The pharmaceutical industry's growth prospects appear promising due to factors including the adoption of advanced technologies, increased investment in research and development (R&D), the prevalence of chronic diseases, a rapidly aging population, and the development of drugs for rare diseases.
Amid this backdrop, investors could consider adding fundamentally strong pharma stocks Spero Therapeutics, Inc. (SPRO), Wave Life Sciences Ltd. (WVE), Sanofi (SNY), and Novartis AG (NVS) to their watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the pharmaceutical industry is well-positioned for growth.
The pharmaceutical market thrives due to an aging population, rising chronic diseases, medical technology advancements, and increased healthcare awareness and spending. The global medicine spending led by non-COVID-19 therapies is expected to continue, with IQVIA raising the five-year outlook by 2%.
Global medicine spending using list prices increased by 35% over the last five years, with a projected 38% surge through 2028, reflecting rising demand. The rising incidence of chronic diseases such as cancer, arthritis, diabetes, heart disease, etc., requires patients to undergo treatments and medications, thereby leading to a sustained demand for drugs and therapies.
According to Statista, pharmaceutical market revenue is expected to reach $1.16 trillion this year, with a majority of the revenues being generated in the U.S. (approximately $636.90 billion). The industry is forecasted to grow at a 6.2% CAGR to reach $1.47 trillion by 2028.
Notably, the industry's strong growth prospects reflect the increasing global demand for drugs and highlight the ongoing innovations in drug development. The global drug discovery market is expected to reach $181.40 billion by 2032, growing at a CAGR of 8.5%.
Furthermore, AI is changing the pharmaceutical sector by revolutionizing drug discovery, enhancing manufacturing processes, and promoting strategic partnerships. Companies are prioritizing innovation to strengthen patent portfolios and invest strategically in AI. The global market for AI in drug discovery is forecasted to grow to $13 billion by 2032.
Considering these conducive trends, let’s take a look at the fundamentals of the four Medical - Pharmaceuticals stock picks, beginning with the fourth choice.
Stock #4: Spero Therapeutics, Inc. (SPRO)
SPRO is a clinical-stage biopharmaceutical company that focuses on identifying, developing, and commercializing novel treatments for multi-drug resistant (MDR) bacterial infections and rare diseases in the United States.
On January 2, 2024, SPRO announced the initiation of the Phase 3 PIVOT-PO trial for tebipenem HBr in complicated urinary tract infections, marking the first patient visit. The company is entitled to $95 million in development milestone payments from GSK as part of the licensing agreement, aiming to develop tebipenem HBr as the first oral broad-spectrum carbapenem in the U.S.
In terms of the trailing-12-month levered FCF margin, SPRO’s 17.33% is considerably higher than the 0.12% industry average. Likewise, the stock’s 0.91x trailing-12-month asset turnover ratio is 131% higher than the 0.39x industry average.
For the third quarter that ended September 30, 2023, SPRO’s total revenues increased 1169.8% year-over-year to $25.47 million. The company’s collaboration revenue rose 2061% over the prior-year quarter to $23.38 million. Additionally, its cash, cash equivalents, and marketable securities came in at $93.83 million as of September 30, 2023.
Analysts expect SPRO’s revenues for the quarter ending March 31, 2024, to increase 528.3% year-over-year to $13 million. Over the past three months, the stock has gained 26.1% to close the last trading session at $1.50.
SPRO’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Quality. It is ranked #30 out of 164 stocks in the Medical – Pharmaceuticals industry. In total, we rate SPRO on eight different levels. Beyond what we stated above, we also have given SPRO grades for Growth, Momentum, Stability, and Sentiment. Get all the SPRO’s ratings here.
Stock #3: Wave Life Sciences Ltd. (WVE)
Based in Singapore, WVE is a clinical-stage genetic medicine company that designs, optimizes, and produces novel stereopure oligonucleotides through PRISM, a discovery and drug development platform. It is developing oligonucleotides that target ribonucleic acid (RNA) to correct disease-causing mutations, modulate protein activity, and restore the production of functional proteins.
On December 15, 2023, WVE announced the initiation of dosing in the Phase 2 FORWARD-53 trial of WVE-N531 for Duchenne Muscular Dystrophy (DMD), with potentially registrational dystrophin expression data expected this year.
In terms of the trailing-12-month asset turnover ratio, WVE’s 0.45x is 14.3% higher than the 0.39x industry average.
