As the global population continues to age and the prevalence of chronic diseases continues to rise, the demand for advanced healthcare solutions remains steadfast. This ongoing need is poised to create a sustained and robust market for biotech products.
In such a scenario, investors could consider buying three fundamentally sound biotech stocks, Equillium, Inc. (EQ), Theratechnologies Inc. (THTX), and Exelixis, Inc. (EXEL), which are well-poised to capitalize on the industry’s consistent demand.
Biotechnology stands at the forefront of scientific innovation, ceaselessly pushing the frontiers of what can be achieved in the realm of healthcare. Strides in gene editing, regenerative medicine, and tailored therapies are inducing a profound transformation in the methods used to treat and manage various diseases.
Forecasts indicate the worldwide biotechnology market will reach a remarkable $1.04 trillion by 2030, demonstrating a CAGR of 7.5% from 2022 to 2030. The rise in demand for biotech interventions catering to diabetes and cancer patients is anticipated to drive the expansion of the biotechnology market.
Additionally, generative Artificial Intelligence (AI) integration is further expected to bolster the industry’s prospects. The capacity of generative AI to simulate and create innovative molecules, proteins, and genetic sequences holds immense potential for areas like drug discovery, protein engineering, and personalized medicine.
The generative AI market within the biotech sector is projected to reach a value of approximately $472 million by 2032, indicating a substantial growth from its $54 million value in 2022, reflecting a robust CAGR of 24.9% throughout the forecast period spanning from 2022 to 2032.
Furthermore, according to a survey conducted by Deloitte, R&D innovation stands out as a primary priority for 91% of life sciences companies in their investment plans for 2023. Additionally, nearly half of these organizations hold a positive outlook for the sector's prospects.
Given such robust predictions and optimism, let us now analyze the fundamental aspects of the featured stocks one by one, arranging them in ascending order of rank within the Biotech industry.
Stock #3: Equillium, Inc. (EQ)
EQ is a clinical-stage biotechnology company that develops and sells products to treat severe autoimmune and inflammatory or immuno-inflammatory disorders with unmet medical needs. It develops EQ101 to treat cutaneous T cell lymphoma and alopecia areata and EQ102 to treat various gastrointestinal diseases.
On August 2, EQ revealed that its Board of Directors approved a plan to buy back a maximum of $7.50 million worth of the company's common stock. This repurchase program underscores the company's confidence in its intrinsic value and potential. It further emphasizes the company's dedication to creating lasting shareholder value.
The stock’s trailing-12-month gross profit margin of 100% is 80.6% higher than the 55.37% industry average. Its trailing-12-month asset turnover ratio of 0.56x is 47.7% higher than the 0.38x industry average. Additionally, EQ’s trailing-12-month levered FCF margin of 1.31% is significantly higher than the 0.04% industry average.
In the fiscal second quarter that ended June 30, 2023, EQ’s revenue amounted to $9.12 million, while its total operating expenses declined 6.2% from the prior-year quarter to $12.72 million.
In addition, during the same period, the company’s cash and cash equivalents amounted to $48.38 million, while its total current liabilities stood at $25.22 million, down 21.3% compared to $32.04 million as of December 31, 2022.
For the third quarter (ending September 2023), EQ’s revenue is expected to come in at $5.66 million, while its EPS is projected to increase 71.7% year-over-year. Moreover, the company has an impressive surprise history, surpassing revenue estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 26.7% to close the last trading session at $0.82.
EQ’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, Sentiment, and Quality. In the Biotech industry, it is ranked #17. To see additional POWR Ratings for Momentum and Stability for EQ, click here.
Stock #2: Theratechnologies Inc. (THTX)
Headquartered in Montreal, Canada, THTX is a biopharmaceutical company focused on developing and commercializing various therapies addressing unmet medical needs. The company commercializes two medicines in Human Immunodeficiency Viruses (HIV) and has research programs in Non-Alcoholic Steatohepatitis (NASH), Oncology, and HIV.
On July 18, THTX announced an agreement with specific funds and accounts managed by Marathon Asset Management, L.P. This agreement aims to reduce the company's required minimum liquidity from $20 million to $15 million at all times.
