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The second-quarter earnings season has kickstarted but only a handful of biotech companies have reported so far. The current outlook is encouraging, driven by new drug approvals and positive pipeline updates in the first half. Increasing R&D spending on lucrative areas of obesity and rare diseases, among others, is a positive as well.
Companies in this volatile biotech industry continue to be in the spotlight as pharma/biotech goliaths are looking to bolster their product portfolios and pipelines through collaborations and buyouts amid generic competition for legacy drugs. Given the continuous need for innovative medical treatments, irrespective of the state of the economy, an investment in the biotech industry can be worth it, notwithstanding the inherent volatility and uncertain macroeconomic environment.
Biotech companies like Moderna, Inc., Sarepta Therapeutics, Inc., Halozyme Therapeutics, Inc., Krystal Biotech, Inc. and Axsome Therapeutics, Inc. are poised to outperform the volatile sector.
Industry Description
The Zacks Biomedical and Genetics industry includes biopharmaceutical and biotechnology companies that develop high-profile drugs using path-breaking technology. These biologically processed drugs, which address virology, neuroscience, metabolism and rare diseases, are manufactured using live organisms.
As technology becomes paramount to improving global health, the main goal of biotech companies is to use innovative technology to create breakthrough treatments in a quick time. Quite a few companies in this space are developing vaccines using modern technology. Given the dynamic and evolving nature of technology, the sector is perceived to be riskier than the large-cap pharma or drug industry.
4 Trends Shaping the Future of the Biotech Industry
Innovation, Execution Hold the Key: As only a few companies in this industry have approved drugs in their portfolio, the focus is primarily on the performance of high-profile drugs and pipeline development. Most companies spend millions and billions to create a drug with path-breaking technology, which results in significant research and development expenditure.
Sometimes, modern treatments might come with side effects, which surface with time and the uptake might fail to meet the expectations. Hence, it takes several years before a biotech company turns profitable.
Additionally, successful commercialization is the key to higher drug uptake, as smaller biotechs generally lack the funds and expertise to reach the targeted population. This, in turn, prompts collaboration deals with either pharma or biotech bigwigs, wherein sales are shared or royalties are received.
Moreover, it may take quite a few years for any newly-approved drug to contribute significantly to its company’s top line.
M&A in Spotlight: Consolidation has always taken the center stage in the biotech industry. This is because leading pharma/biotech companies look to diversify their revenue base in the face of dwindling sales of their high-profile drugs. Acquisitions also make sense as developing a drug/technology from scratch is not just a costly but also a risky affair. After a lull of almost two years, pharma and pharma/biotech bigwigs are now looking to bolster their portfolios.
The influx of cash from big pharma/biotech companies further propels the biotech sector. Gilead Sciences earlier acquired CymaBay Therapeutics to strengthen its liver disease portfolio and Vertex Pharmaceuticals acquired Alpine Immune Sciences. Eli Lilly recently announced that it will acquire Morphic Therapeutics for approximately $3.2 billion.
While oncology and immuno-oncology are the key focus areas, treatments for obesity, rare diseases and gene-editing companies have gained traction in recent times, making them lucrative investment areas. An attractive pipeline candidate is the key lure for these companies. Cost synergies in research and development are added benefits, as quite a few smaller biotech companies are using innovative technologies to develop drugs and treatments.
New Drug Approvals Boost Prospects: New drug approvals saw a surge in the first half of 2024. The trend is likely to see an acceleration going forward on the back of continued rise in R&D spending with most companies looking to diversify their portfolio.
Pipeline Setbacks & Competition Hurt: Pipeline setbacks are key deterrents for biotech companies, given the exorbitant cost of developing drugs using expensive technology. Most drugs/therapies take years to gain a regulatory nod.
An unfavorable outcome from a crucial trial on a promising candidate is a huge setback, particularly for smaller biotechs, which are mostly one-trick ponies. The leading biotechs face other headwinds, including declining sales of high-profile drugs due to intensifying competition.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Biomedical and Genetics industry currently carries a Zacks Industry Rank #81, which places it among the top 32% of more than 251 Zacks industries. The rank mirrors a bright outlook for the space, probably due to the consistent demand for better medical drugs/treatments, even though the macroenvironment is challenging. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few biotech stocks that are well-positioned to beat the industry based on a strong portfolio/pipeline, let’s take a look at the industry’s stock market performance and current valuation.
Industry Versus S&P 500 & Sector
The Zacks Biomedical and Genetics industry is a 691-stock group within the broader Zacks Medical sector. It has underperformed the S&P 500 composite and the Zacks Medical sector year to date.
