In this article, I have evaluated prominent pharma stocks, Collegium Pharmaceutical, Inc. (COLL) and Canada-based Canopy Growth Corporation (CGC), to determine which could generate better returns. After thoroughly evaluating these stocks, I think COLL might be a superior choice for growth due to the reasons discussed in this article.

Due to the steady demand for healthcare, the pharmaceutical sector remains resilient during economic fluctuations. Additionally, the industry is poised for sustained growth due to an aging population, a surge in chronic illnesses, and technological advancements driving the development of treatments for previously untreatable diseases.

Revenue in the pharmaceutical market is expected to show a CAGR of 5.8%, resulting in a market volume of $1.48 billion by 2028.

Additionally, due to the rapid growth of biopharmaceuticals, the industry is expected to drive the drug discovery market in the coming years. The global drug discovery market is expected to be worth $133.11 billion by 2032, growing at a CAGR of 9.2%.

Moreover, COLL is a clear winner in terms of price performance, with a 24.6% gain over the past nine months compared to CGC’s 85.4% decline. Also, COLL has gained 1.8% over the past three months compared to CGC’s 62.6% decline.

Here are the reasons why I think COLL might perform better in the near term:

Recent Developments

On July 27, 2023, CGC announced that cannabis gummies from Wana Brands, North America’s leading edibles company, are now available through Spectrum Therapeutics – Canopy Growth’s medical cannabis division.

Conversely, during the recent quarter, COLL received U.S. Food and Drug Administration (FDA) approval for Nucynta OS and Nucynta IR for use in children (ages six and up). This is an important step in the pursuit of a pediatric extension which would extend the exclusivity of the Nucynta Franchise an additional six months (December 2025 with a pediatric extension).

Recent Financial Results

CGC’s revenue for the first quarter ended June 30, 2023, came in at CAD121.11 million ($90.22 million). Its operating loss came in at CAD91.30 million ($68.04 million). The company’s net loss stood at CAD41.86 million ($31.18 million). Also, its loss per share came in at CAD0.07.

On the contrary, COLL’s net product revenue increased 9.7% year-over-year to $135.55 million for the first quarter that ended June 30, 2023. Its adjusted net income increased 27.9% year-over-year to $52.45 million. Adjusted EPS increased 17.8% year-over-year to $1.26.

Past And Expected Financial Performance

Over the past three years, CGC’s revenue declined at a 1.1% CAGR. Its total assets have declined at a CAGR of 31.6% over the past three years. Analysts expect CGC’s revenue to decline by 3.8% in the current fiscal year ending 2024 and 16.5% in the current quarter ending September 2023. Moreover, its EPS is expected to be negative $0.44 in the current fiscal year, negative $0.16 in the current quarter ending September 2023, and negative $0.13 in the next quarter.

Conversely, COLL’s revenue has increased at a CAGR of 21.2% over the past three years. Its total assets have grown at a CAGR of 23.4% over the past three years. Its revenue is expected to increase 22.6% in the current fiscal year ending 2023 and 11.1% in the current quarter ending September 2023. Its EPS is expected to be $5.29 this year, $1.31 in the current quarter ending September 2023, and $1.48 in the next quarter.

Valuation

CGC’s forward P/S multiple of 1.11 is lower than COLL’s 1.46. However, CGC’s forward EV/Sales multiple of 2.72x is higher than COLL’s 2.23x.

Profitability

CGC’s trailing-12-month gross profit margin of negative 3.79% is lower than COLL’s 77.53%. In addition, CGC’s trailing-12-month EBITDA margin of negative 95.6% is lower than COLL’s 42.8%.

Furthermore, CGC’s trailing-12-month ROCE, ROTC, and ROTA of negative 151%, 7.90%, and 134.40% are lower than COLL’s negative 5.60%, positive 4.69%, and negative 0.92%, respectively.

Thus, COLL is more profitable.

POWR Ratings

CGC has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, COLL has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CGC has a D grade for Quality. CGG’s trailing-12-month asset turnover ratio and cash per share of 0.10x and 0.97x are 72.9% and 25.6% lower than the 0.37x and 1.30x industry averages.

On the other hand, COLL has a B grade for Quality. COLL’s trailing-12-month asset turnover ratio and cash per share of 0.44x and 8.17x are 17.9% and 527.7% higher than the 0.37x and 1.30x industry averages.

Among the 169 stocks in the Medical – Pharmaceuticals industry, CGC is ranked #157, while COLL is ranked #24.

Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Sentiment, and Stability. Get all CGC ratings here. Click here to view COLL ratings.

The Winner

The pharmaceutical industry has grown steadily in recent years, mainly driven by innovative drugs and increasing demand worldwide. Moreover, as the pharma industry enjoys inelastic demand, its resiliency offers a cushion against market uncertainty. Industry players such as CGC and COLL should benefit from these industry tailwinds.

However, CGC’s poor profitability and unfavorable growth prospects make its competitor COLL the better buy.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical – Pharmaceuticals industry here.

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COLL shares were trading at $24.14 per share on Thursday morning, up $0.19 (+0.79%). Year-to-date, COLL has gained 4.05%, versus a 18.85% 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. More...

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