The biotech industry promises solid prospects with continuous innovation and sustained demand for advanced healthcare solutions. An aging population, growing lifestyle diseases, and the need for high-quality treatments for rare and common conditions support the optimism around the industry’s long-term growth.
Therefore, it might be wise to invest in fundamentally strong biotech stocks Innoviva, Inc. (INVA), Puma Biotechnology, Inc. (PBYI), and Shionogi & Co., Ltd. (SGIOY).
Before delving deeper into their fundamentals, let’s discuss what’s shaping the biotech industry’s prospects.
The biotech industry’s growth is driven by significant progress in drug development. Following its crucial role in vaccine development during the pandemic, the industry came to the limelight. Driven by technological advancements, demand for personalized medicines, and expansion of global healthcare needs, the biotech industry has a promising future.
The biotech sector garners significant investments for R&D and clinical trials. The clinical trials market is projected to grow at a CAGR of 8.7% to reach $73.2 billion by 2028. Increased trials, a growing drug pipeline, and rising pharmaceutical R&D investment will drive the biotech industry’s expansion.
Furthermore, the sector is leveraging advanced technologies like AI and Big Data analytics. Identifying drug targets powered by AI in extensive anticancer programs is experiencing substantial growth. AI in biotechnology market share is projected to grow at a 29.7% CAGR until 2032.
Biotechnology's profitable applications, particularly in healthcare, promise sustained growth, with the global market projected to grow at a CAGR of 12.8% to reach $3.21 trillion by 2030.
Considering these conducive trends, let’s analyze the fundamentals of the three Biotech picks, beginning with the third choice.
Stock #3: Innoviva, Inc. (INVA)
INVA develops and commercializes pharmaceutical products in the United States and internationally. The company's products include RELVAR/BREO ELLIPTA, ANORO ELLIPTA, and TRELEGY ELLIPTA.
On November 1, 2023, INVA announced that a global Phase 3 clinical trial for a new oral antibiotic called zoliflodacin met the primary endpoint when compared against the combination of injectable ceftriaxone and oral azithromycin.
The trial, led by the Global Antibiotic Research & Development Partnership (GARDP), showed that zoliflodacin works well, is well-tolerated, and has the potential to combat antibiotic resistance. If approved, it could be the first new gonorrhea antibiotic in decades.
On September 18, 2023, INVA’s subsidiary Innoviva Specialty Therapeutics announced the availability of XACDURO for patients 18 years and older. It is the first FDA-approved antibiotic for treating Hospital-Acquired Bacterial Pneumonia (HABP) and Ventilator-Associated Bacterial Pneumonia (VABP) caused by isolates of Acinetobacter baumannii-calcoaceticus complex.
This is a crucial development, addressing the severe threat of Acinetobacter infections, particularly endangering patients on ventilators in healthcare settings.
In terms of the trailing-12-month EBITDA margin, INVA’s 48.80% is 822.1% higher than the 5.29% industry average. Likewise, its 42.10% trailing-12-month EBIT margin is significantly higher than the 0.78% industry average. Its 35.65% trailing-12-month levered FCF margin is substantially higher than the 0.26% industry average.
For the third quarter that ended September 30, 2023, INVA’s total revenue rose marginally to $67.26 million. The company’s net product sales increased 168.3% over the prior-year quarter to $13.70 million. In addition, its net income attributable to INVA’s stockholders and net income per share came in at $82.05 million and $0.98, respectively.
Analysts expect INVA’s revenue for the quarter ending December 31, 2023, to increase 14.8% year-over-year to $75.52 million, while its EPS for the quarter ending June 30, 2024, is expected to increase significantly year-over-year to $0.22. Over the past nine months, INVA’s stock has gained 38% to close the last trading session at $15.12.
INVA’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #14 out of 347 stocks in the Biotech industry. It has an A grade for Value and a B for Quality. Click here to see INVA’s Growth, Momentum, Stability, and Sentiment ratings.