WVE’s revenue for the third quarter that ended September 30, 2023, rose considerably year-over-year to $49.21 million. Its income from operations came in at $4.44 million, compared to a loss from operations of $38.90 million in the year-ago quarter.
For the same quarter, the company’s net income stood at $7.25 million, or $0.07 per share, compared to a net loss of $39 million, or $0.42 per share, in the previous year’s quarter, respectively.
For the quarter ended December 31, 2023, WVE’s revenue is expected to increase significantly year-over-year to $19.83 million. Over the past nine months, the stock has gained 25.7% to close the last trading session at $4.60.
WVE’s POWR Ratings reflect a favorable outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #24 in the same industry. To see WVE’s Value, Momentum, and Stability ratings, click here.
Stock #2: Sanofi (SNY)
Headquartered in Paris, France, SNY is a healthcare company that engages in the research, development, manufacture, and marketing of therapeutic solutions internationally. It operates through Pharmaceuticals, Vaccines, and Consumer Healthcare segments.
On February 16, 2024, SNY announced Japan's approval of Dupixent® for chronic spontaneous urticaria (CSU), making it the first country to do so. Supported by Phase 3 trial results showing significant itch reduction versus placebo, this marks Dupixent's fifth approval in Japan and sixth globally, providing a new treatment option for patients with CSU.
In terms of the trailing-12-month EBITDA margin, SNY’s 27.20% is 416.5% higher than the 5.27% industry average. Likewise, its 69.12% trailing-12-month gross profit margin is 21.2% higher than the 57.05% industry average. Moreover, its 17.79% trailing-12-month levered FCF margin is considerably higher than the 0.12% industry average.
For the fiscal year that ended December 31, 2023, SNY’s net sales rose marginally year-over-year to €43.07 billion ($46.68 billion). Its gross profit rose 1.6% from the year-ago value to €32.21 billion ($34.91 billion). Also, the company’s net income attributable to SNY and EPS came in at €5.40 billion ($5.85 billion) and €4.31 per share, respectively.
Street expects SNY’s revenue for the quarter ending June 30, 2024, to increase 4.9% year-over-year to $11.53 billion. Likewise, its EPS for the fiscal 2025 is expected to increase 14.8% year-over-year to $4.85. Over the past three months, the stock has gained 2.2% to close the last trading session at $48.20.
It’s no surprise that SNY has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #17 in the Medical – Pharmaceuticals industry. It has a B grade for Value and Stability. Click here to see SNY’s Growth, Momentum, Sentiment, and Quality ratings.
Stock #1: Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products internationally. It offers prescription medicines for patients and physicians, focusing on therapeutic areas such as cardiovascular, renal and metabolic, immunology, neuroscience, oncology, ophthalmology, and hematology.
On February 5, 2024, NVS announced its agreement to acquire MorphoSys AG for €2.70 billion ($2.93 billion), strengthening its oncology pipeline with drugs like pelabresib, a potential treatment for myelofibrosis. The acquisition, unanimously approved by both boards, aligns with NVS’ strategic focus on oncology and enhances its global presence in hematology.
In terms of the trailing-12-month gross profit margin, NVS’s 74.24% is 30.1% higher than the 57.05% industry average. Likewise, its 37.54% trailing-12-month EBITDA margin is 613% higher than the 5.27% industry average. Moreover, its 0.43x trailing-12-month asset turnover ratio is 9.5% higher than the 0.39x industry average.
NVS’s net sales for the fiscal fourth quarter that ended December 31, 2023, increased 8% year-over-year to $11.42 billion, and its core operating income rose 4.8% year-over-year to $3.82 billion. In addition, its core net income and core EPS increased 5.5% and 10.1% over the prior-year quarter to $3.13 billion and $1.53, respectively.
For the quarter ending June 30, 2024, NVS’ EPS is expected to increase 0.5% year-over-year to $1.84. Its revenue for the quarter ending September 30, 2024, to increase 4% year-over-year to $12.25 billion. Over the past year, the stock has gained 20.6% to close the last trading session at $103.25.
NVS’ POWR Ratings reflect its bright prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. It is ranked #13 in the same industry. To access the additional ratings of NVS for Growth, Momentum, and Sentiment, click here.
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.
NVS shares were trading at $103.31 per share on Tuesday morning, up $0.06 (+0.06%). Year-to-date, NVS has gained 2.32%, versus a 6.48% 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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