The stocks in this industry have risen 0.6% year to date compared with the Zacks Medical sector’s growth of 5.9%. The S&P 500 composite has gained 14.6% in the said time frame.
Industry's Current Valuation
Since most companies in the biotech sector do not have approved drugs, valuing these companies becomes a complex process. On the basis of the trailing 12-month price-to-sales ratio (P/S TTM), which is commonly used for valuing biotech companies with approved portfolios of drugs, the industry is currently trading at 2.62X compared with the S&P 500’s 5.54 and the Zacks Medical sector's 3.52.
Over the last five years, the industry has traded as high as 3.65X, as low as 1.98X and at a median of 2.65X.
5 Biotech Stocks Worth Buying
Halozyme Therapeutics’ ENHANZE drug delivery technology helps in developing subcutaneous formulations of drugs through partnerships with large drugmakers. Last month, HALO raised its full-year 2024 financial guidance and updated its five-year financial outlook after it was granted a new patent in the EU that covers the ENHANZE rHuPH20 product, which is produced using the company's proprietary ENHANZE manufacturing methods.
Per Halozyme, the new patent is included in each of HALO's existing and future ENHANZE licenses, meaning that its licensees will benefit from this patent. This enhances the company's competitive edge and provides security for its product and associated technologies.
The company currently sports a Zacks Rank #1 (Strong Buy). HALO is having a stupendous run with its shares having surged 52.2% year to date compared with the industry’s growth of 0.6%. The Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased 21 cents to $3.90 in the past 60 days.
Moderna recently obtained a significant boost with the FDA approval of RSV vaccine mResvia to prevent RSV-associated lower respiratory tract disease (RSV-LRTD) in older adults aged 60 years and above. The vaccine is scheduled for commercial launch during the 2024 fall season.
The company plans to launch several new marketed products over the next five years. With these potential launches, management aims to not only boost its revenues but also reduce dependence on Spikevax. As one of the first-ever COVID-19 vaccine makers, Moderna’s robust product sales boosted cash resources and enabled it to accelerate its pipeline development. The company is developing cytomegalovirus, cancer and influenza vaccines in late-stage studies.
Moderna currently carries a Zacks Rank #2 (Buy). The loss per share estimate for 2024 has narrowed to $7.46 from $7.51 in the past 90 days. Shares of the company have risen 22.7% year to date.
Sarepta’s top line is being driven by the recently-approved Duchenne muscular dystrophy (DMD) gene therapy Elevidys, which has demonstrated blockbuster potential. The company also has three other therapies in its commercial portfolio targeting the DMD patient population. While Exondys 51 accounts for the majority of its revenues, Vyondys 53 and Amondys 45 have also seen strong demand since their launch. The development of Sarepta’s promising next-generation DMD candidate is progressing well and its successful development should strengthen the DMD franchise.
Sarepta currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2024 EPS has increased 5 cents in the past 30 days to $3.76. Shares of the company have rallied 49.6% year to date.
Krystal Biotech has put up a stellar performance due to the strong uptake of its newly approved drug, Vyjuvek, and its encouraging pipeline progress. The company has made steady progress, securing access and reimbursement for Vyjuvek since its launch. It is also advancing a robust preclinical and clinical pipeline of investigational genetic medicines in the fields of respiratory, oncology, dermatology, ophthalmology and aesthetics.
Shares of KRYS skyrocketed 72% year to date. The Zacks Consensus Estimate for 2024 EPS has increased 9 cents in the past 30 days to $2.15. The company currently carries a Zacks Rank #2.
Axsome’s Auvelity (for major depressive disorder) has witnessed a steady uptake and the momentum is likely to continue in 2024. The company is also working to expand the drug’s label for the larger commercial opportunity in other disorders like Alzheimer’s disease agitation and smoking cessation. The acquisition of Sunosi diversified the company’s portfolio to two marketed drugs. Other pipeline candidates are also progressing well.
The loss per share estimate for 2024 has remained stable at $4.93 in the past 30 days. The company currently has a Zacks Rank #2. AXSM’s shares have risen 8.7% in the past year.
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Moderna, Sarepta Therapeutics, Halozyme Therapeutics, Krystal Biotech and Axsome Therapeutics
For Immediate Release
Chicago, IL – July 30, 2024 – Today, Zacks Equity Research discusses Moderna, Inc. (MRNA - Free Report) , Sarepta Therapeutics, Inc. (SRPT - Free Report) , Halozyme Therapeutics, Inc. (HALO - Free Report) , Krystal Biotech, Inc. (KRYS - Free Report) and Axsome Therapeutics, Inc. (AXSM - Free Report) .
