The pharmaceutical industry’s growth prospects look promising, given an aging population, an increase in the prevalence of chronic diseases, and a greater focus on personalized medical treatment. The development of newer drugs and therapies will further fuel industry expansion.
Given the industry’s solid growth prospects, investors could consider buying fundamentally strong pharma stocks Merck & Co., Inc. (MRK), AbbVie Inc. (ABBV), and GSK plc (GSK).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the pharma industry.
The pharmaceutical industry’s ongoing innovation and investments in research and development (R&D) help to strengthen its resilience and adaptability to shifting market dynamics. Furthermore, the growing emphasis on personalized drugs and biotechnology increases the industry's potential for growth.
According to Statista, worldwide pharmaceutical revenues are expected to grow at a CAGR of 6.2% to reach $1.47 trillion by 2028. Oncology drugs are expected to be the industry’s largest segment, with a forecast market volume of $214.10 billion in 2024.
The IQVIA Institute predicts that global pharmaceutical spending and demand for medicines will grow to nearly $1.9 trillion by 2027. The introduction of new drugs and expanding usage of recently launched drugs will drive medical spending growth by 3% to 6%.
In addition, the global pharma 4.0 market is expected to reach $62.70 billion by 2032, growing at an 18.6% CAGR. Pharma 4.0 is a digital approach that uses AI, IoT, blockchain, augmented reality, and big data analytics to optimize pharmaceutical production processes, increase quality control, shorten time to market, and avoid downtimes.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from iShares U.S. Pharmaceuticals ETF’s (IHE) 16.2% returns over the past year.
With these encouraging trends in mind, let’s examine the fundamentals of the three best Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #3: Merck & Co., Inc. (MRK)
MRK operates as a healthcare company. It operates through the Pharmaceutical and Animal Health segments. The Pharmaceutical segment provides human health pharmaceuticals. The Animal Health segment specializes in discovering, developing, manufacturing, and marketing veterinary pharmaceuticals, vaccines, and health management solutions.
On March 11, 2024, MRK announced the completion of its acquisition of Harpoon Therapeutics, Inc. (HARP).
The acquisition will allow Merck to expand its pipeline of innovative oncology therapies, leveraging Harpoon's expertise in developing novel T-cell engagers. This strategic move demonstrates Merck's commitment to advancing cancer treatment options for patients worldwide.
Dr. Dean Y. Li, president of Merck Research Laboratories, said, "We continue to augment and diversify our oncology pipeline with innovative approaches to help people with cancer worldwide. We are pleased to welcome our Harpoon colleagues to Merck and look forward to working together to advance a novel portfolio of T-cell engagers, including MK-6070."
On February 8, 2024, MRK announced a long-term agreement with the Vector Institute in Toronto, an independent not-for-profit organization dedicated to developing artificial intelligence (AI) through world-class research.
This collaboration will provide Merck Canada with access to Vector's superior research capabilities and AI skills, as well as engagement with its extensive and dynamic ecosystem to promote healthcare innovation.
MRK’s trailing-12-month EBIT margin of 7.59% is 767.9% higher than the 0.87% industry average. Also, its 13.80% trailing-12-month EBITDA margin is 146.4% higher than the 5.60% industry average. Also, its 3.54% trailing-12-month levered FCF margin is 352.3% higher than the 0.78% industry average.
During the fiscal year that ended December 31, 2023, MRK’s sales increased 1.4% year-over-year to $60.12 billion. Its income before taxes stood at $1.89 billion. Furthermore, net income attributable to MRK and earnings per common share amounted to $365 million and $0.14, respectively.
Street expects MRK's EPS and revenue for the quarter ending March 31, 2024, to increase 46.8% and 4.7% year-over-year to $2.06 and $15.17 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past three months, the stock has gained 15.6% to close the last trading session at $121.50.
MRK's POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MRK has a B grade for Growth, Stability, Sentiment, and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #5 out of 165 stocks. To see the additional ratings of MRK for Value and Momentum, click here.
