The COVID-19 pandemic created new opportunities for the biotech sector through the increased demand for drugs and vaccines. In the post-pandemic world, personalized medicines and innovative drug formulations are expected to keep the industry buoyed.
Last month, the White House announced its plans to invest more than $2 billion in the U.S. biotechnology sector. The executive order signed by President Biden launched the national biotechnology and bio-manufacturing initiative, which is expected to fund medical breakthroughs.
Moreover, the global biotechnology market is set to grow at a 13.9% CAGR between 2022 and 2030. Given this backdrop, fundamentally strong biotech stocks Gilead Sciences, Inc. (GILD) and Vertex Pharmaceuticals Incorporated (VRTX) might be solid buys now.
However, Relmada Therapeutics, Inc. (RLMD) might be avoided amid the market volatility, given its bleak fundamentals.
Stocks to Buy:
Gilead Sciences, Inc. (GILD)
GILD operates as a biopharmaceutical company that discovers, develops, and commercializes medicines in the areas of unmet medical needs in the United States, Europe, and internationally.
On October 17, GILD and MacroGenics, Inc. (MGNX) announced an oncology collaboration to develop bispecific antibodies aimed at helping people with certain blood cancers. This is expected to bolster the company’s oncology portfolio.
On September 20, GILD announced that it had completed its acquisition of the U.K.-based biotechnology company MicroBio. The acquisition provides the company with MicroBio’s discovery platform and entire immune inhibitory receptor agonists portfolio. This should bolster GILD’s operative capability.
For the fiscal second quarter that ended June 30, GILD’s total revenues increased marginally year-over-year to $6.26 billion. Non-GAAP net income attributable to GILD and non-GAAP EPS came in at $1.99 billion and $1.58, respectively. The company expects a non-GAAP EPS between $6.35 and $6.75 for the fiscal year 2022.
Analysts expect GILD’s EPS to increase 102.7% year-over-year to $1.40 for the quarter ending December 2022. Revenue is expected to come in at $6.35 billion for the same quarter. In addition, GILD has an impressive surprise earnings history, as it has topped consensus EPS estimates in three of the trailing four quarters.
The stock has gained 7.4% over the past six months and 6% over the past three months to close its last trading session at $66.38.
GILD’s POWR Ratings reflect a promising outlook. The company 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.
GILD is also rated an A in Value and a B in Quality. Within the Biotech industry, it is ranked #14 of 387 stocks.
Click here to see additional POWR Ratings for Sentiment, Stability, Growth, and Momentum for GILD,
Vertex Pharmaceuticals Incorporated (VRTX)
Biotech company VRTX focuses on developing and commercializing therapies to treat cystic fibrosis. The company offers its products to specialty pharmacies, specialty distributors, as well as hospitals, and clinics.
On October 11, VRTX announced the advancement in its investigational program targeting alpha-1 antitrypsin deficiency (AATD), a rare genetic disease that can lead to liver and lung disease. This might benefit the company.
In July, the company announced that it had entered into a definitive agreement to acquire ViaCyte, a privately-held biotechnology company. This is expected to expand VRTX’s capabilities and bring additional technologies to its stem cell-based programs.
During the fiscal second quarter ended June 30, VRTX’s non-GAAP net income increased 2,049% year-over-year to $930.50 million. The company’s non-GAAP operating income grew 1,569.2% year-over-year to $1.19 billion. Non-GAAP net income per share grew at 2,017.6% from its year-ago value to $3.60.
For the fourth quarter ending December 2022, analysts estimate VRTX’s EPS and revenue to increase 1.9% and 9% year-over-year to $3.43 and $2.26 billion, respectively. The company has surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 63.4% over the past year and 35.3% year-to-date to close its last trading session at $297.02.
VRTX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
VRTX is rated an A for Quality and a B for Value. In the Biotech industry, it is ranked #1. To see additional POWR Ratings for Sentiment, Stability, Growth, and Momentum for VRTX, click here.
Stock to Avoid:
Relmada Therapeutics, Inc. (RLMD)
RLMD is a clinical-stage biotech company that develops various products to treat central nervous system (CNS) diseases and other disorders. The company’s lead product candidate is Esmethadone (d-methadone, dextromethadone, and REL-1017) for treating the major depressive disorder in adults.
On October 13, RLMD announced that its RELIANCE III study (REL-1017-303), evaluating REL-1017 in the monotherapy setting for major depressive disorder (MDD), could not achieve its primary endpoint. This might have hurt investors’ confidence, as is evident from the recent slide in its stock price.
During the fiscal second quarter ended June 30, RLMD’s loss from operations increased 72% year-over-year to $45.51 million. The company’s net loss grew 50.4% year-over-year to $39.93 million. As of June 30, the company’s total current liabilities stood at $18.92 million, compared to $15.06 million on December 31, 2021.
Street expects RLMD’s EPS to come in at a negative $1.46 for the fiscal third quarter (ended September 2022).
The stock has declined 79% since October 13 to close its last trading session at $6.79. It is down 70% year-to-date.
This bleak outlook is reflected in RLMD’s POWR Ratings. The company has an overall rating of D, which translates to a Sell in our proprietary rating system.
RLMD is rated an F for Sentiment and a D for Stability, Value, and Quality. In the F-rated Biotech industry, it is ranked #336.
In addition to the POWR Rating grades we’ve stated above, one can see RLMD ratings for Growth and Momentum here.
GILD shares were trading at $66.87 per share on Tuesday afternoon, up $0.49 (+0.74%). Year-to-date, GILD has declined -4.49%, versus a -20.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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