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Scoop up These 3 Undervalued Pharmaceutical Stocks

2020 was a challenging year for the Biotech industry. Governments’ high expectations of these companies encouraged many of them to raise capital for their R&D expenses in the public markets, sometimes without serious product pipelines. Regardless, undervalued pharmaceutical companies Vertex (VRTX), Regeneron (REGN) and Jazz (JAZZ) are two names that are making substantive progress on the drug development front. As such, we think betting on these stocks could be rewarding.

The frenzy surrounding the biotech industry  over the past year, driven by the race to gain  first-mover advantage in COVID-19 vaccine space,  led the industry to report a record number of IPO listings in 2020. Approximately 81 companies went public in 2020, raising approximately $13.50 billion.

While many of these companies still do not  have a pipeline of COVID-related therapies, the number of listings and their  valuations indicate surging investor optimism about  this industry, as evidenced by the SPDR Biotech ETF (XBI), which has gained 121.2% over the past year versus S&P 500’s total return of 65.3% over this period.

Investors are focused on the biotech giants that have significant  COVID-19 related product portfolios, overlooking  several biotech companies that have unique drug portfolios aimed at treating other critical diseases, including diabetes, cancer and others. With impressive results from clinical trials, many such companies are on the verge of breakthroughs in their developmental pipelines. The global biopharmaceutical market is expected to grow at a CAGR of 13.3% over the next five years.

Thus, we think pharmaceutical companies Vertex Pharmaceuticals Incorporated (VRTX), Regeneron Pharmaceuticals, Inc. (REGN) and Jazz Pharmaceuticals plc (JAZZ), which are currently undervalued, are ideal investment bets.

Vertex Pharmaceuticals Incorporated (VRTX)

Based in Boston, Massachusetts VRTX develops, manufactures and commercializes medicines for serious diseases. The company is focused on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and early-stage development programs. Its  medicines in the market include ORKAMBI and KALYDECO.

VRTX announced this month  that its VX-880 diabetes therapy has been granted Fast Track Designation by the U.S. Food and Drug Administration (FDA). The company also initiated a clinical trial for VX-880 in patients who have type 1 diabetes (T1D) with severe hypoglycemia and impaired hypoglycemia awareness. The FDA also  accepted VRTX’s supplemental New Drug Application (sNDA) to expand the use of TRIKAFTA to include children  age of 6 to 11 who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene or a mutation in the CFTR gene. And last  December, VRTX and Skyhawk Therapeutics, Inc. began  a strategic research collaboration and licensing agreement aimed at the discovery and development of novel small molecules that modulate RNA splicing for the treatment of serious diseases.

VRTX’s non-GAAP total revenues increased 29.4% year-over-year to $1.63 billion for the fourth quarter, ended December 31, 2020. The company’s non-GAAP net income for the quarter was  $660.59 million, up 48.7% year-over-year. Its income from operations came in at $745.79 million, which represents an improvement of 35.2% year-over-year. Also, its non-GAAP EPS increased 47.6% year-over-year to $2.51.

In terms of non-GAAP forward price/earnings, VRTX is currently trading at 19.47x, which is 19.1% lower than the industry average  24.08x. In terms of forward enterprise value/ebitda, VRTX is currently trading at 12.26x, 28.7% lower than the industry average 17.20x.

A consensus EPS estimate of $11.28 for fiscal 2021 represents an improvement of 9.3% year-over-year. VRTX surpassed  consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $1.71 billion for the next quarter, ending June 30, 2021 represents a 23.1% rise on a year-over-year basis. The stock has gained 9.6% over the past year and closed yesterday’s trading session at $218.99.

VRTX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has an A grade for Value and Quality. We have also graded VRTX for Growth, Momentum, Stability and Sentiment. Click here to access all VRTX’s ratings.

VRTX is ranked #15 of 489 stocks in the Biotech industry.

Regeneron Pharmaceuticals, Inc. (REGN)

REGN is a biopharmaceutical company that  develops, manufactures and commercializes medicines for the treatment of serious medical conditions. The company's marketed products include EYLEA injection, Praluent injection, ARCALYST injection for subcutaneous use, and ZALTRAP injection for intravenous infusion, among others. REGN also has collaborative  and license agreements with several companies, including Sanofi (SNY) and Bayer Aktiengesellschaft (BAYRY).