Stock #2: AbbVie Inc. (ABBV)
ABBV is a global pharmaceutical company known for its diverse portfolio, including medications like Humira, Skyrizi, and Imbruvica, addressing conditions ranging from autoimmune diseases to cancer and neurological disorders.
On February 28, 2024, ABBV and OSE Immunotherapeutics SA (OSE), a clinical-stage immunotherapy company, formed a strategic partnership to develop OSE-230, a monoclonal antibody that targets chronic and severe inflammation. The antibody is currently in pre-clinical development.
The partnership aims to accelerate the development of OSE-230 and potentially offer patients suffering from chronic inflammatory diseases a new treatment option.
On February 22, 2024, ABBV and Tentarix Biotherapeutics announced a multi-year collaboration to find and develop conditionally active, multi-specific biologic candidates for oncology and immunology. The agreement will combine AbbVie's cancer and immunology expertise with Tentarix’s patented Tentacles™ technology.
This collaboration seeks to use AbbVie's significant drug development knowledge and Tentarix’s breakthrough technology to advance novel medicines for cancer and immune-related illnesses.
ABBV’s trailing-12-month gross profit margin of 69.21% is 21.7% higher than the industry average of 56.89%. Its trailing-12-month EBITDA margin of 48.53% is 766.4% higher than the industry average of 5.60%. Additionally, its 41.66% trailing-12-month levered FCF margin is significantly higher than the 0.78% industry average.
ABBV’s net revenues for the fiscal fourth quarter, which ended on December 31, 2023, amounted to $14.30 billion, while its attributable net earnings and adjusted EPS came in at $822 million and $2.79, respectively. Moreover, the company’s operating earnings stood at $3.20 billion.
For the fiscal year ending December 31, 2024, ABBV’s revenue and EPS are expected to increase 0.4% and 1.1% year-over-year to $54.53 billion and $11.23, respectively. Over the past nine months, the stock has gained 30.9% to close the last trading session at $177.88.
ABBV’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Quality and a B for Growth, Value, and Stability. Click here to see the additional ratings of ABBV for Momentum and Sentiment.
Stock #1: GSK plc (GSK)
Headquartered in Brentford, the United Kingdom, GSK researches, develops, and manufactures vaccines and specialty medicines to prevent and treat disease in the United Kingdom, the U.S., and internationally.
On February 15, GSK acquired Aiolos Bio (Aiolos), a clinical-stage biopharmaceutical company focused on addressing the unmet treatment needs of patients with respiratory and inflammatory conditions.
The acquisition of Aiolos includes AIO-001, a potentially best-in-class, long-acting anti-thymic stromal lymphopoietin (TSLP) monoclonal antibody ready to enter phase II clinical development for the treatment of adult patients with asthma, which could expand GSK’s respiratory biologics portfolio to potentially reach the 40% of severe asthma patients with low T2 inflammation.
GSK’s trailing-12-month gross profit margin 72.34% is 27.2% higher than the industry average of 56.89%. Likewise, the stock’s trailing-12-month EBIT margin of 27.71% is significantly higher than the industry average of 0.87%. Additionally, its 0.51x trailing-12-month asset turnover ratio is 29.4% higher than the industry average of 0.39x.
For the fiscal fourth quarter that ended December 31, 2023, GSK’s turnover and adjusted gross profit increased 9.2% and 10.2% year-over-year to £8.05 billion ($8.77 billion) and £5.89 billion ($6.42 billion), respectively. Its adjusted operating profit stood at £1.75 billion ($1.91 billion), up 9.8% from the year-ago quarter.
Analysts expect GSK’s EPS and revenue for the quarter ending March 31, 2024, to increase 5.1% and 3.9% year-over-year to $0.96 and $9 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. GSK shares have gained 25.6% over the past year to close the last trading session at $42.19.
It’s no surprise that GSK has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Value and a B for Stability, Sentiment, and Quality. It is ranked first in the Medical - Pharmaceuticals industry. Beyond what is stated above, we’ve also rated GSK for Growth and Momentum. Get all GSK ratings here.
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ABBV shares were trading at $178.85 per share on Monday morning, up $0.97 (+0.55%). Year-to-date, ABBV has gained 16.51%, versus a 8.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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