Stock #2: Puma Biotechnology, Inc. (PBYI)
PBYI is a biopharmaceutical company that focuses on developing and commercializing products to enhance cancer care in the United States and internationally. The company's drug candidates include PB272 (neratinib, oral), PB272 (neratinib, intravenous), and PB357.
In terms of the trailing-12-month gross profit margin, PBYI’s 75.91% is 33.9% higher than the 56.70% industry average. Likewise, its 16.59% trailing-12-month EBITDA margin is 213.5% higher than the 5.29% industry average. Its 1.14x trailing-12-month asset turnover ratio is 190.7% higher than the 0.39x industry average.
PBYI’s total revenue for the nine months that ended September 30, 2023, increased 0.7% year-over-year to $163.50 million. Its income from operations rose 29.9% year-over-year to $17.80 million. Also, the company’s non-GAAP adjusted net income and net income per share came in at $17.10 million and $0.36, up 15.5% and 9.1% over the prior-year period, respectively.
Street expects PBYI’s revenue for the quarter ending December 31, 2023, to increase 12% year-over-year to $73.55 million. Its EPS for the quarter ending June 30, 2024, is expected to increase 40% year-over-year to $0.07. Over the past nine months, the stock has gained 46.5% to close the last trading session at $4.13.
It’s no surprise that PBYI has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Sentiment, and Quality. Within the same industry, it is ranked #13. Beyond what we stated above, we also have given PBYI grades for Momentum and Stability. Get all PBYI ratings here.
Stock #1: Shionogi & Co., Ltd. (SGIOY)
Headquartered in Osaka, Japan, SGIOY researches, develops, manufactures, and distributes pharmaceuticals, diagnostic reagents, and medical devices in Japan. Its offerings include Fetroja, a multidrug-resistant bacterial infection treatment; Xofluza, an influenza virus drug; and Tivicay, an anti-HIV drug.
On December 7, 2023, SGIOY announced the acquisition of 1,230,100 common shares, totaling ¥8.65 billion, from November 1, 2023, to November 30, 2023, through discretionary trading on the Tokyo Stock Exchange. The total number of shares acquired under the resolution of July 31, 2023, is 5.84 million, with a total value of ¥38.65 billion.
On December 4, 2023, SGIOY announced an investment agreement with AN Venture Partners, a global biotech venture capital fund, aiming to foster global life science companies and strengthen Japan's biotechnology ecosystem. SGIOY becomes a strategic partner of AN Ventures, collaborating on technology assessment, company creation, and expanding global networks with a focus on early-stage opportunities.
In terms of the trailing-12-month EBIT margin, SGIOY’s 45.24% is significantly higher than the 0.78% industry average. Likewise, its 19.76% trailing-12-month levered FCF margin is substantially higher than the 0.26% industry average. Its 48.68% trailing-12-month EBITDA margin is 819.8% higher than the 5.29% industry average.
SGIOY’s revenue for the six months that ended September 30, 2023, increased 52.9% year-over-year to ¥230.54 billion ($1.59 billion). The company’s operating profit rose 247.6% year-over-year to ¥98.11 billion ($676.66 million).
In addition, profit attributable to owners of the parent rose 58.2% over the prior-year quarter to ¥90.59 million ($624.79 million). Also, its EPS came in at ¥308.54, up 62.3% year-over-year.
For the quarter ending March 31, 2024, SGIOY’s revenue is expected to increase 33.3% year-over-year to $876.39 million. Over the past six months, the stock has gained 13.2% to close the last trading session at $12.29.
SGIOY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #12 in the Biotech industry. To see SGIOY’s ratings for Growth, Momentum, Stability, 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.
SGIOY shares were trading at $12.22 per share on Monday morning, down $0.07 (-0.57%). Year-to-date, SGIOY has declined -0.52%, versus a 21.64% 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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