Commenting on this, Philippe Dubuc, Senior Vice President and Chief Financial Officer at THTX, said, “This amendment entered into with Marathon will allow us to continue focusing on the growth of our business with the aim of achieving a positive adjusted EBITDA by the current fiscal year-end.”
On June 2, THTX made an announcement regarding the approval of its amended protocol by the FDA for the Phase 1 clinical trial of sudocetaxel zendusortide, which is an investigational Peptide-Drug Conjugate (PDC) that targets the sortilin (SORT1) receptor, facilitating the internalization and direct delivery of a cytotoxic payload into cancer cells.
The stock’s trailing-12-month gross profit margin of 73.89% is 33.5% higher than the 55.37% industry average. Its trailing-12-month asset turnover ratio of 0.97x is 157.6% higher than the 0.38x industry average. Likewise, THTX’s trailing-12-month levered FCF margin of 3.70% is significantly higher than the 0.04% industry average.
For the second quarter that ended May 31, 2023, THTX’s revenue amounted to $17.55 million, while its total operating expenses declined 36.6% from the prior-year quarter to $25.49 million. Also, during the same period, the company’s total current liabilities amounted to $71.32 million, down 37.6% compared to $114.28 million for the period that ended November 30, 2022.
Analysts expect THTX’s revenue for the fourth quarter (ending November 2023) to increase 12.6% year-over-year to $24.01 million. While Its EPS for the same period is expected to improve by 21.9% year-over-year.
The stock gained marginally intraday to close the last trading session at $1.06.
THTX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Growth, Value, and Sentiment. Within the same industry, it is ranked #14. Click here to see the other ratings of THTX for Momentum, Stability, and Quality.
Stock #1: Exelixis, Inc. (EXEL)
EXEL is an oncology-focused biotechnology company engaged in the discovery, development, and commercialization of new medicines to treat cancers. The company offers CABOMETYX tablets to treat patients with advanced renal cell carcinoma and COMETRIQ capsules for metastatic medullary thyroid cancer.
On March 20, backed by its strong fundamentals, the company’s Board of Directors approved a plan to buy back its common stock. The authorization allows for the repurchase of up to $550 million worth of the company's shares by the end of 2023.
On February 13, EXEL and Sairopa B.V. jointly announced that the Food and Drug Administration (FDA) had granted clearance to Sairopa's Investigational New Drug (IND) Application. The purpose of this application is to assess the safety and pharmacokinetics of ADU-1805 in adults who are suffering from advanced solid tumors.
“The clearance of this Investigational New Drug Application for ADU-1805 is an exciting milestone for our expanding biologics pipeline, marking the first of many anticipated advancements we expect this year,” said Vicki L. Goodman, M.D., Executive Vice President, Product Development & Medical Affairs, and Chief Medical Officer of EXEL.
EXEL’s trailing-12-month gross profit margin of 96.31% is 73.9% higher than the 55.37% industry average. Its trailing-12-month EBITDA margin of 9.67% is 84.9% higher than the 5.23% industry average. Furthermore, its trailing-12-month levered FCF margin of 4.03% is significantly higher than the 0.04% industry average.
For the fiscal second quarter that ended June 30, 2023, EXEL’s total revenues increased 12% year-over-year to $469.85 million, while its income from operations came in at $77.85 million. In addition, the company’s non-GAAP net income amounted to $100.29 million and $0.25 per share, up 11.8% and 7.1% from the prior-year quarter, respectively.
Street expects EXEL’s revenue for the third quarter (ending September 2023) to increase 14.5% year-over-year to $471.56 million. While Its EPS for the ongoing quarter is expected to be $0.18. Moreover, its EPS is projected to improve by 46% per annum over the next five years.
Also, the company surpassed EPS and revenue estimates in three of its trailing four quarters, which is promising.
EXEL’s shares have gained 38.3% year-to-date to close the last trading session at $22.18.
It’s no surprise that EXEL has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Value and Quality and a B for Sentiment. In the same industry, it is ranked #12.
In addition to the POWR Ratings we’ve stated above, we also have EXEL’s ratings for Growth, Momentum, and Stability. Get all EXEL ratings here.
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EXEL shares were trading at $22.24 per share on Tuesday morning, up $0.06 (+0.27%). Year-to-date, EXEL has gained 38.65%, versus a 17.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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