The extensive use of biotech, which spans various fields, with significant impacts on healthcare, agriculture, and industrial processes, coupled with numerous technological advances, positions the biotechnology industry for considerable growth and expansion.
Given the industry’s steady growth prospects, investors could buy A-rated biotech stocks Entrada Therapeutics, Inc. (TRDA), Exelixis, Inc. (EXEL), and Gilead Sciences, Inc. (GILD) for long-term gain. These stocks are rated A (Strong Buy) in our POWR Ratings system.
The rising prevalence of chronic diseases worldwide and the growing adoption of advanced technologies are expected to boost the biotech industry’s prospects. According to the IQVIA Institute report, the global medicine market’s spending is rapidly growing, and the spending on biotech is expected to represent 39%, exceeding $892 billion by 2028.
Moreover, several technological advances, such as the development of next-generation sequencing technologies, advanced imaging techniques, and the increasing use of artificial intelligence (AI) and machine learning in drug discovery and development, are propelling the biotechnology market’s expansion.
In addition to healthcare, biotech has a profound impact on agriculture. Genetically modified plants are getting highly adopted due to the increased sustainability of crops. Also, the International Service for the Acquisition of Agri-Biotech Application (ISAAA) estimates that almost 2.14 billion hectares of biotechnological crops were commercially developed.
According to a Vantage Market Research report, the global biotechnology market is expected to reach $2.77 trillion by 2030, growing at a CAGR of 14.2%.
Notably, investors’ interest in biotech stocks is evident from the SPDR Series Trust SPDR S&P Biotech ETF’s (XBI) 33.6% returns over the past six months.
Given these encouraging market trends, let’s look at the fundamentals of the top three Biotech stocks, beginning with the third choice.
Stock #3: Entrada Therapeutics, Inc. (TRDA)
TRDA is a clinical-stage biotechnology company that develops endosomal escape vehicle therapeutics for treating multiple neuromuscular diseases. Its lead candidates, including ENTR-601-44 and ENTR-601-45, show promise in preclinical trials for Duchenne muscular dystrophy and myotonic dystrophy type 1.
In March, TRDA achieved a milestone in collaboration with Vertex Pharmaceuticals Inc. (VRTX) related to the clinical advancement of Vertex’s Phase 1/2 clinical trial of VX-670, which triggered a $75 million payment. The company will likely receive the payment during the second quarter of 2024.
The company is eligible to receive a total of $485 million, which includes milestones achieved to date upon successfully meeting certain research, development, regulatory, and commercial goals and tiered royalties on future net sales of any products resulting from this collaboration.
TRDA’s trailing-12-month EBIT margin of 14.57% is significantly higher than the industry average of 1.06%. Likewise, the stock’s trailing-12-month EBITDA margin of 16.56% is 185.2% higher than the industry average of 5.81%.
During the first quarter that ended March 31, 2024, TRDA’s collaboration revenue increased 5.3% year-over-year to $59.12 million. Its income from operations came in at $21.11 million, compared to a loss from operations of $5.78 million in the previous-year quarter.
Additionally, the company’s net income came in at $23.50 million, compared to a net loss of $6.67 million in the prior year’s quarter. Also, its net income per share came in at $0.68, compared to a loss per share of $0.21 in the same quarter of 2023.
Analysts expect TRDA’s revenue for the second quarter (ending June 2024) to increase 98.5% year-over-year to $36.08 million, and its EPS is expected to be $0.52 for the same quarter. Furthermore, the company surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
Shares of TRDA have gained 12.4% over the past year to close the last trading session at $14.05.
TRDA’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.
TRDA has an A grade for Sentiment and a B for Value and Quality. TRDA is ranked #6 among 358 stocks in the Biotech industry.
Click here to access additional TRDA ratings (Momentum, Growth, and Stability).
Stock #2: 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.