This month, REGN and SNY announced positive results from Phase 3 trials investigating  PD-1 inhibitor Libtayo (cemiplimab) monotherapy in patients that have recurrent or metastatic cervical cancer and were previously treated with chemotherapy. REGN and SNY also announced this month  that the U.S. FDA has accepted the supplemental Biologics License Application (sBLA) for Dupixent as an add-on treatment for children aged 6 to 11 that  have uncontrolled moderate-to-severe asthma.

Furthermore, in February, the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) endorsed the use of REGEN-COV, REGN’s investigational COVID-19 antibody cocktail, to be used for the treatment of COVID-19 patients who do not require supplemental oxygen and who are at high risk of progressing to severe COVID-19.

REGN’s total revenues for the fourth quarter, ended December 31, 2020, came in at $2.42 billion, which represents a 30% rise year-over-year. The company’s non-GAAP net income for the quarter was  $1.08 billion, up nearly 26% year-over-year. REGN’s income from operations increased 74.7% year-over-year to $1.17 billion. Also, its non-GAAP EPS increased more than 27% year-over-year to $9.53.

In terms of non-GAAP forward price/earnings, REGN is currently trading at 10.82x, 55.1% lower than the industry average24.08x. In terms of forward enterprise value/ebitda , REGN’s 7.80x is 54.7% lower than the industry average  17.20x.

A consensus EPS estimate of $13.64 for the next quarter, ending June 30, represents an improvement of 90.5% year-over-year. Moreover, REGN surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $2.66 billion for the current quarter, ending March 31, 2021 represents a 45.5% rise on a year-over-year basis. The stock has gained 9.4% over the past year and closed yesterday’s trading session at $482.17.

It’s no surprise that REGN has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Value l and a B grade for Growth and Quality. Click here to see the additional ratings for REGN (Momentum, Stability and Sentiment).

REGN is ranked #4 in the same industry.

Jazz Pharmaceuticals plc (JAZZ)

Headquartered in Dublin, Ireland JAZZ is a biopharmaceutical company with a diverse portfolio of products and product candidates with a focus in the areas of sleep and hematology/oncology. The company's lead marketed products include Xyrem, Erwinaze, and Defitelio. JAZZ has licensing and collaboration agreements with companies including ImmunoGen, Inc. (IMGN) and Codiak BioSciences, Inc. (CDAK).

Last month , JAZZ completed the rolling submission for the supplemental New Drug Application (sNDA) to the U.S. FDA seeking marketing approval for Xywav oral solution for the treatment of adult patients with idiopathic hypersomnia. Also, JAZZ and GW Pharmaceuticals plc (GWPH) entered an  in which JAZZ will acquire GWPH. The transaction is expected to be closed in the second quarter of its fiscal 2021.

For the fourth quarter ended December 31, 2020, JAZZ’s total revenues increased 14.4% year-over-year to $665.52 million. This was driven primarily  by its 14.7% year-over-year increase in  revenue from product sales. The company’s income from operations came in at $173.41 million, which represents an improvement of 183.1% year-over-year. Its net income also increased 80.3% year-over-year to $133.41 million.

In terms of non-GAAP forward price/earnings, JAZZ is currently trading at 10.82x, which is 55.1% lower than the industry average  24.08x. In terms of forward enterprise value/ebitda, JAZZ is currently trading at 8.12x, 52.8% lower than the industry average  17.20x.

A consensus EPS estimate of $3.67 for the current quarter, ending March 31, represents an improvement of 715.6% year-over-year. The consensus revenue estimate of $649.56 million for the next quarter, ending June 30, 2021, represents a 15.5% rise on a year-over-year basis. The stock has gained more than 73% over the past year and closed yesterday’s trading session at $171.89.

JAZZ’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system.

The stock has an A grade for Value and a B grade for Growth and Quality. In addition to the POWR Ratings grades I’ve just highlighted, one can see JAZZ’s ratings for Momentum, Stability and Sentiment here.

JAZZ is ranked #11 in the same industry.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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VRTX shares were unchanged in after-hours trading Wednesday. Year-to-date, VRTX has declined -8.15%, versus a 6.25% rise in the benchmark S&P 500 index during the same period.



About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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