How To Pick Top Pharma Stocks like a ProAnalyzing the pharmaceutical industry, whose products play a key role in improving the quality of life of people around the world, is quite challenging sometimes also it requires deep knowledge and a careful approach, as I believe that investors should consider many factors, starting with evaluating the efficacy of the analyzed company's medications, including in relation to its competitors and the "gold standards," and ending with an analysis of its financial indicators
In this article you will learn how to pick Top Pharma stocks like a pro trader and which factors you should consider, so buckle up
1/ Recognizing the risks
At the very beginning, an investor you must recognize that the pharmaceutical industry is highly competitive, where a company's investment attractiveness depends not only on the rate of expansion of its portfolio of product candidates, revenue growth, margins, the amount of total debt and cash on the balance sheet but is also heavily influenced by the expiration of patents on medications and vaccines.
Moreover, in recent months, the healthcare sector has increasingly felt the impact of the upcoming 2024 US presidential elections, as some politicians are aiming to further tighten regulation of drug prices despite the existing Inflation Reduction Act.
2/ Leveraging data to your advantage
The second step use data wisely, you should check all kinda data including stock screener, transcripts of earnings calls, financial results for the last quarters, analyst expectations, options data... The goal is to filter companies in poor financial condition, as well as those that trade at a significant premium to the sector and/or competitors
I would also like to point out that in the current market environment, with Fed interest rates remaining at multi year highs, I do not recommend investing in companies with market caps below $500 million, as they typically have limited cash reserves and weaker institutional backing
Also, I'd recommend investors read 10-Ks and 10-Qs, especially the section related to debt and sources of financing of the company's operations, to reduce the likelihood of an "unexpected" drop in the share price. A striking example is Invitae Corporation aka NVTAQ which declared bankruptcy in mid February 2024!
Was there a prerequisite for this? The answer is yes since the company continued to generate negative cash flow and also had convertible senior notes maturing in 2028.
Convertible notes can involve significant financial risks if the company cannot effectively use the cash to grow the business and break even. In this case, management will not be able to pay off the bonds with cash reserves and will have to resort to significant dilution of investors. In my opinion, Pacific Biosciences of California, Inc. NASDAQ:PACB may face this problem because it has convertible senior notes maturing in 2028 and 2030.
Factors that concern me include the company's declining revenue and total cash and short-term investments in recent quarters, while its operating expenses remain extremely high at around $80 million per quarter.
Let's return to the second step in my approach to selecting the most promising assets in the healthcare sector.
When selecting companies with market caps between $4 billion and $40 billion, I use more parameters since most of them already have FDA approved drugs and/or vaccines.
As a result, it is also necessary to consider the rate of growth of operating income, net debt/EBITDA ratio, and how management copes with increased marketing and production costs.
Finally, let's move on to the last basket, which contains pharmaceutical companies with market capitalizations exceeding $40 billion. I think, this group is best suited for more conservative investors looking for assets offering attractive dividend yields and growing net income, supported by a rich portfolio of FDA approved and experimental drugs.
So, from Big Pharma, I like Pfizer Inc NYSE:PFE , AbbVie Inc NYSE:ABBV , Merck & Co NYSE:MRK and AstraZeneca PLC NASDAQ:AZN . I also want to include Novartis AG NYSE:NVS and Roche Holding AG OTC:RHHBY in this group
sometimes investors need to make exceptions, namely if one larger company buys out a smaller player and/or when a major partnership agreement is concluded, as was the case between Merck and Daiichi Sankyo Company, Limited OTC:DSKYF in 2023.
Also, in the event of a major acquisition or merger, the company's debt may temporarily increase sharply. If its management has previously implemented effective R&D and financial policies, the "net debt/EBITDA ratio"
A remarkable example of a company falling into the "value trap" is Takeda Pharmaceutical Company Limited NYSE:TAK , which overpaid for Shire. This deal did not significantly strengthen or rejuvenate the Japanese company's portfolio of drugs.
As a result, it had to sell off billions of dollars in assets to pay off its debt partially. However, despite all the efforts of Takeda's management, its net debt/EBITDA ratio, although it fell below 5x, remains high, namely about 4.7x at the end of March 2024.
3/ Identifying promising therapeutic areas
In general, the more prevalent a disease is, the larger the total addressable market for a drug and, as a result, the higher the chances that it will become a commercially successful product.
Global spending on cancer medications will reach $377 billion by 2027, followed by immunology, and diabetes will come in third with an estimated spending of about $169 billion
What challenges arise when choosing pharmaceutical companies?
you should also keep in mind that the larger the market, the higher the competition between medicines, as companies strive to grab as big a piece of the pie as possible.
As a result, for drug sales to take off, they need to have significant competitive advantages over the "gold standard." These competitive advantages may include greater efficacy in treating a particular disease, less frequent administration, a more favorable safety profile, and a more convenient route of administration.
