Three pharmaceutical stocks to purchase for promising products poised to profit.
The three pharmaceutical stocks purchase stand out even though that sector’s performance has been “underwhelming” compared to the broader market with the S&P 500 up 15.51%, compared to a 6.08% drop for biotechnology stocks in the past year, according to a recent BofA Global Research report. A key reason is that sector rotation in the market has put biotechnology out of favor against a macro-economic scenario of a “soft landing,” according to the BofA report.
The focus for investors interested in exposure to pharmaceutical investments is to assess a company’s strength of “commercial execution,” versus macro risks, BofA wrote in its research note. With third-quarter earnings season just starting, biopharmaceutical companies with promising products should stand out.
“Most investors that have bond and equity exposure are acutely aware of what is dragging both markets lower,” Bryan Perry wrote to his Cash Machine subscribers on Oct. 24.
Those main causes include the Israel-Hamas war, higher-for-longer Fed policy and poor reception of buyer’s interest at recent Treasury auctions out of fear of soaring federal deficits falling on deaf ears on Capitol Hill and the Treasury, Perry opined.
Paul Dykewicz interviews Cash Machine investment newsletter leader Bryan Perry.
Pharmaceutical Stocks to Purchase for Promising Products: Gilead Sciences
Foster City, California-based Gilead Sciences Inc. (NASDAQ: GILD) has a mission of creating a healthier world by advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis, COVID-19 and cancer. The company has received a $95 price objective from BofA Global Research based on a sum-of-the parts net present value (NPV) analysis.
The investment firm’s per-share value of Gilead’s HIV franchise is $80, its chronic hepatitis C virus (HCV) and hepatitis delta virus HDV equals $7, its Kite platform hits $8, remdesivir reaches $2, Trodelvy accounts for $9, its produce pipeline adds $5, with its net cash at -$15. BofA is expecting continued strong HIV revenue performance in 3Q of $4.8 billion, up $103 million.
Overall, BofA’s third-quarter revenue forecast for Gilead is $7 billion, up $177 billion. Earnings per share (EPS) are expected to rise to $2.01, up 9 cents per share, the investment firm wrote. Outperformance of the forecast is possible if any of the following occur: stronger-than-expected sales of Biktarvy in HIV and faster uptake of Descovy in PrEP; greater durability of HCV revenues; rapid uptake of Kite; and success of the oncology pipeline leading investors to assign further value to the programs.
Risk to reaching the price target could come from moderating sales of Biktarvy, Genvoya, Odefsey and Descovy due to competition, including long-acting injectable formulations; greater-than-expected erosion of HCV revenues; limited upside from Gilead’s CAR-Ts; and its oncology pipeline only achieving limited clinical success or incurring meaningful delays.
Chart courtesy of www.stockcharts.com
Pharmaceutical Stocks to Purchase for Promising Products: Vertex
Boston-based Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is a global biotechnology company that invests in scientific innovation to create transformative medicines for people with serious diseases. The company’s approved medicines treat the underlying cause of cystic fibrosis (CF) — a rare, life-threatening genetic disease — and has several ongoing clinical and research programs.
Aside from its CF treatments, Vertex has a clinical pipeline of investigational small molecule, mRNA, cell and genetic therapies, including gene editing. The company also aims to address other serious diseases where it has deep insight into causal human biology, including sickle cell disease, beta thalassemia, APOL1-mediated kidney disease, acute and neuropathic pain, type 1 diabetes and alpha-1 antitrypsin deficiency.
BofA’s 12-month price objective for Vertex of $425 per share is based on a net present value (NPV) analysis. The investment firm forecasts sales for each of Vertex’s approved products, Kalydeco, Orkambi, Symdeko and Trikafta, through 2030.
Chart courtesy of www.stockcharts.com
Pharmaceutical Stocks to Purchase for Promising Products: Potential Growth
Using a weighted-average cost of capital (WACC) of 9%, in line with peer companies of similar size and risk and varying terminal growth rates for each asset based on its characteristics and patent life, BofA calculated its $425 value of the biotechnology company’s share price. BofA estimates a per-share value of $5 for Kalydeco, $2 for Orkambi, $0 for Symdeko, $313 for Trikafta, $31 for CTX001, $17 for VX-548, $43 in net cash and $15 for Vertex’s product pipeline.
Risks to reaching the price objective for Vertex are payer pushback on pricing; difficulty in securing reimbursement agreements, particularly in the European Union; clinical trial failures; and new competitors in cystic fibrosis, BofA wrote in a recent research note.
