The biotechnology industry stands at a pivotal point, driven by rapid technological advancements and shifting market dynamics. The past few years have been transformative, with groundbreaking innovations reshaping the landscape of healthcare, drug development, and beyond.
Given the industry’s bright prospects, it could be wise to monitor fundamentally strong biotech stocks Harmony Biosciences Holdings, Inc. (HRMY), Illumina, Inc. (ILMN), and Compugen Ltd. (CGEN) for potential gains.
The global biotechnology market is estimated to grow at a CAGR of 6.5% to reach $1.28 trillion by 2032. The rising innovation in areas, including gene editing, personalized medicine, and novel therapies, fueled by rapid advancements in genetic research and the understanding of molecular biology, is expected to stimulate market growth.
Besides, governments are making consistent efforts to step up their healthcare programs by funding clinical trials. Clinical trials are leveraging technology to analyze results and samples better. Therefore, the clinical trials market is expected to progress at a solid clip, registering a CAGR of 4.3% by 2034 to reach a value of $184.61 billion.
Further, the integration of AI in the pharma and biotech market has gained significant momentum due to advancements in AI technologies (AI and big data) and increasing investments in healthcare AI startups. Key trends shaping the market’s future include AI-driven drug discovery, precision medicine, AI-powered clinical decision support, and regulatory considerations.
Additionally, investors’ interest in biotech stocks is evident from the SPDR Series Trust SPDR S&P Biotech ETF’s (XBI) 33.6% returns over the past six months.
Given these encouraging trends, let’s look at the fundamentals of the top Biotech stocks, beginning with the third choice.
Stock #3: Harmony Biosciences Holdings, Inc. (HRMY)
HRMY is a commercial-stage pharmaceutical company that focuses on developing and commercializing therapies for patients with rare and other neurological diseases. It offers WAKIX (pitolisant), a molecule with a novel mechanism of action for treating excessive daytime sleepiness in patients with narcolepsy.
On April 30, 2024, HRMY acquired Epygenix Therapeutics, Inc., accelerating its growth strategy by adding a rare epilepsy franchise to its expanding late-stage pipeline of innovative CNS assets. This strategic acquisition provides HRMY with distinct CNS franchises in late-stage development, each with a potential sales opportunity of $1-$2 billion.
On April 11, HRMY entered into an exclusive licensing agreement with Bioprojet to develop, manufacture, and commercialize TPM-1116, an oral orexin-2 receptor agonist for narcolepsy and other sleep/wake disorders. TPM-1116 is a highly potent and selective agonist representing a new chemical series with the potential for a best-in-class clinical profile.
This agreement addresses the significant unmet medical need in narcolepsy and hypersomnolence disorders, further solidifying HRMY’s leadership in the sleep/wake space and commitment to innovative treatments for patients.
HRMY’s trailing-12-month EBIT margin of 32.98% is significantly higher than the industry average of 1.33%. Likewise, the stock’s trailing-12-month gross profit margin of 79.28% is 40.1% higher than the industry average of 56.59%.
HRMY’s net product revenue for the first quarter, which ended March 31, 2024, grew 29.8% year-over-year to $154.62 million. Its gross profit increased 29.3% from the year-ago value to $127.13 million. Also, the company’s non-GAAP net income and EPS rose 24.5% and 31.3% year-over-year to $50.72 million and $0.88, respectively.
Analysts expect HRMY’s revenue and EPS for the third quarter (ending September 2024) to increase 16.8% and 15% year-over-year to $187.22 million and $0.72, respectively. Furthermore, the company surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
Shares of HRMY have gained 27.1% over the past six months to close the last trading session at $30.22.
HRMY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
HRMY has an A grade for Value and Sentiment. HRMY is ranked #29 among 357 stocks in the Biotech industry.
Click here to access additional HRMY ratings (Momentum, Growth, Quality, Sentiment, and Stability).
Stock #2: Illumina, Inc. (ILMN)
ILMN develops, manufactures, and markets life science tools and integrated systems for large-scale analysis of genetic variation and function. It operates through the Core Illumina and GRAIL segments. It provides sequencing and array-based instruments and consumables, whole-genome sequencing, genotyping, NIPT, and product support services.
On April 12, 2024, IIMN announced that the European Commission (EC) approved its divestment plan for GRAIL. Although the method of divestment has not been conclusively determined, the company is pleased to reach an agreement with the EC regarding specific divestment options, marking a significant milestone in the process.
ILMN’s trailing-12-month levered FCF margin of 15.58% is significantly higher than the industry average of 0.88%. Also, its trailing-12-month gross profit margin of 65.72% is 16.1% higher than the industry average of 56.59%. Likewise, its trailing-12-month EBITDA margin of 7.68% is 32.7% higher than the industry average of 5.79%.
For the first quarter that ended March 31, 2024, ILMN reported product revenue of $876 million. Its gross profit increased 1.8% from the prior year’s quarter to $667 million. The company’s non-GAAP net income and EPS were $14 million and $0.09, up 7.7% and 12.5% year-over-year, respectively.
Analysts predict ILMN’s revenue for the fiscal third quarter ending September 2024 to increase 2% year-over-year to $1.14 billion. Its EPS for the same quarter is expected to be $0.29. Moreover, the company has an excellent earnings surprise history, surpassing consensus revenue and EPS estimates in three of the trailing four quarters.
Over the past six months, ILMN’s stock has gained 21.5% to close the last trading session at $112.77.
ILMN’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
ILMN has a B grade for Quality and Growth. It is ranked #27 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have ILMN ratings for Momentum, Sentiment, Value, and Stability. Get all ILMN ratings here.
Stock #1: Compugen Ltd. (CGEN)
CGEN is a clinical-stage therapeutic discovery and development company that researches, develops, and commercializes therapeutic and product candidates in Israel, the United States, and Europe.
On April 25, 2024, CGEN announced that it would present new clinical data on COM701 in triple combination with COM902 and pembrolizumab in microsatellite stable colorectal cancer at the American Society of Clinical Oncology annual meeting on May 31-June 4 in Chicago, Illinois.
CGEN’s trailing-12-month gross profit margin of 94.01% is 66% higher than the 56.59% industry average. However, its trailing-12-month EBIT margin of negative 38.83% compares to the industry average of 1.33%. Also, its trailing-12-month EBITDA margin of negative 37.41% compares to the industry average of 5.79%.
For the fourth quarter that ended December 31, 2023, CGEN’s revenue increased 346.1% year-over-year to $33.46 million. Its gross profit came in at $31.46 million, up 382.1% over the prior-year quarter. However, its total operating expenses increased 34% year-over-year to $13.47 million.
Additionally, the company’s net income and net income per share stood at $9.71 million and $0.11, compared to the previous year’s net loss and net loss per share of $3.09 million and $0.04, respectively.
Street expects CGEN’s revenue for the fiscal year (ending December 31, 2024) to increase 13.3% year-over-year to $37.90 million. However, the company is expected to report a loss per share of $0.13 for the current year. Also, it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, CGEN’s stock has gained 174.3% but declined 4.7% over the past month to close the last trading session at $2.03.
CGEN’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
The stock has a C grade for Growth and Quality. Within the same industry, CGEN is ranked #41 in the same industry.
Click here to access additional ratings of CGEN for Stability, Value, Sentiment, and Momentum.
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ILMN shares were trading at $119.39 per share on Tuesday morning, up $6.62 (+5.87%). Year-to-date, ILMN has declined -14.26%, versus a 10.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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