The pharmaceutical industry’s growth is fueled by rising demand for innovative drugs and therapies, ever-rising healthcare demand, a rise in the world’s elderly population, and the increase in chronic diseases.
Given this backdrop, investors could consider buying quality pharmaceutical stocks such as Teva Pharmaceutical Industries Limited (TEVA), Neurocrine Biosciences, Inc. (NBIX), and GSK plc (GSK). Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.
The growing prevalence of chronic and lifestyle diseases such as cancer, diabetes, and other chronic respiratory ailments has boosted the demand for innovative drugs and treatments. Moreover, the rising number of older adults and growing worldwide spending on quality health care are expected to drive industry growth.
The worldwide pharmaceutical industry is expected to grow at a CAGR of 6.2% to reach a market volume of $1.47 trillion by 2028. The pharmaceutical industry is undergoing a massive transformation amid rising investments in R&D and manufacturing facilities to boost output capacity for new drugs.
Additionally, pharmaceutical companies have started employing digital technologies such as artificial intelligence (AI), the Internet of Things, and big data analytics. These technologies are helping pharmaceutical companies optimize manufacturing processing, improve quality control, and reduce downtimes.
Investors’ interest in pharmaceutical stocks is evident from iShares U.S. Pharmaceuticals ETF’s (IHE) 14.8% returns over the past six months.
In light of these encouraging trends, let's examine the fundamentals of the three Medical - Pharmaceuticals stock picks, starting with the third in line.
Stock #3: Teva Pharmaceutical Industries Limited (TEVA)
Headquartered in Tel Aviv, Israel, TEVA develops, manufactures, markets, and distributes generic medicines, specialty medicines, and biopharmaceutical products in North America, Europe, Israel, and internationally.
On April 16, Alvotech and Teva Pharmaceuticals, a U.S. affiliate of TEVA, announced that it received approval from the U.S. Food and Drug Administration (FDA) for SELARSDI injection for subcutaneous use for the treatment of moderate to severe plaque psoriasis and for active psoriatic arthritis in adults and pediatric patients six years and older.
“The approval of SELARSDI – which is our second biosimilar approval this year – underscores Teva’s commitment to expanding the availability, access, and uptake of this important treatment option to patients in the U.S.,” said Thomas Rainey, Senior Vice President, U.S. Market Access at Teva.
“The biosimilars market is growing, both globally and in the U.S., and biosimilars are a key component of delivering on Teva’s Pivot to Growth strategy. The partnership model that we’ve established enables us to leverage our commercial presence and experiences globally as we move to bring additional biosimilars to market,” he added.
On January 31, TEVA announced its motive for the divestiture of its active-pharmaceutical ingredient (API) business or “TAPI”, which is a leading small-molecule API industry having about 4300 employees globally. The decision to divest “TAPI” will help TEVA generate more returns by concentrating on expanding and improving its products, benefitting its patients.
Moreover, TEVA will have more resources to invest in new opportunities, which will maximize shareholders’ profits. Additionally, it will allow “TAPI” to focus on new growth strategies and capitalize on the $85 billion global API market.
In terms of forward EV/Sales, TEVA is trading at 2.12x, 36% lower than the industry average of 3.31x. The stock’s forward Price/Sales of 1.01x is 71% lower than the industry average of 3.47x.
TEVA’s trailing-12-month EBIT margin and levered FCF margin of 20.07% and 20.79% are considerably higher than the industry averages of 0.60% and 0.73%, respectively.
TEVA’s net revenues and non-GAAP gross profit for the fiscal fourth quarter that ended December 31, 2023, increased 14.8% and 23.1% year-over-year to $4.46 billion and $2.59 billion, respectively. In addition, its free cash flow stood at $1.49 billion, up 30.4% from the year-ago quarter.
For the same quarter, its non-GAAP net income attributable to TEVA and earnings per share attributable to TEVA stood at $1.14 billion and $1, up 43.5% and 40.8% from the prior-year quarter, respectively.
Street expects TEVA’s revenue and EPS for the quarter that ended March 31, 2024, to increase 2.2% and 28.6% year-over-year to $3.74 billion and $0.51, respectively. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive. The stock has gained 73.7% over the past six months to close the last trading session at $14.10.
TEVA’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and Value. It is ranked #11 out of 161 stocks in the Medical - Pharmaceuticals industry. Click here to see the additional POWR Ratings for TEVA (Momentum, Stability, Sentiment, and Quality).
