Question: How do you know an election is coming up in the United States?
Answer: Politicians begin attacking biotech and pharmaceutical companies in the press.
And why is that…because biotech and pharmaceutical companies appear to make “outsized” profits, and are therefore an easy target to score political points against. But, somehow, despite the seasonal political attacks, companies like Novo Nordisk (NVO), Regeneron (REGN), and Corcept Therapeutics (CORT) continue to deliver for shareholders.
Speaking of “outsized” profits, Novo Nordisk (NVO) recently became the second largest company in Europe, and in the process its market cap became larger than the GDP of the country it calls home, Denmark. NVO hit the proverbial jackpot with its Ozempic drug, approved by the FDA in 2017 to fight diabetes.
If you don’t know someone who is currently taking Ozempic, or its derivative Wegovy…you simply do not have enough friends. The drug, which originally was intended to regulate blood glucose levels, had a beneficial side effect, weight loss.
NVO has taken advantage of the weight loss angle with Wegovy, which the FDA approved for weight loss in 2021. The global weight loss market was estimated at $261 billion in 2022, and is projected to reach $532 billion by 2032. (And, just recently, Wegovy has shown signs that it can reduce the risk of heart failure in obese consumers of the drug…yet another add on market.)
NVO currently has an overall B rating in our POWR Rating system, falling recently from an A largely due to the value and momentum rankings as the stock has run quite a ways. But, it maintains its A rating in Quality, and B in Stability and looks to be a long term big winner with its blockbuster drugs.
The company has operating margins of 42%, and its biggest hurdle right now is finding manufacturing capacity for Ozempic and Wegovy, which are running in short supply with the massive demand. NVO’s return on equity is 72%, and it has a PE of just over 44. That may seem high, but for its latest quarter revenue increased YoY by 34%, to almost $8 billion.
Another winner in the biotech sector, which had a price spike recently, is Corcept Therapeutics (CORT). Corcept takes a slightly different tack than NVO in that it focuses on the impact of one stress hormone on the body, Cortisol. If you’ve noticed the rise in stress levels in the U.S. alone in the past 10 years, then you can see first hand the market Corcept is going after.
Elevated cortisol levels in the body can cause severe diseases that have life altering impacts, such as diabetes, hypertension, and extreme obesity.
CORTs current Korlym drug, on patent through 2038, addresses many of the issues caused by excessive cortisol build up. But, the company also has a number of drug trials ongoing for a new cortisol suppressant, that addresses a number of diseases…as well as cancer caused by excess cortisol levels.
The rapidly expanding Corcept has grown revenue from $50 million in 2015 to a projected $470 million this year. The company has gross margins of 98%, and operating margins (it’s still spending heavily on R&D) of 28%. These should increase quickly as new drugs come online.
CORT has an overall B POWR Rating, with an A in Quality, ranking in the 99th percentile of stocks in our database. You may notice the biotech industry rating overall is an F in our rating system.
Many stocks in this industry are cash starved, which is not a good thing when interest rates rocket off of very low levels. This is not the case with CORT, as the company has over $363 million of cash and cash equivalents on hand, and is actually buying back stock.
Finally, Regeneron (REGN) with over 35 new drug candidates currently in trial as of its latest earnings release cannot be overlooked. The company consistently turns out winner after winner from its R&D labs, and is B rated in our POWR Ratings system.
In addition to its current lineup of drugs on the market, REGN has potential blockbuster drugs in the weight loss, diabetes, and cancer markets that are all showing positive signs in clinical trials.
REGNs PE ratio is slightly under 22, and the company has operating margins of over 42%. Its current return on equity (ROE) is 21%.
Each of these three biotechs has excellent growth potential with a stable of potential blockbusters in the offing. The combination of demand in their addressable markets, with the quality of their drugs could make for explosive growth.
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shares were trading at $442.77 per share on Tuesday afternoon, down $0.86 (-0.19%). Year-to-date, has gained 16.65%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA. More...
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