Another prognosticator who recommends VRTX is Jim Woods, who has helped subscribers of his Successful Investing investment newsletter notch a double-digit-percentage profit in less than 11 months with the biotechnology company. Vertex’s small-molecule inhibitors are now under development to target acute and chronic pain using non-opioid treatments, Woods wrote when he urged his subscribers to buy the stock in December 2022. The shares have risen 15.9% since then and they keep trending up.
VRTX is a leader in its industry, qualifying it as one of the “Prime Movers” picks in Successful Investing. Those coveted companies in the Prime Movers portfolio deliver strong earnings growth, potent relative price strength and bullish “NewsQ” that can help to entice other investors to buy the shares, Woods said.
Paul Dykewicz meets with Jim Woods, head of the Successful Investing newsletter.
Pharmaceutical Stocks to Purchase for Promising Products: Royalty Pharma
Royalty Pharma plc (NASDAQ: RPRX), of New York, describes itself as the world’s largest buyer of biopharmaceutical royalties and a financial backer of innovation across the biopharmaceutical industry. The company collaborates with academic institutions, research hospitals and non-profits through small and mid-cap biotechnology companies to global pharmaceutical giants.
The company has assembled a portfolio of royalties that entitle it to receive payments based directly on the top-line sales of many of the industry’s leading therapies. Royalty Pharma funds innovation in the biopharmaceutical industry both directly and indirectly. It works directly when it partners with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties. The indirect path involves acquiring existing royalties from the original innovators.
Royalty Pharma’s current portfolio includes royalties on more than 35 commercial products, including Gilead’s Trodelvy, and 11 development-stage product candidates, as well as Vertex’s Trikafta, Kalydeco, Orkambi and Symdeko. It also works with other prominent pharmaceutical companies.
Chart courtesy of www.stockcharts.com
Pharmaceutical Stocks to Purchase for Promising Products: Royalty Pharma
BofA set a $40 per share price objective for Royalty Pharma, based on a probability adjusted net present value analysis that includes current growth products, valued at $34 per share, accounting for 80% of the investment firm’s estimate of the royalty company’s worth. Projected revenues from future investments bring an additional $11 per share. Net cash of minus $5 per share reduces the BofA price target to $40.
Risks to attaining the price target include current portfolio royalties not reaching projected levels, new investments failing to replicate historical returns, new corporate structure and shareholder base adversely impacted by a historically low tax rate and competition in the royalty investing space making it tough to attain new value accretive investments. Another risk factor is patent/royalty expirations that not are replaced by new royalty streams.
Three Pharmaceutical to Purchase for Promising Products: Chairman’s Call
Another keen observer of the industry is Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter that features various portfolios. As a risk-averse pension fund leader, Carlson favors funds to gain diversification and reduce risk.
“I still believe biotech and pharmaceuticals will do well, though they haven’t done well recently,” Carlson told me. “The companies continue to develop new, innovative products.”
Bob Carlson, head of Retirement Watch, gives an interview to Paul Dykewicz.
For a broad-based exposure to biotechnology, consider the ETF iShares Biotechnology (IBB), Carlson advised. The fund tracks the ICE Biotechnology Index, which consists of U.S.-listed companies. IBB owns mostly large and mid-cap companies, with about 20% of the fund in small and micro-cap firms.
IBB recently had 261 stocks, but 56% of the fund was in the 10 largest positions. Top positions were Amgen, Vertex, Regeneron, Gilead Sciences and Seagen. The turnover rate is only 13%.
Chart Courtesy of www.stockcharts.com
Three Pharmaceutical Stocks to Purchase for Promising Products: Mounting Political Risk
The Oct. 7 Hamas attack of Israel that triggered a war and Russia’s sustained invasion of Ukraine that started in February 2022 are exacerbating political risk exists for investors. Political risk could climb further with the Russian Defense Ministry releasing documents recently showing its military spending could rise by more than 68% in 2024 to reach $111.15 billion. That amounts to about 6% of Russia’s gross domestic product (GDP), more than the country’s spending on social programs, according to Moscow Times. Russia’s military spending is set to total about three times more than education, environmental protection and health care spending combined.
On Oct 18, President Biden made a wartime trip to Israel to tell people there and throughout the world that the United States stands with its ally as it seeks to defend itself from Hamas that carried out the Oct. 7 attack that killed more than 1,300 people inside the country’s borders. Biden compared the sneak attack against Israel as similar to what America faced on September 11, 2001, when terrorists struck the United States and killed 2,977 people.
In recent days, the United States deployed two carrier groups to the eastern Mediterranean to deter Iran, Syria and Hezbollah from waging war with Israel. Two thousand US Marines currently are on hard standby for deployment to the region, if needed.
The three pharmaceutical stocks to purchase for promising products should withstand the heightened political risk.
Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.