Stock #2: Neurocrine Biosciences, Inc. (NBIX)
NBIX discovers, develops, and markets pharmaceuticals for neurological, neuroendocrine, and neuropsychiatric disorders in the U.S. and internationally.
On April 16, Sentia Medical Sciences Inc. announced that they further extended a research collaboration with NBIX to discover novel, long-acting corticotropin-releasing factor (CRF) receptor antagonist peptide therapeutics.
The collaboration continues to leverage Sentia’s proprietary peptide-based platform and NBIX’s drug development expertise in CRF biology to develop and commercialize medicines with the potential to treat a variety of hypothalamic-pituitary-adrenal (HPA) axis-modulated diseases.
In terms of forward non-GAAP PEG, NBIX is trading at 0.53x, 72.4% lower than the industry average of 1.91x. The stock’s forward Price/Sales of 6.31x is 82% lower than the industry average of 3.47x.
NBIX’s trailing-12-month asset turnover ratio of 0.67x is 71.8% higher than the industry average of 0.39x. Similarly, its trailing-12-month gross profit margin of 67.96% is 20.8% higher than the industry average of 56.27%.
For the fiscal fourth quarter that ended December 31, 2023, NBIX’s total revenues and operating income increased 25% and 45.4% year-over-year to $515.20 million and $150.30 million, respectively. For the same quarter, its non-GAAP net income and earnings per share stood at $157.70 million and $1.54, up 26.5% and 24.2% from the prior-year quarter, respectively.
For the quarter that ended March 31, 2024, NBIX’s revenue is expected to increase 21.8% year-over-year to $512.01 million. Its EPS for the quarter ending June 30, 2024, is expected to grow 19.2% year-over-year to $1.49. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 37.5%, closing the last trading session at $138.89.
NBIX’s POWR Ratings reflect its positive prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
NBIX has an A grade for Quality and a B for Growth, Value, and Sentiment. Within the same industry, it is ranked #9. To see the additional POWR Ratings of NBIX for Momentum and Stability, click here.
Stock #1: GSK plc (GSK)
Headquartered in Brentford, the United Kingdom, GSK researches, develops, and manufactures vaccines and specialty and general medicines to prevent and treat disease in the United Kingdom, the U.S., and internationally. It operates through two segments: Commercial Operations, and Total R&D.
On February 15, GSK acquired Aiolos Bio, a clinical-stage biopharmaceutical company focused on addressing the unmet treatment needs of patients with respiratory and inflammatory conditions.
The acquisition of Aiolos includes AIO-001, a potentially best-in-class, long-acting anti-thymic stromal lymphopoietin (TSLP) monoclonal antibody ready to enter phase II clinical development for the treatment of adult patients with asthma, which could expand GSK’s respiratory biologics portfolio to potentially reach the 40% of severe asthma patients with low T2 inflammation.
In terms of forward EV/EBIT, GSK is trading at 8.88x, 44.5% lower than the industry average of 16.01x. The stock’s forward non-GAAP P/E of 10.59x is 45.5% lower than the industry average of 19.43x.
GSK’s trailing-12-month CAPEX / Sales of 4.33% is 10.2% higher than the industry average of 3.93%. Similarly, its trailing-12-month EBITDA margin of 33.98% is 539.7% higher than the industry average of 5.31%.
GSK’s turnover and adjusted gross profit for the fiscal fourth quarter that ended December 31, 2023, increased 9.2% and 10.2% year-over-year to £8.05 billion ($10.10 billion) and £5.89 billion ($7.38 billion), respectively. In addition, its adjusted operating profit stood at £1.75 billion ($2.20 billion), up 9.8% from the year-ago quarter.
For the same quarter, its adjusted profit attributable to shareholders from continuing operations and earnings per share from continuing operations increased 12.7% and 12% from the prior-year quarter to £1.17 billion ($1.47 billion) and 28.90p, respectively.
Analysts expect GSK’s revenue and EPS for the quarter that ended March 31, 2024, to increase 1.5% and 1.9% year-over-year to $8.79 billion and $0.94, respectively. The company surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 20.4% over the past six months to close the last trading session at $41.61.
GSK’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
GSK has an A grade for Value and a B for Stability and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #6. To see GSK’s Growth, Momentum, and Sentiment ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
GSK shares were trading at $41.77 per share on Tuesday morning, up $0.16 (+0.38%). Year-to-date, GSK has gained 13.79%, versus a 7.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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