Despite broader economic challenges, the biotech industry thrives due to consistent innovation and steady demand. An aging population and the need for high-quality treatments for rare and common diseases back the optimism surrounding the industry.
Therefore, it might be wise to invest in fundamentally strong biotech stocks, such as Organogenesis Holdings Inc. (ORGO), Genmab A/S (GMAB), and Incyte Corporation (INCY).
Before delving deeper into their fundamentals, let’s discuss why the biotech industry is well-positioned for growth.
Despite the fading prospects for COVID-19 vaccines, the industry has substantial growth potential thanks to consistent breakthroughs in drug development. The increased approval of new drugs makes the industry’s prospects bright.
Biotechnology promises profitable applications, especially in healthcare, and drives advances in precision medicine, gene therapies, and regenerative medicines, ensuring sustained growth. With robust drug pipelines, the global biotechnology market is projected to reach $2.77 trillion by 2030, growing at a CAGR of 14.2%.
The biotech sector attracts substantial investments, exemplified by Abingworth, a life sciences investment group that raised $356 million for late-stage clinical programs. This trend extends to the clinical trials market and is set to grow to $73.2 billion by 2028. Increasing trials, a growing drug pipeline, and rising pharmaceutical R&D investment drive the industry’s expansion.
Notably, the sector is harnessing technological advancements, especially Artificial Intelligence (AI) and Big Data analytics, to stay at the forefront. The global generative AI in Biotech Market is anticipated to reach $472 million by 2032, growing at a CAGR of 24.9%.
Moreover, the cancer drugs market is poised for robust growth due to aging demographics, rising cancer cases, and the demand for personalized treatment. Projections indicate that the oncology drugs market will hit $188.20 billion in 2023 and grow at a 13.9% CAGR to reach $361.60 billion by 2028.
Investor interest in biotech stocks is evident from the VanEck Vectors Biotech ETF's (BBH) 12% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Biotech picks, beginning with the third choice.
Stock #3: Organogenesis Holdings Inc. (ORGO)
ORGO is a regenerative medicine company that develops, manufactures, and commercializes solutions for the advanced wound care and surgical and sports medicine markets in the United States.
In terms of the trailing-12-month EBITDA margin, ORGO’s 8.11% is 53.3% higher than the 5.29% industry average. Likewise, its 76.43% trailing-12-month gross profit margin is 35.5% higher than the 56.39% industry average. Likewise, its 5.02% trailing-12-month EBIT margin is 718.1% higher than the 0.61% industry average.
For the third quarter that ended September 30, 2023, ORGO’s net revenue came in at $108.53 million. Its gross profit came in at $82.74 million. The company’s income from operations rose 352.5% year-over-year to $8.05 million.
For the same quarter, its net income increased significantly over the prior-year quarter to $3.17 million while its net income per share stood at $0.02, up 100% year-over-year.
Analysts expect ORGO’s EPS and revenue for the fiscal year ending December 31, 2024, to increase 25% and 3.8% year-over-year to $0.05 and $457.07 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 12.6% to close the last trading session at $2.59.
ORGO’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #21 out of 343 stocks in the Biotech industry. It has an A grade for Value and a B for Sentiment and Quality. Click here to see ORGO’s Growth, Momentum, and Stability ratings.
Stock #2: Genmab A/S (GMAB)
Headquartered in Copenhagen, Denmark, GMAB develops antibody therapeutics for treating cancer and other diseases, primarily in Denmark. The company’s offerings include DARZALEX, a human monoclonal antibody; teprotumumab for treating thyroid eye disease; and Amivantamab for advanced or metastatic gastric or oesophageal cancer.
On October 17, 2023, GMAB announced worldwide net trade sales of DARZALEX (daratumumab) for the third quarter of 2023, totaling $2,499 million. GMAB receives royalties on these sales from Janssen Biotech, Inc.
On September 25, 2023, GMAB received conditional approval from the European Commission for TEPKINLY (epcoritamab) as a standalone treatment for adults with relapsed or refractory diffuse large B-cell lymphoma (DLBCL). It's the first subcutaneous bispecific antibody approved for this patient group in the European Union, Liechtenstein, Norway, and Iceland.
In terms of the trailing-12-month EBITDA margin, GMAB’s 39.56% is 647.6% higher than the 5.29% industry average. Likewise, its 99.41% trailing-12-month gross profit margin is 76.3% higher than the 56.39% industry average. Its 0.52x trailing-12-month asset turnover ratio is 32.6% higher than the 0.39x industry average.
GMAB’s revenue for the third quarter that ended September 30, 2023, increased 16.1% year-over-year to DKK4.74 billion ($693.29 million). Its operating profit came in at DKK1.72 billion ($251.57 million). Also, the company’s net profit and net profit per share came in at DKK2.13 billion ($311.54 million) and DKK32.32, respectively.
Street expects GMAB’s EPS for the quarter ending December 2023 to increase 143.2% year-over-year to $0.31. Its revenue for the quarter ending March 31, 2024, is expected to increase 34.2% year-over-year to $564.73 million. Over the past month, the stock has gained 5.7% to close the last trading session at $31.55.
It’s no surprise that GMAB has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value and Quality. Within the same industry, it is ranked #12. Beyond what we stated above, we also have given GMAB grades for Growth, Momentum, and Stability. Get all GMAB ratings here.
Stock #1: Incyte Corporation (INCY)
INCY is a biopharmaceutical company that engages in the discovery, development, and commercialization of therapeutics for hematology/oncology and inflammation and autoimmunity areas in the United States, Europe, Japan, and internationally.
On October 11, 2023, INCY announced a partnership with Mandy Moore for "Moments of Clarity," an initiative sharing stories of people with mild to moderate atopic dermatitis (AD). "Moments of Clarity" features stories of individuals treated with Opzelura (ruxolitinib) cream 1.5% for mild to moderate AD.
Barry Flannelly, Executive VP and General Manager at INCY, said, “This program underscores Incyte’s commitment to people with AD, and we hope these stories encourage people living with the condition to have a conversation with their dermatologist about their treatment goals.”
On July 31, 2023, INCY and Replimune (REPL) announced a collaboration to study RP1 (REPL’s lead product) with INCB99280 (INCY’s oral PD-L1 inhibitor) in high-risk, resectable cutaneous squamous cell carcinoma (CSCC) patients. Incyte sponsors the trial, and REPL supplies RP1, sharing study costs equally.
In terms of the trailing-12-month EBIT margin, INCY’s 15.09% is significantly higher than the 0.61% industry average. Likewise, its 17.90% trailing-12-month levered FCF margin is significantly higher than the 0.11% industry average. Its 0.61x trailing-12-month asset turnover ratio is 55.7% higher than the 0.39x industry average.
For the third quarter that ended September 30, 2023, INCY’s total revenues increased 11.6% year-over-year to $919.03 million. Its total non-GAAP operating income rose 63.4% year-over-year to $273.29 million. For the same period, its non-GAAP net income and non-GAAP EPS rose 85.9% and 83.3% over the prior year’s quarter to $248.72 million and $1.10, respectively.
For the quarter ending December 31, 2023, INCY’s EPS and revenue are expected to increase 82.8% and 8.1% year-over-year to $1.13 and $1 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 3% to close the last trading session at $53.40.
INCY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth, Value, and Quality. It is ranked #2 in the Biotech industry. To see INCY’s Momentum, Stability, and Sentiment ratings, click here.
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GMAB shares were trading at $31.73 per share on Friday morning, up $0.18 (+0.57%). Year-to-date, GMAB has declined -25.13%, versus a 20.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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