The global biotechnology market is experiencing significant growth fueled by government support, pandemic-related opportunities, and increased demand for clinical solutions.
Therefore, investors could consider investing in top biotech stocks Gilead Sciences, Inc. (GILD), Exelixis, Inc. (EXEL), and Incyte Corporation (INCY) for end-of-year profits. These companies boast robust profit margins.
The Biden-Harris Administration's recent efforts to promote competition and reduce healthcare costs may boost demand for pharmaceuticals, benefiting biotech firms in drug discovery. Additionally, the focus on healthcare improvement could attract more investment, potentially fueling research and development in the biotech industry.
On top of it, ever resilient and growing, the U.S. biotech industry fosters diverse jobs and economic advancements through talent development and collaborative partnerships, shaping innovations in medical care, agriculture, and industry.
Furthermore, the global drug discovery market is growing due to increased chronic diseases, expanded biopharmaceutical investments, and rising demand for innovative drugs. The global sales of biotechnology drugs are expected to exceed $430 billion in 2022 and 2023.
In addition, the rapid advancements in technology, cost-effective manufacturing, and increased investment have positively impacted the pharmaceutical industry. The integration of robotic technology and AI has reduced downtime and waste on manufacturing floors, enhancing overall efficiency and productivity in pharmaceutical processes.
As a result, the global pharmaceutical manufacturing market size is expected to grow at a CAGR of 7.6% from 2023 to 2030. Moreover, the global biotechnology market is estimated to expand at a CAGR of 15.5% to reach $1.35 trillion by 2030.
Considering these conducive trends, let’s examine the fundamentals of the three Biotech stock picks, beginning with the third choice.
Stock #3: Gilead Sciences, Inc. (GILD)
GILD is a global biopharmaceutical company known for discovering, developing, and commercializing medicines, with a diverse portfolio covering areas such as HIV/AIDS, viral hepatitis, oncology, and pulmonary arterial hypertension. The company has collaborative agreements and partnerships in the biotech sector.
EXEL’s trailing-12-month gross profit margin of 78.81% is 39% higher than the industry average of 56.70%. Its 33.61% and 33.65% trailing-12-month EBIT and levered FCF margins are significantly higher than the 0.81% and 0.25% industry averages, respectively.
On November 15, Kite, a GILD company, expanded collaboration with Arcellx, Inc., exercising rights for ACLX-001 in multiple myeloma and lymphomas. ACLX receives a $200 million equity investment, enhancing cash position till 2027, and an $85 million upfront payment. The deal aims to advance a potential best-in-class cell therapy.
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.
Street expects GILD's revenue and EPS to grow 3.4% and 37.8% year-over-year to $6.82 billion and $1.85 for the second quarter ending June 2024, respectively. The company surpassed the revenue estimates in each of the trailing four quarters, which is impressive.
GILD’s shares have gained 2.8% over the past nine months and 5.4% over the past month to close the last trading session at $79.50.
GILD’s POWR Ratings reflect its positive prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GILD has an A grade for Value and Quality. Within the Biotech industry, it is ranked #4 among 343 stocks.
In addition to the POWR Ratings stated above, one can access GILD’s additional Growth, Momentum, Stability, and Sentiment ratings here.
Stock #2: Exelixis, Inc. (EXEL)
EXEL is a biotech company specializing in oncology, focusing on discovering, developing, and commercializing cancer treatments. The company develops inhibitors targeting cancer-related factors and has collaborations with pharmaceutical companies for research and development.
EXEL’s trailing-12-month gross profit margin of 96.24% is 69.7% higher than the industry average of 56.70%. Its 2.31% trailing-12-month EBIT margin is 184.9% higher than the 0.81% industry average. Moreover, its trailing-12-month asset turnover ratio of 0.60x is 52.6% higher than the 0.39x industry average.
On December 4, EXEL and Arcus Biosciences, Inc. (RCUS) joined forces for the STELLAR-009 trial, testing zanzalintinib and AB521 in advanced solid tumors, including renal cell carcinoma.
The collaboration aims to enhance kidney cancer treatment options, with RCUS co-funding the study and supplying AB521. Patient enrollment is set to start by the end of 2023.
For the third quarter that ended September 30, 2023, EXEL’s total revenues grew 14.6% from the prior-year quarter to $471.92 million. The company reported non-GAAP net income and net income per share of $32.10 million and $0.10, respectively.
For the nine months ended September 30, EXEL generated total revenues of $1.35 billion, up 13.8% year-over-year.
EXEL updated financial guidance for the fiscal year 2023, projecting total revenues between $1.83 billion and $1.85 billion, with net product revenues estimated at $1.63 billion to $1.65 billion.
Analysts expect EXEL’s revenue and EPS to grow 19.2% and 79.9% year-over-year to $487.09 million and $0.22 for the first quarter ending March 2024, respectively. The company surpassed the EPS estimates in each of the trailing four quarters.
The stock has gained 46.4% over the past year and 45.5% year-to-date to close the last trading session at $23.34.
EXEL’s robust 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.
It has an A grade for Value and Quality and a B for Growth. Within the same industry, it is ranked #3.
To see EXEL’s additional POWR Ratings for Momentum, Stability, and Sentiment, click here.
Stock #1: Incyte Corporation (INCY)
INCY specializes in developing therapies for hematology/oncology and inflammation. The company has a range of clinical-stage products and collaborative agreements to advance its research efforts globally.
INCY’s trailing-12-month EBIT margin of 15.09% is significantly higher than the industry average of 0.81%. Its 17.37% trailing-12-month EBITDA margin is 221.7% higher than the 5.40% industry average. Also, its trailing-12-month asset turnover ratio of 0.61x is 54.9% higher than the industry average of 0.39x.
During the third quarter, which ended September 30, 2023, INCY reported total revenues of $919.03 million, up 11.6% year-over-year. The company's non-GAAP net income and net income per share increased 85.9% and 83.3% from the previous-year quarter to $248.72 million and $1.10, respectively.
As of September 30, 2023, its total assets amounted to $6.39 billion, compared to $5.84 billion as of December 31, 2022.
INCY’s revenue and EPS are expected to grow 12% and 128.7% year-over-year to $905.32 million and $0.85 for the first quarter ending March 2024, respectively. The company surpassed the EPS estimates in three of the trailing four quarters.
INCY’s shares increased 1.9% over the past three months and 11.7% over the past month to close the last trading session at $60.62.
INCY’s POWR Ratings reflect this sound outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth, Value, and Quality and a B for Sentiment. Within the same industry, it is ranked first.
Click here for INCY’s additional Momentum and Stability ratings.
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.
GILD shares were trading at $80.00 per share on Tuesday morning, up $0.50 (+0.63%). Year-to-date, GILD has declined -3.21%, versus a 25.32% 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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