The pharmaceutical sector stands on the precipice of significant growth, driven by a rapidly burgeoning market for medications and vaccines. Additionally, this sector’s sustained product demands underscore its resilience, making it less susceptible to economic volatility.
The pharmaceutical industry is poised for sustained growth in the wake of burgeoning medical expenses fueled by rising chronic illnesses, heightened health awareness, and accelerated investments in research and development. Moreover, the inevitable arrival of respiratory virus season, marked by a predicted surge in influenza and COVID-19 cases, underscores the need for increased production and distribution of medications and vaccines.
According to the Centers for Medicare and Medicaid Services, U.S. healthcare expenditure is expected to grow 5.1% annually, accounting for an estimated 19.6% share of the country’s GDP by 2030. Global health expenditure is forecasted to reach $1,700 per capita by 2026.
Drug expenditures in the U.S. are projected to increase by 6% to 8% in 2023. Clinics should brace for spending hikes between 8% and 10%, while hospitals could see 1% to 3% increases. New drug approvals may be a contributing factor to estimated higher expenditures.
According to Goldman Sachs Research, the global pharmaceutical sector has an impressive $700 billion for potential acquisitions and research and development expenditures. Revenue in the pharmaceuticals market is expected to grow at a CAGR of 5.8%, resulting in a market volume of $1.48 trillion by 2028.
Embracing Pharma 4.0 technology – which prioritizes interconnectedness, high-level data analytics, collaborative robotics, and AI – is becoming a cornerstone of modern pharma strategies. The global pharma 4.0 market is projected to reach $46.9 billion by 2031, increasing at a 17.7% CAGR.
In light of these encouraging trends, let’s look at the fundamentals of the three Medical – Pharmaceuticals stocks, beginning with number 3.
Stock #3: Organon & Co. (OGN)
OGN develops and delivers health solutions through a portfolio of prescription therapies and medical devices within women’s health in the United States and internationally.
On November 1, OGN partnered with Sempre Health, instigating a distinctive pricing scheme to encourage eligible patients to adhere to their prescriptions. This would offer individualized support to those who consistently refill Dulera and Asmanex prescriptions on time and as per the recommended dosage.
By doing so, patients can benefit from discounts on these medications throughout their therapeutic course, thus promoting improved adherence to prescribed medication regimens.
On November 2, OGN’s Board of Directors declared a quarterly dividend of $0.28 for each issued and outstanding share of the company’s common stock, payable to the shareholders on December 14, 2023. Its annualized dividend rate of $1.12 per share translates to a dividend yield of 10.23% on the current share price. Its four-year average yield is 3.35%.
In terms of forward non-GAAP P/E, OGN is trading at 2.71x, 85.1% lower than the industry average of 18.15x. The stock’s forward Price/Sales multiple of 0.45 is 87.2% lower than the industry average of 3.52.
OGN’s trailing-12-month levered FCF margin of 3.13% is significantly higher than the industry average of 0.23%, while its trailing-12-month asset turnover ratio of 0.57x is 49% higher than the industry average of 0.38x.
In the fiscal third quarter that ended September 30, 2023, OGN’s revenues and non-GAAP adjusted gross profit stood at $1.52 billion and $951 million, respectively. Moreover, adjusted EBITDA stood at $447 million.
For the same quarter, its non-GAAP adjusted net income and non-GAAP adjusted earnings per share stood at $223 million and $0.87, respectively. As of September 30, 2023, total current assets stood at $4.05 billion, compared to $3.93 billion as of December 31, 2022.
Street expects OGN’s revenue in the fiscal year ending December 2023 to increase marginally year-over-year to $6.22 billion. Its EPS is expected to be $4.04.
The stock declined 1.5% over the past five days to close the last trading session at $10.95.
OGN’s fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and a B for Quality. Within the 154-stock Medical – Pharmaceuticals industry, it is ranked #34.
To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for OGN, click here.
Stock #2: GoodRx Holdings, Inc. (GDRX)
GDRX offers information and tools enabling consumers to compare prices and save on prescription drug purchases. The company offers consumers free access to branded and generic medications, medical provider consultations via telehealth, and comprehensive healthcare research and information.
