The biotech industry has grown significantly and is well-positioned to remain buoyed due to significant strides in drug development, government support, and technological advancements.
Given this backdrop, fundamentally robust biotech stocks Gilead Sciences, Inc. (GILD), Equillium, Inc. (EQ), Incyte Corporation (INCY), and Jazz Pharmaceuticals plc (JAZZ) could be solid buys now. These stocks are rated A (Strong Buy) in our proprietary POWR Ratings system.
The biotech industry’s growth prospects appear promising thanks to the heightened use of advanced technology, expansion in research pipelines, and multibillion-dollar agreements. In 2024, an aggregate M&A deal value could reach $180 billion to $200 billion, driven by robust deal capacity and the urgency to replenish pipelines.
The biotech industry is further expanding through the diversified use of AI through AI applications for the biopharma sector, drug and protein discovery, and treatment repurposing.
Trends like bioprinting and tissue engineering are advancing rapidly in 2024, offering promising prospects for medical applications. The incorporation of technologies like stem cells and artificial intelligence, coupled with bioprinting is expected to provide more realistic organ substitutes and automated methods for the generation of substitutes. Consequently, the global biotechnology market is projected to reach $4.25 trillion, growing at a CAGR of 11.8% by 2033.
In light of these encouraging trends, let's look at the fundamentals of the four Biotech stocks, beginning with number 4.
Stock #4: Gilead Sciences, Inc. (GILD)
GILD discovers, develops, and commercializes medicines in the areas of unmet medical need in the U.S., Europe, and internationally. The company engages in advancing medicines to prevent and treat life-threatening diseases, including human immunodeficiency virus (HIV), viral hepatitis and cancer.
On March 6, GILD and Merus N.V. announced a research collaboration, option and license agreement to discover novel dual tumor-associated antigens (TAA) targeting trispecific antibodies.
GILD and Merus agreed to collaborate on the use of Merus’ proprietary Triclonics platform along with GILD’s oncology expertise to research and develop multiple separate preclinical research programs.
GILD pays an annual dividend of $3.08 per share, which translates to a dividend yield of 4.10% on the current share price. Its four-year average yield is 4.02%. GILD’s dividend payments have grown at CAGRs of 3.3% and 5.6% over the past three and five years, respectively.
GILD’s trailing-12-month asset turnover ratio of 0.43x is 10.8% higher than the industry average of 0.39x. Its trailing-12-month EBIT and levered FCF margins of 34.43% and 31.35% are significantly higher than the industry averages of 0.45% and 0.49%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, GILD’s total revenues amounted to $7.12 billion, while non-GAAP operating income increased 1.5% year-over-year to $2.74 billion. Moreover, its free cash flow stood at $1.95 billion.
For the same quarter, its non-GAAP net income attributable to GILD and non-GAAP earnings per share stood at $2.16 billion and $1.72, up 2.6% and 3% from the prior-year quarter, respectively.
Street expects GILD’s revenue for the fiscal first quarter ending March 2024 to increase marginally year-over-year to $6.37 billion, and its EPS is expected to increase 15.3% year-over-year to $1.58 for the same quarter. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained marginally intraday to close the last trading session at $75.32. Over the past month, it has gained 2.2%.
GILD’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating 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.
The stock has an A grade for Value and a B for Quality. Within the Biotech industry, it is ranked #7 out of 367 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, and Sentiment. Get all ratings of GILD here.
Stock #3: Equillium, Inc. (EQ)
EQ develops and sells products to treat severe autoimmune and, inflammatory, or immuno-inflammatory disorders with unmet medical needs.
EQ’s trailing-12-month levered FCF margin of 27.42% is significantly higher than the industry average of 0.49%, while its trailing-12-month asset turnover ratio of 0.82x is 110.1% higher than the industry average of 0.39x.
For the fiscal third quarter that ended September 30, 2023, EQ’s revenue stood at $8.87 million, while its total operating expenses declined 5.6% from the year-ago quarter to $12.49 million.
For the nine months that ended September 30, 2023, its cash and cash equivalents at end of period increased 33.6% year-over-year to $34.38 million. As of September 30, 2023, EQ’s total current liabilities amounted to $28.20 million, compared to $32.04 million as of December 31, 2022.
