
On November 2, 2023, SUPN announced that the U.S. Food and Drug Administration (FDA) acknowledged the resubmission of the new drug application (NDA) for its apomorphine infusion device (SPN-830) for the continuous treatment of motor fluctuations (OFF episodes) in Parkinson’s disease.
SUPN’s President and CEO said, “SPN-830 is an important product candidate which, if approved by the FDA, represents a novel and less invasive treatment option for PD patients.”
In terms of the trailing-12-month net income margin, SUPN’s 4.20% compares to the negative 5.55% industry average. Likewise, its 18.08% trailing-12-month EBITDA margin is 245% higher than the industry average of 5.24%. Furthermore, the stock’s trailing-12-month levered FCF margin of 17.56% compares to the industry average of negative 0.08%.
SUPN’s total revenues for the quarter ended September 30, 2023, stood at $153.88 million. Its adjusted operating earnings rose 46.9% year-over-year to $37.30 million. The company’s total net product sales came in at $149 million. Its Qelbree sales rose 103% over the prior-year quarter to $37.10 million. Also, its Royalty revenues increased 5.3% year-over-year to $4.88 million.
Analysts expect SUPN’s revenue for the quarter ending June 30, 2024, to increase 14.1% year-over-year to $154.65 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 16.5% to close the last trading session at $27.86.
SUPN’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #24 out of 163 stocks in the Medical – Pharmaceuticals industry. It has an A grade for Value and a B for Quality. Click here to see the other ratings of SUPN for Growth, Momentum, Stability, and Sentiment.
Stock #2: Eton Pharmaceuticals, Inc. (ETON)
ETON is a specialty pharmaceutical company focusing on developing, acquiring, and commercializing pharmaceutical products for rare diseases. The company offers ALKINDI SPRINKLE, Carglumic Acid, Betaine Anhydrous, and dehydrated alcohol injections to treat methanol poisoning. It also provides Zeneo hydrocortisone autoinjector, Alaway Preservative Free, EPRONTIA, ZONISADE, Lamotrigine, and Lamotrigine for Oral Suspension.
On October 4, 2023, ETON announced an agreement to acquire an abbreviated new drug application for Nitisinone Capsules via Oakrum Pharma, LLC’s Chapter 11 bankruptcy proceeding. The bankruptcy court approved the transaction, which will be effective on October 12, 2023.
The acquired product was approved by the U.S. FDA in May last year for the treatment of hereditary tyrosinemia type 1 (HT-1) in combination with dietary restriction of tyrosine and phenylalanine. ETON’s CEO Sean Brynjelsen said, “With a patient population of less than 500, Nitisinone is another opportunity for Eton to deliver on its mission of providing medicines to and supporting patients and families with rare conditions.”
“Nitisinone is our fourth FDA-approved product, and further advances us toward our goal of having ten commercial rare disease products on the market by the end of 2025. Nitisinone also shares the same metabolic geneticist prescriber base as our Carglumic Acid and Betaine products, so this is an attractive opportunity to leverage our existing sales force and relationships with prescribers,” he added.
In terms of the trailing-12-month gross profit margin, ETON’s 72.47% is 26.9% higher than the 57.13% industry average. Likewise, its 5.68% trailing-12-month EBIT margin is significantly higher than the industry average of 0.06%. Furthermore, the stock’s trailing-12-month levered FCF margin of 23.16% compares to the industry average of 0.08%.
For the fiscal third quarter (ended September 30, 2023), ETON’s total revenues rose 118.3% year-over-year to $7.03 million. Its gross profit increased 118.2% over the prior-year quarter to $4.40 million. The company’s net loss narrowed 81% year-over-year to $579 thousand.
For nine months ended September 30, 2023, its net cash provided by operating activities rose 224.5% year-over-year to $6.43 million.
Street expects ETON’s revenue for the quarter ending March 31, 2024, to increase 56.5% year-over-year to $8.30 million. Its EPS for fiscal 2024 is expected to increase 600% year-over-year to $0.07. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 63.1% to close the last trading session at $4.60.
ETON’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
Within the same industry, it is ranked #21. It has an A grade for Sentiment and Quality and a B for Value. To see the other ratings of ETON for Growth, Momentum, and Stability, click here.
Stock #1: Viatris Inc. (VTRS)
VTRS operates as 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.
In terms of the trailing-12-month EBIT margin, VTRS’ 13.84% is considerably higher than the 0.06% industry average. Likewise, its 31.89% trailing-12-month EBITDA margin is 508.6% higher than the industry average of 5.24%. Furthermore, the stock’s trailing-12-month levered FCF margin of 25.69% compares to the industry average of 0.08.
VTRS’ total revenue for the third quarter ended September 30, 2023, came in at $3.94 billion. Its Generics product sales rose 2% year-over-year to $1.23 billion. The company’s adjusted gross profit stood at $2.33 billion. Also, its adjusted net earnings amounted to $952.80 million. In addition, its adjusted EBITDA came in at $1.36 billion.
For the quarter ending March 31, 2024, VTRS’ revenue is expected to increase 0.9% year-over-year to $3.76 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 33.1% to close the last trading session at $11.87.
VTRS’ POWR Ratings reflect solid prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It is ranked #20 in the Medical – Pharmaceuticals industry. It has an A grade for Value and a B for Growth. Click here to see the other ratings of VTRS for Momentum, Stability, Sentiment, and Quality.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
VTRS shares fell $0.02 (-0.17%) in premarket trading Friday. Year-to-date, VTRS has gained 9.42%, versus a 3.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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