The biotech industry is well-positioned for steady growth, owing to rapid advancements in drug developments and the growing demand to treat chronic diseases. Given the industry’s solid long-term growth prospects and ability to navigate the uncertain macroeconomic conditions because of inelastic demand, quality biotech stocks Alkermes plc (ALKS), Amgen Inc. (AMGN) and Incyte Corporation (INCY) could be wise additions to your portfolio now.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the biotech industry.
Generative AI is transforming the biotech industry by accelerating drug development and lowering expenses. It is used in virtual compound libraries, protein engineering, and customized medicine development. Deep learning algorithms and computational capacity fuel generative AI applications, expediting drug discovery and improving personalized medicine therapy.
In biotech, generative AI technologies such as generative models are being utilized to expedite drug discovery, protein engineering, and customized medicine. The AI in biotechnology market share is expected to grow at a 29.7% CAGR until 2032.
Moreover, the global biotechnology market is expected to reach $2.77 trillion by 2030 at a CAGR of 14.2%. The biotechnology market is expanding rapidly due to rising personalized medicine demand, genomics breakthroughs, food and agriculture product demand, and government investment.
Considering these conducive trends, let’s look at the fundamentals of the three Biotech stock picks, beginning with number 3.
Stock #3: Alkermes plc (ALKS)
Headquartered in Dublin, Ireland, ALKS develops and commercializes pharmaceutical products to address patients’ unmet medical needs in neuroscience and oncology. Its portfolio includes treatments for schizophrenia, bipolar disorder, alcohol dependence, and opioid dependence and a pipeline of candidates for neurological disorders and cancer.
ALKS’ forward EV/Sales multiple of 2.58 is 18.9% lower than the industry average of 3.18. Its forward EV/EBITDA multiple of 11.97% is 3.1% lower than the industry average of 12.36.
ALKS’ trailing-12-month EBIT margin of 7.56% is significantly higher than the 0.42% industry average. Its trailing-12-month levered FCF margin of 10.04% is significantly higher than the industry average of 0.45%.
In the fiscal second quarter that ended June 30, 2023, ALKS’ total revenue increased 123.5% year-over-year to $617.39 million, while its non-GAAP net income increased significantly from the year-ago value to $94.28 million.
The company’s operating income amounted to $239.19 million compared to an operating loss of $34.46 million in the prior year quarter. Additionally, ALKS’ non-GAAP EPS came in at $0.55, up significantly year-over-year.
The consensus revenue estimate of 1.62 billion for the year ending December 2023 represents a 45.8% increase year-over-year. Its EPS is expected to grow at 339.9% year-over-year to $1.50 for the same period. It surpassed EPS estimates in three of four trailing quarters. ALKS’ shares have gained 22.1% over the past year to close the last trading session at $27.73.
ALKS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ALKS also has an A grade for Growth, Value and Quality. It is ranked #7 out of 359 stocks in the Biotech industry. Click here to see the additional POWR Ratings for Stability, Sentiment, and Momentum for ALKS.
Stock #2: Amgen Inc. (AMGN)
AMGN discovers, develops, manufactures, and delivers human therapeutics worldwide. It focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology, and neuroscience areas. Its product portfolio includes Enbrel, Neulasta, Prolia, and Xgeva.
On September 20, 2023, AMGN launched Amgen Partners of Choice, a global network that collaborates with eight research centers worldwide, including Dana-Farber Cancer Institute, to advance treatment options for patients with unmet needs in oncology. The network aims to expedite the development of new programs in areas like thoracic, gastrointestinal, and genitourinary cancers.
Jean-Charles, Senior VP of Research and Development at AMGN, said, “We have a big goal – to make profound differences in changing the standard of cancer care – and we are committed to doing that through collaboration. Through Amgen Partners of Choice, we hope to foster earlier, deeper and more frequent academic collaboration to fuel quicker progress for patients facing complex, difficult-to-treat cancers.”
AMGN’s forward non-GAAP P/E multiple of 15.56 is 15% lower than the industry average of 18.30. Its forward EV/EBITDA multiple of 11.04% is 10.6% lower than the industry average of 12.36.
AMGN’s trailing-12-month EBITDA margin of 51.78% is 890.3% higher than the 5.23% industry average. Its trailing-12-month gross profit margin of 74.29% is 33.5% higher than the 55.67% industry average.
AMGN’s total revenues for the fiscal second quarter that ended June 30, 2023, increased 5.9% year-over-year to $6.99 billion. Its non-GAAP operating income increased 5.4% from the same period last year to $3.52 billion.
The company’s non-GAAP net income increased 7.5% year-over-year to $2.68 billion. Also, its non-GAAP EPS came in at $5, representing an increase of 7.5% from the prior-year quarter.
Street expects AMGN’s revenue to increase 3.8% year-over-year to $27.31 billion for the year ending December 2023. Its EPS is expected to grow at 3.2% year-over-year to $18.26 for the same period. It surpassed EPS estimates in three of four trailing quarters. Over the past three months, the stock has gained 24.8% to close the last trading session at $284.10.
AMGN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #5 in the same industry. It has an A grade for Quality and a B for Stability and Sentiment. Click here to see additional AMGN ratings for Growth, Value and Momentum.
Stock #1: Incyte Corporation (INCY)
Biopharmaceutical company INCY 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.
INCY’s forward non-GAAP PEG multiple of 0.62 is 67.7% lower than the industry average of 1.92. Its forward non-GAAP P/E multiple of 16.14% is 11.8% lower than the industry average of 18.30.
INCY’s trailing-12-month EBITDA margin of 14.92% is 185.4% higher than the 5.23% industry average. Its trailing-12-month levered FCF margin of 21.04% is significantly higher than the 0.45% industry average.
For the fiscal second quarter that ended June 30, 2023, INCY’s total revenues increased 4% year-over-year to $954.61 million, while its non-GAAP operating income came in at $262.06 million. The company’s non-GAAP net income came in at $223.03 million. Also, its non-GAAP EPS came in at $0.99.
Analysts expect INCY’s revenue to increase 10.5% year-over-year to $3.75 billion for the year ending December 2023. Its EPS is expected to grow at 28.4% year-over-year to $3.57 for the same period. The stock has lost 7% over the past three months to close the last trading session at $57.61.
It’s no surprise that INCY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and Quality and a B for Sentiment. It is ranked #4 in the Biotech industry.
Beyond what is stated above, we’ve also rated INCY for Growth, Stability and Momentum. Get all INCY ratings here.
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AMGN shares fell $0.05 (-0.02%) in premarket trading Monday. Year-to-date, AMGN has gained 11.03%, versus a 14.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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