Renowned investor Cathie Wood has had a vested interest in the healthcare industry for a long time, with big bets on the genome revolution. To capitalize on biotechnology industry growth, Wood launched Ark Genomic Revolution ETF (ARKG) in 2014. With the biotech industry holding steady over the past five years, ARKG has gained 27.5% since its inception. However, Wood expects the industry to gain momentum this year because, in the wake of the COVID-19 pandemic, major countries have been restructuring their healthcare sectors to be prepared for future public health calamities. With the potential to cure serious incurable ailments, such as aggressive cancers or cystic fibrosis, Wood believes DNA sequences and genome mapping could redefine healthcare.
With approximately $9.44 billion in net assets, ARKG is one of the largest actively managed ETFs in the industry, with at least 80% of the funds invested directly in relevant domestic and foreign equity securities. Wood expects DNA sequencing to emerge as a global disruptive trend this year itself. This has motivated more investors to bet on the healthcare industry through ARKG. Consequently, ARKG’s NAV has increased 186% over the past year. Novartis AG (NVS), Vertex Pharmaceuticals Incorporated (VRTX) and Regeneron Pharmaceuticals Inc. (REGN) are among ARKG’s top seven holdings ARKG. And given their impressive innovative capabilities and solid financials, these companies are expected to lead the healthcare revolution through genomics globally.
Wood recently observed in a CNBC interview that, “We can honestly say that until now more than half of all healthcare decisions were in some part made through guesses or experiences. Now we’re going to have the data.” The global biotechnology market is expected to grow at a CAGR of 15.8% over the next seven years to reach $752.88 billion by 2028.
Novartis AG (NVS)
As one of the largest pharmaceutical companies in the world, NVS is a prime holding in Wood’s Ark Genomic Revolution (ARKG) fund. As of April 22, ARKG holds 4.29 million shares of NVS, translating to a 3.99% weighting in the portfolio. The stock has a weighted rank of #6 in the fund. Wood has a 0.19% stake in the company.
Based in Switzerland, NVS has operations worldwide and is estimated to be the second largest company in the world based on projected 2021 sales. The company has more than 170 prescription drugs in its portfolio, with its top selling arthritis treatment, Cosentyx, generating nearly $4 billion annually in sales in 2020. While NVS didn’t launch its individual COVID-19 therapy drug, it partnered with German biopharma CureVac NV to produce the latter’s vaccine candidate CVnCoV.
As one of the leading companies in cancer and critical diseases research, NVS has been scaling its operations to develop treatments. The company has made some progress on this front, with positive data from its stage three trials for its prostate cancer drug last month. In January, received a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for its MS drug.
NVS’ cancer drug pipeline has been making substantial progress, with a positive phase three clinical trial of its radioligand therapy drug. Its cardiac drug Novartis Entresto is the first and only FDA-approved therapy drug in its class in the United States. The company has been expanding its oncology pipeline through in-licensing Beigene, allowing NVS to commercially develop its immune-oncology drugs across North America, Europe and Japan.
NVS’ net sales increased 3% year-over-year to $12.77 billion in the fourth quarter, ended December 31, 2020. Its net income rose 86% from the same period last year to $2.10 billion over the quarter, while its EPS increased 84% from the year-ago value to $0.92. The company’s annual operating income and core EPS each increased by 13% year-over-year to $14.11 billion and $5.28, respectively.
A $1.55 consensus EPS estimate for the current quarter, ending June 2021 represents a 14% improvement year-over-year. Also, NVS beat the Street’s EPS estimates in three of the trailing four quarters. Analysts expect the company’s revenues to rise 6.8% from their year-ago value to hit $12.63 billion in the current quarter. Shares of NVS have gained 4.5% over the past six months.
NVS’ POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
NVS has an A grade for Stability, and B for Value, Growth, and Quality. It is ranked #5 of 232 stocks in the Medical – Pharmaceuticals industry. In addition to the grade we’ve highlighted, one can check out NVS Ratings for Momentum and Sentiment here.
