Given the growing demand for innovative medical solutions, higher R&D initiatives, and rising investments in biopharma, the biotech industry is thriving. Given the backdrop, it could be wise to invest in fundamentally strong biotech stocks Incyte Corporation (INCY), Jazz Pharmaceuticals plc (JAZZ), and Exelixis, Inc. (EXEL) for sustained returns.
The growing foothold of personalized medicine and an increasing number of orphan drug formulations are opening new avenues for biotechnology applications and are driving the influx of emerging and innovative biotechnology companies, further boosting market revenue.
As per the Grand View Research report, the global biotechnology market is projected to reach $3.88 trillion by 2030, growing at a CAGR of 14%. Meanwhile, the U.S. biotechnology market is expected to expand at a CAGR of 12.4% from 2024 to 2030.
Moreover, last year, the global biopharma R&D saw funding rise to $72 billion, productivity increased with a Clinical Development Productivity Index of 17.4, and 69 novel active substances were launched worldwide. However, clinical trial starts declined by 15%, reflecting a shift toward areas like cell and gene therapies.
Further, rapid technological advancements, particularly in areas like genomics, proteomics, and bioinformatics, have led to significant breakthroughs in drug discovery, development, and manufacturing processes. Recent innovations in biotech are moving toward trends like AI, machine learning, data analytics, and automation to optimize production.
The global AI in the biopharmaceutical market is projected to total about $14.07 billion by 2032, exhibiting a CAGR of 32.3%.
Given these favorable trends, let’s look at the fundamentals of the top three Biotech stocks, beginning with the third choice.
Stock #3: Incyte Corporation (INCY)
INCY is a biopharmaceutical company specializing in developing therapies for hematology /oncology, autoimmunity, and inflammation areas. The company provides JAKAFI for treating intermediate or high-risk myelofibrosis and polycythemia disease, ICLUSIG to treat chronic myeloid leukemia, and OPZELURA cream for treating atopic dermatitis.
On April 1, 2024, INCY and China Medical System Holdings Limited (CMS), through a wholly-owned dermatology medical aesthetic subsidiary of the company (CMS Skinhealth), entered a Collaboration and License Agreement for the development and commercialization of povorcitinib.
Povorcitinib, a selective oral JAK1 inhibitor discovered by Incyte, is an investigational medicine being evaluated for treating non-segmental vitiligo, hidradenitis suppurativa (HS), prurigo nodularis (PN), asthma and chronic spontaneous urticaria. This agreement will expand the company’s relationship with CMS in the Dermatology space beyond ruxolitinib cream.
On February 27, INCY announced that the FDA had accepted for Priority Review the Biologics License Application (BLA) for axatilimab, an anti-CSF-1R antibody, for the treatment of chronic graft-versus-host disease (GVHD) after failure of at least two previous lines of systemic therapy. The Prescription Drug User Fee Act (PDUFA) date for the FDA decision is August 28, 2024.
The BLA is supported by optimistic data from the AGAVE-201 trial (NCT04710576), recently highlighted in a Plenary Scientific Session at the American Society of Hematology Annual Meeting 2023.
INCY’s trailing-12-month EBIT margin of 17.65% is significantly higher than the industry average of 0.89%. Further, the stock’s trailing-12-month EBITDA margin of 19.98% is 276.1% higher than the industry average of 5.31%.
During the fourth quarter, which ended December 31, 2023, INCY’s total revenues grew 9.3% year-over-year to $1.01 billion. The company’s non-GAAP operating income rose 75.6% from the previous-year quarter to $267.70 million. Its non-GAAP net income was $239.12 million, or $1.07 per share, up 71.2% and 69.8% from the prior-year quarter, respectively.
Analysts expect revenue to increase 15.2% year-over-year to $931.75 million for the fiscal first quarter that ended March 2024. Its EPS is expected to increase 134.4% year-over-year to $0.87 for the same quarter.
Shares of INCY have surged marginally intra-day to close the last trading session at $55.30.
INCY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates 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.
The stock has an A grade for Value and Quality and a B in Growth. INCY is ranked #4 among 360 stocks in the Biotech industry.
