Biotech companies responded to the COVID-19 pandemic in a remarkable way, with vaccinations, treatments, diagnostics, and variant monitoring. The sector is reaping big benefits as a result of these initiatives, including improved investor interest, government backing, and a burnished public image. Investor optimism surrounding the sector is evident in iShares Biotechnology ETF’s (IBB) 16.2% returns over the past year.
Furthermore, the increasing prevalence of chronic diseases throughout the world has raised the demand for medication. The global biotechnology market is expected to reach $2.44 trillion in 2028, growing at a 15.8% CAGR.
Considering the industry’s solid growth prospects, we believe shares of biotechnology companies Gilead Sciences, Inc. (GILD) and Regeneron Pharmaceuticals, Inc. (REGN) are attractively cheap at their current price levels. Therefore, investing in these stocks could be rewarding.
Gilead Sciences, Inc. (GILD)
Known for its blockbuster COVID-19 drug Remdesivir, Foster City, Calif.-based GILD is a leading biotech company that focuses on discovering, developing, and commercializing medications for chronic illnesses. The company offers treatments for various illnesses, including Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS), liver diseases, cancer, respiratory diseases and cardiovascular conditions.
Last month, GILD submitted a new drug application to the U.S. Food and Drug Administration (FDA) for approval of lenacapavir, an investigational, long-acting HIV-1 capsid inhibitor for the treatment of HIV-1 infection in heavily treatment-experienced (HTE) people with MDR HIV-1 infection. If GILD is granted an approval, it would open up new revenue generating streams for the company and have a positive impact on its future performance.
GILD’s total revenue increased 15.8% year-over-year to $6.42 billion in the first quarter, ended March 31, 2021. Its non-GAAP operating income surged 26.1% year-over-year to $3.49 billion. The company’s non-GAAP net income increased 22.9% from its year-ago value to $2.63 billion over this period. GILD’s non-GAAP EPS increased 23.8% year-over-year to $2.08.
The company’s EPS is expected to be $7.07 in the current year. GILD’s stock has gained 17.1% year-to-date and 6.9% over the past nine months.
In terms of forward Price/Sales, GILD is currently trading at 3.47x, which is 57.1% lower than the 8.09x industry average. The stock’s 9.65x forward P/E is 60.3% lower than the 24.3x industry average.
It is no surprise that GILD has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. GILD is also rated an A grade for Value, and a B for Growth and Quality. Within the Biotech industry, it is ranked #9 of 497 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the GILD rating for Stability, Sentiment, and Momentum here.
Regeneron Pharmaceuticals, Inc. (REGN)
REGN in Tarrytown, N.Y., is a biopharmaceutical company that develops, produces, and sells medications for the treatment of severe diseases. The company has an agreement with the U.S. Department of Health and Human Services and license agreements with companies that include Sanofi, Bayer, Teva Pharmaceutical Industries Ltd., Mitsubishi Tanabe Pharma Corporation, and others.
This month, researchers at REGN’s Regeneron Genetics Center (RGC) found uncommon genetic variants in the GPR75 gene that are linked to obesity protection. Regeneron is working on potential treatments that replicate these genetic superpowers, using its VelocImmune technologies as well as innovative technologies from collaborators, such as Alnylam Pharmaceuticals, Inc.
Last month, the U.S. Food and Drug Administration (FDA) revised its Emergency Use Authorization (EUA) for REGEN-COVTM, decreasing the dose to 1,200 mg (600 mg casirivimab and 600 mg imdevimab), which is half the quantity initially approved. REGEN-COV is approved under an EUA for the treatment of mild-to-moderate COVID-19 in adults and children who have tested positive for SARS-CoV-2 virus and are at high risk of developing severe COVID-19.
During the first quarter, ended March 31, 2021, REGN’s revenue increased 38.3% year-over-year to $2.53 billion. Its operating income rose 58.9% from its year-ago value to $1.11 billion. The company’s non-GAAP net income increased 43.9% year-over-year to $1.11 billion, while its non-GAAP EPS came in at $9.89 for this quarter.
REGN is expected to generate 42.4% revenue growth in the current year. Its EPS is estimated to increase 49.4% from its year-ago value to $47.01 in the current year. REGN’s stock has gained 20.1% year-to-date and 22.1% over the past three months.
In terms of forward Price/Sales, REGN is currently trading at 4.96x, which is 38.7% lower than the 8.09x industry average. Also, the stock’s 12.21x forward P/E is also 49.7% lower than the 24.28x industry average.
REGN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. REGN has an A grade for Growth and Value, and a B for Quality. Among the 497 stocks, it is ranked #4 in the Biotech industry. Click here to see more of REGN’s component grades (Momentum, Sentiment, and Stability).
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GILD shares were trading at $68.71 per share on Monday morning, up $0.49 (+0.72%). Year-to-date, GILD has gained 20.52%, versus a 17.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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