On January 25, 2024, EXEL reported promising results from the CONTACT-02 trial at ASCO GU 2024, showing a significant improvement in progression-free survival with cabozantinib and atezolizumab combination therapy compared to second-line treatment, with 97% experiencing treatment-emergent adverse events in the combination group versus 87% in the second-line group.
EXEL’s trailing-12-month gross profit margin of 95.70% is 69.1% higher than the industry average of 56.60%. Also, its trailing-12-month EBIT margin of 11.07% is significantly higher than the industry average of 1.06%. Likewise, its trailing-12-month EBITDA margin of 12.43% is 114.1% higher than the industry average of 5.81%.
EXEL’s total revenues increased 13.1% year-over-year to $425.23 million in the first quarter that ended March 31, 2024. Its net product revenues from the cabozantinib franchise in the U.S. were $378.5 million during the quarter. It reported a non-GAAP net income of $51.98 million. Its non-GAAP net income per share increased 6.3% year-over-year to $0.17.
EXEL reaffirmed its fiscal year 2024 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.
Analysts predict EXEL’s revenue for the fiscal year ending December 2024 to increase 2.7% year-over-year to $1.88 billion. Its EPS for the current year is expected to grow 74.1% from the prior year to $1.13. Moreover, the company has an excellent earnings surprise history, surpassing consensus EPS estimates in each of the trailing four quarters.
Over the past year, EXEL’s stock has surged 10.9% to close the last trading session at $21.27.
EXEL’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.
EXEL has an A grade for Value and Quality. It is ranked #5 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have EXEL ratings for Momentum, Sentiment, Growth, and Stability. Get all EXEL ratings here.
Stock #1: Gilead Sciences, Inc. (GILD)
GILD is a biopharmaceutical company that discovers, develops, and commercializes medicines in the areas of unmet medical needs internationally. The company provides products, including Biktarvy, Genvoya, Descovy, and Odefsey for the treatment of HIV/AIDS, Veklury for COVID-19, and Epclusa for viral hepatitis.
On April 26, 2024, GILD announced that the U.S. Food and Drug Administration (FDA) approved an updated label with additional data reinforcing the safety and efficacy profile of Biktarvy to treat pregnant people with HIV-1 (PWH) with suppressed viral loads.
This update makes Biktarvy the only second-generation integrase strand transfer inhibitor (INSTI)-based single-tablet regimen (STR) with in-label clinical trial data and FDA approval in virologically suppressed adults who are pregnant.
GILD’s trailing-12-month gross profit margin of 77.52% is 37% higher than the industry average of 56.60%. Also, its trailing-12-month EBIT margin of 36.15% is significantly higher than the industry average of 1.06%. Similarly, its trailing-12-month EBITDA margin of 46.14% is 649.7% higher than the industry average of 5.81%.
GILD’s total revenues increased 5.4% year-over-year to $6.69 billion during the first quarter, which ended March 31, 2024. Its product sales came in at $6.65 billion, up 5.4% from the prior year’s period. The company generated $2.20 billion in operating cash flow during the first quarter. As of March 31, 2024, its cash, cash equivalents, and marketable debt securities were $4.72 billion.
As per the full-year 2024 guidance, GILD expects an operating income of $7 billion-$7.5 billion, and its non-GAAP EPS is expected to be between $0.10 and $0.50.
Street expects GILD’s revenue for the second quarter (ending June 2024) to increase 1.8% year-over-year to $6.72 billion, while its EPS for the same quarter is expected to grow 18.3% year-over-year to $1.59. Moreover, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
Shares of GILD have plunged marginally over the past month to close the last trading session at $67.54.
GILD’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 for Growth and Quality. Within the same industry, GILD is ranked first.
Click here to access additional ratings of GILD for Stability, Sentiment, and Momentum.
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GILD shares were trading at $67.17 per share on Tuesday morning, down $0.37 (-0.55%). Year-to-date, GILD has declined -16.23%, versus a 10.13% 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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