On October 19, GDRX collaborated with Sanofi, a global leader in diabetes care, to offer a new way for people living with diabetes to access Lantus (insulin glargine injection) 100 Units/mL, regardless of insurance status, in the U.S. for only $35, which goes into effect January 1, 2024. It leverages GDRX’s reach and scale to broaden access and affordability for people with diabetes.
In terms of forward Price/Sales, GDRX is trading at 2.82x, 19.8% lower than the industry average of 3.52x. The stock’s forward EV/EBIT multiple of 12.09 is 26.7% lower than the industry average of 16.48.
GDRX’s trailing-12-month levered FCF margin of 17.19% is significantly higher than the industry average of 0.23%, while its trailing-12-month asset turnover ratio of 0.45x is 17.1% higher than the industry average of 0.38x.
In the fiscal third quarter that ended September 30, 2023, GDRX’s adjusted revenue and adjusted EBITDA increased 1.4% and 2.8% year-over-year to $189.96 million and $53.47 million, respectively. Its adjusted operating income stood at $42.01 million.
For the same quarter, adjusted net income and adjusted earnings per share stood at $25.54 million and $0.06, respectively. Moreover, as of September 30, 2023, its total current assets stood at $969.10 million, compared to $919.69 million as of December 31, 2022.
Street expects GDRX’s revenue in the fiscal fourth quarter ending December 2023 to increase 3.6% year-over-year to $190.72 million. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 11.6% year-to-date to close the last trading session at $5.20. Over the past five days, it has gained 8.7%.
GDRX’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
GDRX has an A grade for Growth and a B for Quality. Within the same industry, it is ranked #21.
Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, Stability, and Sentiment. Get all ratings of GDRX here.
Stock #1: Viatris Inc. (VTRS)
VTRS offers prescription brand drugs, generic drugs, complex generic drugs, biosimilars, and active pharmaceutical ingredients (APIs). The company operates in four segments: Developed Markets; Greater China; JANZ; and Emerging Markets.
On October 1, VTRS confirmed receiving an offer for a divestiture involving most of its OTC business. In addition, the company has entered into definitive agreements to sell off its Women’s Healthcare and Active Pharmaceutical Ingredients (API) businesses in India.
The agreement also includes the commercialization rights in specific non-core markets attained during the Upjohn Transaction. Collectively, these transactions are valued at total gross proceeds of $6.94 billion, representing an accretive valuation multiple of 12.4x.
On November 6, the company’s Board of Directors declared a quarterly cash dividend of $0.12 per share on the company’s issued and outstanding common stock, payable to the shareholders on December 15, 2023. Its annualized dividend rate of $0.48 per share translates to a dividend yield of 5.23% on the current share price. Its four-year average yield is 2.29%.
In terms of forward non-GAAP P/E, VTRS is trading at 3.18x, 82.5% lower than the industry average of 18.15x. The stock’s forward Price/Sales multiple of 0.73 is 79.3% lower than the industry average of 3.52.
VTRS’ trailing-12-month levered FCF margin of 25.69% is significantly higher than the industry average of 0.23%, while its trailing-12-month EBITDA margin of 31.89% is 512.5% higher than the industry average of 5.21%.
In the fiscal third quarter that ended September 30, 2023, VTRS’ total revenues and adjusted gross profit stood at $3.94 billion and $2.33 billion, respectively. Moreover, adjusted EBITDA came at $1.36 billion.
For the same quarter, adjusted net earnings and earnings per share attributable to VTRS shareholders stood at $952.80 million and $0.27, respectively. For the nine months that ended September 30, 2023, cash, cash equivalents, and restricted cash stood at $1.31 billion, up 101.7% year-over-year.
Street expects VTRS’ revenue and EPS in the fiscal fourth quarter ending December 2023 to be $3.85 billion and $0.65, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained marginally over the past six months to close the last trading session at $9.17.
VTRS’ robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
VTRS has an A grade for Value and a B for Growth. It is ranked #20 within the same industry.
Click here for the additional POWR Ratings for VTRS (Momentum, Stability, Sentiment, and Quality).
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VTRS shares were unchanged in premarket trading Friday. Year-to-date, VTRS has declined -14.69%, versus a 19.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
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