Street expects EQ’s revenue for the fiscal year ending December 2024 to increase 27.1% year-over-year to $41.70 million. Its EPS is expected to be $0.44 for the same year. The company surpassed consensus revenue estimates in each of the trailing four quarters and consensus EPS estimates in three of the trailing four quarters.
The stock has gained 351.1% over the past year to close the last trading session at $2.53. Over the past three months, it has gained 297.8%.
EQ’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
EQ has an A grade for Value, Sentiment, and Quality. Within the same industry, it is ranked #6.
To see additional POWR Ratings for Growth, Momentum, and Stability for EQ, click here.
Stock #2: Incyte Corporation (INCY)
INCY discovers, develops, and commercializes therapeutics for hematology/oncology, and inflammation and autoimmunity areas in the U.S., Europe, Japan, and internationally.
On February 5, INCY entered into an asset purchase agreement with MorphoSys AG, which gives INCY exclusive global rights for tafasitamab, a humanized Fc-modified CD19-targeting immunotherapy marketed in the U.S. as Monjuvi (tafasitamab-cxix) and outside of the U.S. as Minjuvi (tafasitamab).
This new agreement with MorphoSys provided INCY with exclusive global rights to tafasitamab and full control over its development and commercialization, allowing it to realize significant operating efficiencies and cost synergies.
INCY’s trailing-12-month cash per share of $14.33 is significantly higher than the industry average of $1.28. Its trailing-12-month levered FCF and EBIT margins of 16.67% and 17.65% are significantly higher than the industry averages of 0.49% and 0.45%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, INCY’s total revenues and total non-GAAP operating income increased 9.3% and 75.5% year-over-year to $1.01 billion and $267.70 million, respectively.
For the same quarter, its non-GAAP net income and non-GAAP net income per share stood at $239.12 million and $1.06, up 71.2% and 71% from the prior-year quarter, respectively.
Street expects INCY’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 15.4% and 140.3% year-over-year to $933.10 million and $0.89, respectively.
The stock has gained 6.6% over the past three months to close the last trading session at $60.79. Over the past month, it has gained 5.4%.
INCY’s POWR Ratings reflect its promising outlook. It has an overall rating of A, which indicates a Strong Buy in our proprietary rating system.
INCY has an A grade for Value and Quality and a B for Growth. Within the same industry, it is ranked #5.
To see other ratings of INCY for Momentum, Stability, and Sentiment, click here.
Stock #1: Jazz Pharmaceuticals plc (JAZZ)
Headquartered in Dublin, Ireland, JAZZ identifies, develops, and commercializes pharmaceutical products for unmet medical needs in the U.S., Europe, and internationally.
On February 7, JAZZ acquired Redx's KRAS (Kirsten rat sarcoma virus) inhibitor program. JAZZ and Redx’s collaboration to advance candidates through IND-enabling studies will make JAZZ responsible for all clinical development, regulatory, manufacturing and commercialization activities.
JAZZ’s trailing-12-month cash per share of $24.20 is significantly higher than the industry average of $1.28. Its trailing-12-month EBIT and levered FCF margins of 21.14% and 27.46% are significantly higher than the industry averages of 0.45% and 0.49%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, JAZZ’s total revenues increased 4.1% year-over-year to $1.01 billion. Moreover, its income from operations and non-GAAP net income stood at $122.50 million and $345.29 million, respectively, compared to a loss from operations and non-GAAP net loss of $263.39 million and $4.24 million in the year-ago quarter.
For the same quarter, its non-GAAP EPS came at $5.02, compared to a non-GAAP loss per share of $0.07 in the prior-year quarter.
Street expects JAZZ’s revenue and EPS in the fiscal first quarter ending March 2024 to increase 7.3% and 6.5% year-over-year to $957.97 million and $4.21, respectively. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has declined marginally to close the last trading session at $116.63.
JAZZ’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
JAZZ has an A grade for Growth and Value and a B for Quality. It is ranked #2 within the same industry.
Click here for the additional POWR Ratings for JAZZ (Momentum, Stability, and Sentiment).
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GILD shares fell $0.08 (-0.11%) in premarket trading Tuesday. Year-to-date, GILD has declined -6.97%, versus a 7.99% 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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