The biotech industry is expected to witness solid growth driven by growing government initiatives and increasing demand across several sectors. While we think fundamentally sound biotech stocks Gilead Sciences (GILD) and United Therapeutics (UTHR) could be solid buys this year, Bionano Genomics (BNGO) could be best avoided considering its fundamental weakness and bleak growth prospects. Keep reading….
Last year, the Biden administration unveiled a plan to spend more than $2 billion in the biotechnology sector in the United States. Additionally, the growing popularity of organic food products mandates the use of biotechnology in agriculture, which will drive revenue growth in the industry.
Also, the U.S. Department of Energy (DOE) is dedicated to enhancing American lives through biotechnology and biomanufacturing. In a significant effort to take advantage of the rapid advancements in biotechnology, DOE programmes are investing heavily in the commercialization of scientific discoveries.
Furthermore, according to the Business research company, the global biotechnology market is expected to grow at a CAGR of 10.2% until 2027. Investors’ interest in biotech stocks is evident from the SPDR Series Trust SPDR S&P Biotech ETF’s (XBI) 5.8% gains over three months and 7.6% gains over the past six months.
Given the industry’s growth prospects, fundamentally sound biotech stocks Gilead Sciences (GILD), United Therapeutics (UTHR) could be solid buys this year. However, given Bionano Genomics, Inc. (BNGO) fundamental weakness and bleak growth prospects, the stock might be best avoided now.
Stocks to Buy:
Gilead Sciences, Inc. (GILD)
Biopharmaceutical company GILD discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally for over three decades.
On January 3, 2022, GILD announced that the European Medicines Agency (EMA) had approved the Marketing Authorization Application (MAA) for Trodelvy to treat adult patients with previously-treated HR+/HER2-metastatic breast cancer. This is anticipated to help expand patient access to Trodelvy throughout the EU.
In terms of forward EV/EBITDA, GILD is trading at 8.89x, 34% lower than the industry average of 13.46x. Its forward EV/EBIT of 10.09x is 43.3% lower than the industry average of 17.77x.
GILD’s trailing-12-month gross profit margin of 79.22% is 43.4% higher than the 55.24% industry average. Its trailing-12-month net income margin of 12.29% compares with the negative 5.84% industry average.
GILD’s trodelvy’s sales came in at $180 million for the third quarter that ended September 30, 2022, up 78.2% year-over-year. The company’s current liabilities came in at $10.42 billion for the period ended September 30, 2022, compared to $11.61 billion for the period ended December 31, 2021.
GILD’s EPS is expected to increase marginally per annum for the next five years. It surpassed EPS estimates in three of the four trailing quarters. Over the past nine months, the stock has gained 36% to close the last trading session at $83.74.
GILD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GILD has an A grade for Value and a B for Sentiment and Quality. Within the Biotech industry, it is ranked #4 out of 396 stocks. Beyond what is stated above, we’ve also rated GILD for Growth, Momentum, and Stability. Get all GILD ratings here.
United Therapeutics Corporation (UTHR)
UTHR develops and commercializes medicines to meet the unmet medical needs of people with chronic and life-threatening diseases worldwide. It also markets and sells technologies to supply transplantable organs and tissues and improve transplant outcomes for recipients.
On November 2, 2022, Martine Rothblatt, Ph.D., Chairperson, and CEO, said, “We are thrilled to report the highest quarterly revenue in our history. On top of our historic performance, we continue to innovate with the recent launch of the pivotal TETON 2 study of Tyvaso in idiopathic pulmonary fibrosis, which adds to the four other registration studies we have underway.”
In terms of forward EV/EBITDA, UTHR is currently trading at 7.65x, 43.6% lower than the industry average of 13.55x. Its forward EV/EBIT of 7.95x is 56% lower than the industry average of 18.06x.
UTHR’s trailing-12-month gross profit margin of 93.15% is 68.6% higher than the 55.24% industry average. Its trailing-12-month EBITDA margin of 55.43% is substantially higher than the 3.55% industry average.
UTHR’s revenues came in at $516 million for the third quarter ended September 30, 2022, up 16% year-over-year. Its net profit came in at $239.30 million, up 47.1% year-over-year, while its EPS came in at $4.91, up 43.6% year-over-year.
Street expects UTHR’s revenue to increase by 12.7% year-over-year to $2.22 billion in 2023. Its EPS is expected to grow 15.3% year-over-year to $19.44 in the current year. It surpassed EPS estimates in three out of four trailing quarters. The stock has gained 37.5% over the past nine months to close the last trading session at $259.56.
It’s no surprise that UTHR has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, and Quality. UTHR is ranked first in the same industry. Click here for the additional POWR Ratings for UTHR (Stability, Sentiment, and Momentum).
Stock to Avoid:
Bionano Genomics, Inc. (BNGO)
BNGO provides genome analysis software solutions. It offers Saphyr, Saphyr instruments, Saphyr Chip, Bionano Prep Kits, and DNA labeling kits.
BNGO’s forward EV/Sales of 13.51x is 224.1% higher than the industry average of 4.17x. Its forward Price/Sales of 19.65x is 320.7% higher than the industry average of 4.67x.
BNGO’s trailing-12-month gross profit margin of 16.91% is 69.4% lower than the industry average of 55.24%. Its trailing-12-month levered FCF margin of negative 218.05% is substantially lower than the negative industry average of 2.44%.
BNGO’s loss from operations came in at $32.15 million for the third quarter ended September 30, 2022, up 55.5% year-over-year. Moreover, its net loss came in at $31.81 million, up 53.3% year-over-year.
BNGO’s EPS is expected to fall 69.2% year-over-year to negative $0.44 in 2023. BNGO’S shares have lost 22.1% over the past year to close the last trading session at $1.83.
BNGO’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. It also has an F grade for Stability and Quality and a D for Growth, Value, Momentum, and Sentiment. BNGO is ranked last in the same industry. Get all BNGO ratings here.
GILD shares fell $0.19 (-0.23%) in premarket trading Thursday. Year-to-date, GILD has declined -2.46%, versus a 2.37% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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