Industry: Biotech
Link: https://www.zacks.com/commentary/2310685/5-biotech-stocks-to-bet-on-bright-industry-prospects
The second-quarter earnings season has kickstarted but only a handful of biotech companies have reported so far. The current outlook is encouraging, driven by new drug approvals and positive pipeline updates in the first half. Increasing R&D spending on lucrative areas of obesity and rare diseases, among others, is a positive as well.
Companies in this volatile biotech industry continue to be in the spotlight as pharma/biotech goliaths are looking to bolster their product portfolios and pipelines through collaborations and buyouts amid generic competition for legacy drugs. Given the continuous need for innovative medical treatments, irrespective of the state of the economy, an investment in the biotech industry can be worth it, notwithstanding the inherent volatility and uncertain macroeconomic environment.
Biotech companies like Moderna, Inc., Sarepta Therapeutics, Inc., Halozyme Therapeutics, Inc., Krystal Biotech, Inc. and Axsome Therapeutics, Inc. are poised to outperform the volatile sector.
Industry Description
The Zacks Biomedical and Genetics industry includes biopharmaceutical and biotechnology companies that develop high-profile drugs using path-breaking technology. These biologically processed drugs, which address virology, neuroscience, metabolism and rare diseases, are manufactured using live organisms.
As technology becomes paramount to improving global health, the main goal of biotech companies is to use innovative technology to create breakthrough treatments in a quick time. Quite a few companies in this space are developing vaccines using modern technology. Given the dynamic and evolving nature of technology, the sector is perceived to be riskier than the large-cap pharma or drug industry.
4 Trends Shaping the Future of the Biotech Industry
Innovation, Execution Hold the Key: As only a few companies in this industry have approved drugs in their portfolio, the focus is primarily on the performance of high-profile drugs and pipeline development. Most companies spend millions and billions to create a drug with path-breaking technology, which results in significant research and development expenditure.
Sometimes, modern treatments might come with side effects, which surface with time and the uptake might fail to meet the expectations. Hence, it takes several years before a biotech company turns profitable.
Additionally, successful commercialization is the key to higher drug uptake, as smaller biotechs generally lack the funds and expertise to reach the targeted population. This, in turn, prompts collaboration deals with either pharma or biotech bigwigs, wherein sales are shared or royalties are received.
Moreover, it may take quite a few years for any newly-approved drug to contribute significantly to its company’s top line.
M&A in Spotlight: Consolidation has always taken the center stage in the biotech industry. This is because leading pharma/biotech companies look to diversify their revenue base in the face of dwindling sales of their high-profile drugs. Acquisitions also make sense as developing a drug/technology from scratch is not just a costly but also a risky affair. After a lull of almost two years, pharma and pharma/biotech bigwigs are now looking to bolster their portfolios.
The influx of cash from big pharma/biotech companies further propels the biotech sector. Gilead Sciences earlier acquired CymaBay Therapeutics to strengthen its liver disease portfolio and Vertex Pharmaceuticals acquired Alpine Immune Sciences. Eli Lilly recently announced that it will acquire Morphic Therapeutics for approximately $3.2 billion.
While oncology and immuno-oncology are the key focus areas, treatments for obesity, rare diseases and gene-editing companies have gained traction in recent times, making them lucrative investment areas. An attractive pipeline candidate is the key lure for these companies. Cost synergies in research and development are added benefits, as quite a few smaller biotech companies are using innovative technologies to develop drugs and treatments.
New Drug Approvals Boost Prospects: New drug approvals saw a surge in the first half of 2024. The trend is likely to see an acceleration going forward on the back of continued rise in R&D spending with most companies looking to diversify their portfolio.
Pipeline Setbacks & Competition Hurt: Pipeline setbacks are key deterrents for biotech companies, given the exorbitant cost of developing drugs using expensive technology. Most drugs/therapies take years to gain a regulatory nod.
An unfavorable outcome from a crucial trial on a promising candidate is a huge setback, particularly for smaller biotechs, which are mostly one-trick ponies. The leading biotechs face other headwinds, including declining sales of high-profile drugs due to intensifying competition.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Biomedical and Genetics industry currently carries a Zacks Industry Rank #81, which places it among the top 32% of more than 251 Zacks industries. The rank mirrors a bright outlook for the space, probably due to the consistent demand for better medical drugs/treatments, even though the macroenvironment is challenging. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few biotech stocks that are well-positioned to beat the industry based on a strong portfolio/pipeline, let’s take a look at the industry’s stock market performance and current valuation.
