The pharmaceutical industry is critical to global healthcare needs. A rapidly aging population, the rise of chronic diseases, and advanced technologies like AI in drug development boost the sector’s outlook. However, not every pharmaceutical company are likely to capitalize on the industry tailwinds.
Amid this backdrop, investors could look to avoid fundamentally weak pharma stocks: Madrigal Pharmaceuticals, Inc. (MDGL), Viking Therapeutics, Inc. (VKTX), and Axsome Therapeutics, Inc. (AXSM). Before diving deeper into their fundamentals, let’s discuss some of the challenges that the pharmaceutical industry is facing.
The world’s rising global healthcare needs boost the pharmaceutical sector’s outlook. Global pharmaceutical revenues are expected to reach $1.16 trillion this year and grow at a CAGR of 6.2%, reaching $1.47 trillion by 2028. However, the S&P Pharmaceuticals Select Industry Index has declined 5% over the past year, compared to the S&P 500’s 20.4% return during the same period.
The industry currently faces several challenges, such as growing regulatory restrictions, rising input costs, high inflation, elevated interest rates, a rise in patent cliffs, and increasing threats from generic manufacturers. Moreover, there’s rising competition in the same therapeutic areas and too much R&D money is chasing similar biological targets.
Additionally, the Inflation Reduction Act (IRA) intends to make prescription drugs more affordable for people with Medicare through price caps, price negotiations, inflation rebates, etc.
The pharmaceutical industry also faces cybercrime threats, necessitating strong cybersecurity measures to safeguard sensitive data and intellectual property while ensuring product safety and efficacy for patients worldwide.
Let’s examine the fundamentals of the three Medical – Pharmaceuticals stocks, beginning with the least favorable one from an investment point of view.
Stock #3: Madrigal Pharmaceuticals, Inc. (MDGL)
MDGL is a clinical-stage biopharmaceutical company that focuses on the development of therapeutics for the treatment of non-alcoholic steatohepatitis (NASH) in the United States. Its lead product candidate is resmetirom, and it is also developing MGL-3745, a backup for resmetirom.
In terms of forward EV/Sales, MDGL is trading at 48.51x, considerably higher than the industry average of 3.35x. Likewise, its forward Price/Sales is trading at 54.84x, significantly higher than the industry average of 3.57x.
For the fiscal fourth quarter, which ended December 31, 2023, MDGL’s net loss widened 30.6% year-over-year to $112.19 million. Its loss from operations widened 37.4% year-over-year to $117.18 million. The company’s net loss per common share widened 14.1% over the prior year quarter to $5.68.
Analysts expect MDGL’s EPS for the quarter ended March 31, 2024, to remain negative. It failed to surpass the Street EPS estimates in three of the trailing four quarters. Over the year, the stock has declined 31.9% to close the last trading session at $210.59.
MDGL’s weak fundamentals are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Medical – Pharmaceuticals industry, it is ranked #151 out of 161 stocks. It has an F grade for Growth and Sentiment and a D for Momentum and Stability. To access MDGL’s ratings for Value and Quality, click here.
Stock #2: Viking Therapeutics, Inc. (VKTX)
VKTX is a clinical-stage biopharmaceutical company that focuses on developing therapies for metabolic and endocrine disorders.
In terms of forward Price/Book, VKTX is trading at 9.53x, 252.1% higher than the industry average of 2.71x.
VKTX’s loss from operations for the first quarter that ended March 31, 2024, widened 65.9% year-over-year to $9.57 million. The company’s net loss widened 40.1% year-over-year to $27.36 million. Also, its loss per share came in at $0.26, widened 4% year-over-year.
In addition, as of March 31, 2024, the company’s total current liabilities stood at $32.77 million, compared to $19.14 million as of December 31, 2023.
For the quarter ending June 30, 2024, VKTX’s EPS is expected to remain negative. Over the past month, the stock has decreased 3.9% to close the last trading session at $76.43.
It’s no surprise that VKTX has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
It has an F grade for Growth and a D for Momentum, Stability, and Quality. It is ranked #147 in the same industry. Beyond what is stated above, we’ve also rated VKTX for Value and Sentiment. Get all the VKTX ratings here.
Stock #1: Axsome Therapeutics, Inc. (AXSM)
AXSM is a biopharmaceutical company based in the United States that develops novel therapies for central nervous system (CNS) disorders.
In terms of forward EV/Sales, AXSM is trading at 8.92x, 165.8% higher than the industry average of 3.35x. Likewise, its forward Price/Sales is trading at 9.45x, 165% higher than the 3.57x industry average. In addition, its forward Price/Book is trading at 58.74x, considerably higher than the 2.71x industry average.
During the fiscal fourth quarter that ended on December 31, 2023, AXSM’s loss from operations widened 64% year-over-year to $98.27 million. Its net loss expanded 61.1% from the year-ago value to $98.65 million. In addition, the company’s net loss per share amounted to $2.08, widening 47.5% year-over-year.
Street expects AXSM’s revenue for the quarter ended March 31, 2024, to decrease 23% year-over-year to $72.85 million. Its EPS for the same quarter is expected to remain negative. Over the past three months, the stock has declined 19.9% to close the last trading session at $74.89.
AXSM’s poor fundamentals are reflected in its POWR Ratings. It has an overall rating of D, which equates to a Sell in our proprietary rating system.
It has an F grade for Stability and a D for Growth, Momentum, and Sentiment. It is ranked #129 in the Medical – Pharmaceuticals industry. Click here to see AXSM's ratings for Value and Quality.
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VKTX shares were trading at $74.92 per share on Thursday afternoon, down $1.51 (-1.98%). Year-to-date, VKTX has gained 302.58%, versus a 5.83% 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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