Click here to access additional INCY’s ratings (Momentum, Sentiment, and Stability).
Stock #2: Jazz Pharmaceuticals plc (JAZZ)
Based in Dublin, Ireland, JAZZ is a biopharmaceutical company that identifies, develops, and commercializes pharmaceutical products for unmet medical needs. It has a portfolio of products and product candidates emphasizing the areas of neuroscience, including sleep medicine and movement disorders, and in oncology, such as hematologic and solid tumors.
On April 2, 2024, JAZZ completed the rolling submission of a Biologics License Application (BLA) to the FDA seeking accelerated approval for the HER2-targeted bispecific antibody zanidatamab as a treatment for previously-treated, unresectable, locally advanced, or metastatic HER2-positive biliary tract cancer (BTC).
If approved, zanidatamab would be the first HER2-targeted treatment specifically approved for BTC in the U.S.
On February 7, JAZZ announced its definitive agreement with Redx Pharma to acquire global rights to the KRAS Inhibitor Program, with Redx receiving $10 million upfront and potential milestone payments of up to $870 million, expanding JAZZ’s pipeline of targeted oncology therapies.
JAZZ’s trailing-12-month EBIT margin of 21.14% is significantly higher than the industry average of 0.89%. Likewise, the stock’s trailing-12-month EBITDA margin and levered FCF margin of 37.80% and 27.46% are significantly higher than the industry averages of 5.31% and 0.84%, respectively.
JAZZ’s total revenue increased 3.3% year-over-year to $1.01 billion for the fourth quarter ended December 31, 2023. Its adjusted net income came in at $345.29 million, compared to a net loss of $4.24 million in the previous-year quarter. Also, its non-GAAP EPS came in at $5.02, compared to a loss per share of $0.07 in the prior year’s quarter.
In addition, as of December 31, 2023, the company’s total assets stood at $11.39 billion compared to $10.84 billion as of December 31, 2022.
Analysts predict JAZZ’s revenue for the first quarter (ended March 2024) to increase 7.3% year-over-year to $957.66 million, and its EPS for the same quarter is projected to grow 6.5% year-to-year to $4.20. Moreover, the company has an excellent earnings surprise history, surpassing consensus revenue estimates in three of the trailing four quarters.
JAZZ’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
JAZZ has an A grade for Growth and Value and a B in Quality. It is ranked #2 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have JAZZ ratings for Momentum, Sentiment, and Stability. Get all JAZZ ratings here.
Stock #1: Exelixis, Inc. (EXEL)
EXEL is a biotech company specializing in oncology and dedicated to discovering, developing, and commercializing cancer treatments. The company focuses on developing inhibitors targeting cancer-related factors and collaborates with pharmaceutical companies for research and development (R&D).
EXEL’s trailing-12-month gross profit margin of 96.04% is 68.6% higher than the 56.95% industry average. Its 9.34% trailing-12-month EBIT margin is 781.6% higher than the 1.06% industry average. Likewise, the stock’s 10.74% trailing-12-month EBITDA margin is 101.2% higher than the 5.34% industry average.
EXEL’s total revenues increased 13.1% year-over-year to $479.65 million in the fourth quarter that ended December 31, 2023. The company reported a non-GAAP net income of $104.20 million, or $0.33 per share, compared to its year-ago quarter’s non-GAAP net loss of $10.21 million, or $0.03 per share, respectively.
EXEL reaffirmed its fiscal year 2024 financial guidance with total revenues projected between $1.83 billion and $1.93 billion and net product revenues expected to range from $1.65 billion to $1.75 billion.
Street expects EXEL’s revenue for the fiscal quarter (ended March 2024) to increase 11.5% year-over-year to $455.67 million. Its EPS is expected to grow 96.8% year-over-year to $0.24 for the same quarter.
Over the past nine months, the stock has surged 22.8% to close the last trading session at $23.72.
EXEL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B in Growth, Sentiment, and Quality. Within the same industry, EXEL is ranked first.
Click here to access additional ratings of EXEL for Stability and Momentum.
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INCY shares were trading at $54.60 per share on Wednesday morning, down $0.70 (-1.27%). Year-to-date, INCY has declined -13.04%, versus a 8.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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