Industry Versus S&P 500 & Sector
The Zacks Biomedical and Genetics industry is a 691-stock group within the broader Zacks Medical sector. It has underperformed the S&P 500 composite and the Zacks Medical sector year to date.
The stocks in this industry have risen 0.6% year to date compared with the Zacks Medical sector’s growth of 5.9%. The S&P 500 composite has gained 14.6% in the said time frame.
Industry's Current Valuation
Since most companies in the biotech sector do not have approved drugs, valuing these companies becomes a complex process. On the basis of the trailing 12-month price-to-sales ratio (P/S TTM), which is commonly used for valuing biotech companies with approved portfolios of drugs, the industry is currently trading at 2.62X compared with the S&P 500’s 5.54 and the Zacks Medical sector's 3.52.
Over the last five years, the industry has traded as high as 3.65X, as low as 1.98X and at a median of 2.65X.
5 Biotech Stocks Worth Buying
Halozyme Therapeutics’ ENHANZE drug delivery technology helps in developing subcutaneous formulations of drugs through partnerships with large drugmakers. Last month, HALO raised its full-year 2024 financial guidance and updated its five-year financial outlook after it was granted a new patent in the EU that covers the ENHANZE rHuPH20 product, which is produced using the company's proprietary ENHANZE manufacturing methods.
Per Halozyme, the new patent is included in each of HALO's existing and future ENHANZE licenses, meaning that its licensees will benefit from this patent. This enhances the company's competitive edge and provides security for its product and associated technologies.
The company currently sports a Zacks Rank #1 (Strong Buy). HALO is having a stupendous run with its shares having surged 52.2% year to date compared with the industry’s growth of 0.6%. The Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased 21 cents to $3.90 in the past 60 days.
Moderna recently obtained a significant boost with the FDA approval of RSV vaccine mResvia to prevent RSV-associated lower respiratory tract disease (RSV-LRTD) in older adults aged 60 years and above. The vaccine is scheduled for commercial launch during the 2024 fall season.
The company plans to launch several new marketed products over the next five years. With these potential launches, management aims to not only boost its revenues but also reduce dependence on Spikevax. As one of the first-ever COVID-19 vaccine makers, Moderna’s robust product sales boosted cash resources and enabled it to accelerate its pipeline development. The company is developing cytomegalovirus, cancer and influenza vaccines in late-stage studies.
Moderna currently carries a Zacks Rank #2 (Buy). The loss per share estimate for 2024 has narrowed to $7.46 from $7.51 in the past 90 days. Shares of the company have risen 22.7% year to date.
Sarepta’s top line is being driven by the recently-approved Duchenne muscular dystrophy (DMD) gene therapy Elevidys, which has demonstrated blockbuster potential. The company also has three other therapies in its commercial portfolio targeting the DMD patient population. While Exondys 51 accounts for the majority of its revenues, Vyondys 53 and Amondys 45 have also seen strong demand since their launch. The development of Sarepta’s promising next-generation DMD candidate is progressing well and its successful development should strengthen the DMD franchise.
Sarepta currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2024 EPS has increased 5 cents in the past 30 days to $3.76. Shares of the company have rallied 49.6% year to date.
Krystal Biotech has put up a stellar performance due to the strong uptake of its newly approved drug, Vyjuvek, and its encouraging pipeline progress. The company has made steady progress, securing access and reimbursement for Vyjuvek since its launch. It is also advancing a robust preclinical and clinical pipeline of investigational genetic medicines in the fields of respiratory, oncology, dermatology, ophthalmology and aesthetics.
Shares of KRYS skyrocketed 72% year to date. The Zacks Consensus Estimate for 2024 EPS has increased 9 cents in the past 30 days to $2.15. The company currently carries a Zacks Rank #2.
Axsome’s Auvelity (for major depressive disorder) has witnessed a steady uptake and the momentum is likely to continue in 2024. The company is also working to expand the drug’s label for the larger commercial opportunity in other disorders like Alzheimer’s disease agitation and smoking cessation. The acquisition of Sunosi diversified the company’s portfolio to two marketed drugs. Other pipeline candidates are also progressing well.
The loss per share estimate for 2024 has remained stable at $4.93 in the past 30 days. The company currently has a Zacks Rank #2. AXSM’s shares have risen 8.7% in the past year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.