Vertex Pharmaceuticals Incorporated (VRTX)
VRTX focuses on developing therapies to treat cystic fibrosis. With the company’s potential to develop break-through treatments for critical ailments, it is one of Wood’s top picks for ARKG. Wood holds roughly 1.75 million shares of VRTX, translating to a 3.98% weighting in the ETF. The stock has a weighted rank of #7 in the ETF. Wood has a 0.67% stake in the company.
VRTX’s robust drug development pipeline and positive results from clinical trials have allowed it to secure a top position in Wood’s Ark. The company announced its collaboration with Obsidian Therapeutics to discover novel therapies for gene editing. This innovation has the capacity to treat several serious diseases, as explained by VRTX’s CSO. On April 20, VRTX partnered with CRISPR Therapeutics, Inc. (CRSP) to collaborate and jointly develop CTX001 drug for treatment of sickle cell disease and beta thalassemia. The move paves the way for VRTX to venture beyond its specialty to work on developing drugs for other serious diseases.
Last month, VRTX’s breakthrough drug, KAFTRIO, in combination with Ivecaftor, received a positive opinion from European Medicines Agency Committee for Medicinal Products for human use for cystic fibrosis (CF) treatment. And its TRIKAFTA CF drug received approval from the Australian Therapeutic Goods Administration (TGA) last month. These developments reflect VRTX’s leading position in CF research and drug pipeline.
VRTX’s non-GAAP net product revenues increased 29% year-over-year to $1.63 billion in the fourth quarter, ended December 31. Its non-GAAP operating income rose 50% from the year-ago value to $887 million, while its non-GAAP net income improved 49% from the same period last year to $661 million. Its non-GAAP quarterly EPS came in at $2.51, up 48% from the prior-year quarter.
A $2.70 consensus EPS estimate for the most recent quarter, ended March 2021, represents a 5.5% rise year-over-year. The company has an impressive earnings surprise history; it beat Street EPS estimates in three of the trailing four quarters. Analysts expect the company’s revenues to rise 9.6% from the same period last year to $1.66 billion for the about-to-be-reported quarter. Shares of VRTX have advanced 2.8% over the past six months.
VRTX has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The stock has an A grade for Quality, and B for Value. It is ranked #16 of 491 stocks in the Biotech industry.
In total, we rate VRTX on eight different levels. Beyond what we have stated above one can view additional VRTX Ratings for Momentum, Sentiment, Stability, and Growth here.
Regeneron Pharmaceuticals Inc. (REGN)
REGN’s diversified drug portfolio has caught the attention of Ark Investment Management Services. Wood holds 1.15 million shares of the company across ARKG and Ark Innovation ETF (ARKK). The holdings represent a combined 1.18% weighting across the funds. REGN’s commercialized drug portfolio includes diabetic treatment, cancer and oncology related drugs and medication for other serious ailments. Shares of REGN have risen slightly year-to-date.
REGEN-COV, the company’s covid treatment drug, had positive outcomes in its phase three trials. Its phase three prevention trial reported an 81% reduced risk of symptomatic COVID-19 infections. The antibody cocktail reduced hospitalization or death in non-hospitalized patients by 70%. And the company’s diabetic drug candidate, EYLEA, demonstrated a 68% success rate in reducing the risk of developing vision-threatening complications. Its Libtayo monotherapy drug for cervical cancer treatment also showed positive results in its phase three results, which were announced last month.
REGN’s revenues have increased 30% year-over-year to $8.50 billion in the fourth quarter ended December 31, 2020. Its $3.51 billion annual net income represents a 66% rise from the same period last year. Its EPS increased 65% from the year-ago value to $30.52.
The Street expects REGN’s EPS to rise 136.9% year-over-year to $16.96 in its fiscal 2021 second quarter, ended June 2021. Furthermore, REGN beat consensus EPS estimates in each of the trailing four quarters. The company’s annual revenue is expected to hit $12.08 billion in the current year, up 42.2% from the same period last year.
It’s no surprise that REGN has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Value, and B for Growth and Quality. It is ranked #7 in the Biotech industry. Get all REGN Ratings for Sentiment, Stability, and Momentum here.
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NVS shares were trading at $88.13 per share on Friday afternoon, down $0.10 (-0.11%). Year-to-date, NVS has declined -4.40%, versus a 11.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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