The global biotechnology market is driven by modernization, streamlined approval processes, and increased focus on personalized medicine. The pandemic has positively impacted the market, fostering advancements in drug development and vaccine manufacturing.
Therefore, investors could consider investing in top biotech stocks Merck KGaA (MKKGY), Entrada Therapeutics, Inc. (TRDA), and Gilead Sciences, Inc. (GILD). These companies boast robust profit margins and are quite undervalued than their industry peers.
The biotechnology market is set to grow in 2024, fueled by innovation, operational efficiency, and collaborative strategies, driven by trends like gene editing, stem cell technology, AI integration, and real-world evidence trials. The global biotechnology market is projected to grow at a CAGR of 14% from 2024 to 2030.
Besides, the pharmacy market is growing due to rising disease prevalence, an increased aging population, and a surge in prescription numbers. Digitalization and automation, such as AI adoption, contribute to improved patient safety and services in pharmacies.
The global pharmaceuticals market is anticipated to achieve a revenue of $1.16 trillion in 2024, with oncology drugs leading as the largest segment, projecting a market volume of $214.10 billion. The market is expected to grow steadily at a CAGR of 6.2% to reach $1.47 trillion by 2028.
According to IQVIA, with the growing usage of medicines, biotech is forecasted to represent 39% of global medicine spending. The spending on global biotech is expected to exceed $892 billion by 2028. On top of that, specialty medicines are expected to represent about 43% of global spending in 2028 and 55% of total spending in leading developed markets.
Considering these conducive trends, let’s examine the fundamentals of three Biotech stock picks, beginning with the third choice.
Stock #3: Merck KGaA (MKKGY)
Based in Darmstadt, Germany, MKKGY operates in Life Science, Healthcare, and Electronics, offering scientific products and services along with medicines and semiconductor solutions. The company also has strategic alliances with Pfizer and GlaxoSmithKline in immune-oncology and licensing agreements for drug development.
MKKGY’s trailing-12-month gross profit margin of 60.22% is 5.4% higher than the industry average of 57.13%. Its trailing-12-month EBIT margin of 20.60% is significantly higher than the 0.06% industry average.
MKKGY’s forward Price/Sales of 3.11x is 22.3% lower than the industry average of 4x. Its forward P/E multiple of 21.35 is 26.7% lower than the industry average of 29.13.
On January 29, 2024, MKKGY inaugurated its first Digital Hub in Singapore, marking its initial expansion outside the United States and Europe in the digital business sector. Supported by the Singapore Economic Development Board, it aims to advance healthcare and semiconductor industries.
The hub, with around 500 employees, leverages secure data collaboration platforms like Syntropy™ and Athinia™ for global innovation and technology integration.
During the third quarter, which ended September 30, 2023, MKKGY generated net sales of €5.17 billion ($5.60 billion). The company reported gross profit of €3.01 billion ($3.26 billion). Its EPS amounted to €1.70. As of September 30, 2023, its total assets amounted to €49.91 billion ($54.03 billion), compared to its total assets of €48.54 billion ($52.55 billion) as of December 31, 2022.
MKKGY’s revenue and EPS are expected to be $5.72 billion and $0.38, respectively, for the fiscal fourth quarter ended December 2023.
Its shares have gained 8.7% over the past three months to close the last trading session at $32.72.
MKKGY’s POWR Ratings reflect its sound prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MKKGY has an A grade for Stability and a B for Value. Within the Biotech industry, it is ranked #29 among 349 stocks.
To see MKKGY’s additional POWR Ratings for Growth, Momentum, Sentiment, and Quality, click here.
Stock #2: Entrada Therapeutics, Inc. (TRDA)
TRDA specializes in EEV therapeutics for neuromuscular diseases, with lead candidates ENTR-601-44 and ENTR-601-45 in preclinical trials. The company collaborates with Vertex Pharmaceuticals on ENTR-701 for myotonic dystrophy type 1.
TRDA’s trailing-12-month gross profit margin of 76.29% is 33.5% higher than the industry average of 57.13%. Its trailing-12-month CAPEX/Sales of 6.13% is 46% higher than the 4.20% industry average.
TRDA’s forward EV/Sales of 1.87x is 50.5% lower than the industry average of 3.78x.
In the third quarter, which ended September 30, 2023, TRDA generated collaboration revenue of $43.74 million. The company’s income from operations and net income came in at $14.01 million and $35.46 million, up significantly from the prior-year quarter’s loss from operations and net loss of $25.94 million and $25.14 million, respectively.
Its net income per share stood at $1.02 compared to a year-ago net loss per share of $0.80.
Street expects TRDA’s revenue to be $23.70 million for the fiscal fourth quarter ended December 2023. Its EPS for the same quarter is expected to improve 82.4% year-over-year.
The stock has gained 22.3% over the past year and 15.8% over the past nine months to close the last trading session at $14.77. It gained 1.4% intraday.
TRDA’s POWR Ratings reflect its robust prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
TRDA has an A grade for Value and a B for Growth, Sentiment, and Quality. Within the same industry, it is ranked #7.
In addition to the POWR Ratings stated above, one can access TRDA’s additional Momentum and Stability ratings here.
Stock #1: Gilead Sciences, Inc. (GILD)
GILD is a global biopharmaceutical company specializing in medicines for HIV/AIDS, viral hepatitis, oncology, and pulmonary arterial hypertension. They maintain collaborative agreements and partnerships in the biotech sector.
GILD’s trailing-12-month gross profit margin of 78.81% is 37.9% higher than the industry average of 57.13%. Its trailing-12-month EBIT margin of 33.61% is significantly higher than the 0.06% industry average.
GILD’s forward Price/Sales of 6.60x is 10.1% lower than the industry average of 4x. Its forward P/E multiple of 16.68 is 42.7% lower than the industry average of 29.13.
On January 29, 2024, GILD and Arcus Biosciences, Inc. (RCUS) amended their collaboration, with GILD investing $320 million in RCUS common stock at $21.00 per share. The partnership prioritizes the domvanalimab program for Phase 3 studies in lung and gastrointestinal cancers, with the investment extending RCUS' cash runway into 2027.
In the third quarter ended September 30, 2023, GILD’s total revenue grew marginally year-over-year to $7.05 billion. The company reported non-GAAP net income attributable to GILD and EPS of $2.88 billion and $2.29, up 20.4% and 20.5% year-over-year, respectively. Moreover, its free cash flow amounted to $1.63 billion.
For the fiscal year 2023, GILD anticipates total product sales of $26.7 billion to $26.9 billion. Non-GAAP EPS is projected to be in the range of $6.65 to $6.85.
Analysts expect GILD’s revenue and EPS to grow 1.9% and 24.8% year-over-year to $6.47 billion and $1.71, respectively, for the first quarter ending March 2024. The company surpassed the revenue estimates in each of the trailing four quarters.
The stock has gained 3.3% over the past three months to close the last trading session at $78.16.
GILD’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
GILD has an A grade for Value and a B for Quality. Within the same industry, it is ranked #4.
Click here for GILD’s additional Growth, Momentum, Stability, and Sentiment ratings.
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GILD shares were trading at $77.67 per share on Friday morning, down $0.49 (-0.63%). Year-to-date, GILD has declined -4.12%, versus a 3.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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