So, in recent years, competition in the global spinal muscular atrophy treatment market has intensified. Spinal muscular atrophy is a genetic condition. Currently, three drugs have been approved to combat the disorder, including Biogen Inc.'s (BIIB) Spinraza, Roche/PTC Therapeutics, Inc.'s (PTCT) Evrysdi, and Novartis AG's (NVS) gene therapy Zolgensma.
All three products have similar efficacy, but Evrysdi has a more favorable safety profile and is the more convenient route of administration, namely the oral route, which is reflected in its sales growth rate from year to year.
The second pitfall is the company's pipeline of experimental drugs.
I believe that financial market participants opening an investor presentation that presents a company's pipeline, especially if its market cap is below $5 billion, should also pay close attention to what stage of clinical trial activity its experimental drugs are in.
if a pharmaceutical company has most of its product candidates in the early stages of development, this represents a significant risk because, in this case, institutional and retail investors are often overly optimistic about the prospects for the drugs' mechanisms of action and/or clinical data obtained in a small group of patients. Simultaneously, as is often the case, the higher the optimism, the less favorable the risk/reward profile.
In most cases, the larger and more diverse the patient population, the weaker the efficacy of a drug relative to what was seen in Phase 1/2 clinical trials. This ultimately leads to a downward valuation of its likelihood of approval and casts doubt on its ability to take significant market share from approved medications.
This may subsequently reduce the company's investment attractiveness, making it more difficult to attract financing for its operating activities.
As a result, I recommend excluding any company that, instead of focusing its financial resources on the most promising product candidates, conducts multiple early-stage clinical trials to evaluate the efficacy of its experimental drugs.
In my experience, the most successful pharmaceutical companies focus their efforts on bringing up to three product candidates to market and then reinvesting the revenue from their commercialization into developing the rest of the pipeline.
The table below highlights the following parameters that I use to screen out the least promising companies.
A third factor that investors, especially those new to the investment world, should consider is that large pharmaceutical companies are leaders in certain therapeutic areas, with a rich portfolio of patents covering various mechanisms of action and delivery methods of drugs, making it more difficult and more prolonged for smaller players to find product candidates that could potentially have the competitive advantages.
So, Novo Nordisk A/S NYSE:NVO and Eli Lilly and Company NYSE:LLY have long been leaders in the global diabetes and weight loss drugs markets, and only very recently, they may be joined by Amgen Inc. NASDAQ:AMGN , Roche Holding, and several other companies
4/ Assessing a company's drug portfolio in comparison to competitors
Evaluating the effectiveness, safety profile, and mechanism of action of a medication, as well as comparing clinical data with its competitors, takes a lot of time and effort. I provided examples of drugs and the most promising mechanisms of action in the obesity treatment market. Their manufacturers are Eli Lilly, Novo Nordisk, Roche Holding, Viking Therapeutics, Inc, Amgen, Pfizer, Altimmune, Inc, OPKO Health, Inc, Boehringer Ingelheim, and Zealand Pharma A/S
5/ When market exclusivity for a company's key medications ends
Every financial market participant who is considering investing in pharmaceutical companies should consider the expiration time of key patents of medicines.
Marketing exclusivity represents protection against the entry of a generic version and/or biosimilar of a branded drug into the market, thereby allowing the company to recoup the resources spent on its development and, in the event of its commercial success, also reinvest the money received to accelerate the development of the remaining product candidates.
Where can you find information about patent expiration dates?
All the necessary information is either in 20-Fs/10-Ks or on the FDA website, namely in the "Orange Book" section. let's take Eli Lilly as an example. Open the latest 10-K. Then, the CTRL + F combination opens the ability to find specific words in the document. I usually enter "Expiry Date" or "compound patent" to find the patent section.nvestors can also find information about patents on the FDA website.
As an example, I enter "Mounjaro" in the top line, and a list of patents opens that protect Eli Lilly's blockbuster from the introduction of its generic versions onto the market.hen, clicking on "Appl. No." will open information about the submission date of the patent and when it will expire.
6/ Evaluating the impact of insider share transactions
The next step in selecting the most interesting assets in the healthcare sector is to analyze Form-4s. The CEO, CFO, and other key members of the company's management buy or sell shares from time to time.I am only interested in analyzing purchases since, most often, sales by management are option exercises carried out to pay taxes.
When management starts making large outright purchases of a company's shares, it can signal that it believes in its long-term growth potential.if more than two top managers buy a large block of shares within two weeks of each other, it significantly increases the likelihood of the company's stock price rising in the next two months from the moment of their transactions
But as with everything, there are exceptions, such as in the case of OPKO Health, which is developing a long-acting oxyntomodulin analog for the treatment of obesity together with LeaderMed Group.Over the past 12 months, OPKO's management, especially CEO Phillip Frost, has purchased over 12 million shares.
However, despite this, its stock price has fallen by 27% over the same period. I believe that the key reasons for the divergence between these two facts are investors' lack of confidence in Phillip Frost's ability to make the company profitable again, as well as its low cash reserves. Therefore, companies like OPKO Health have already been eliminated at the second step of selection using Seeking Alpha's screener.
7/ CEO Performance in Business Development
The CEO plays a crucial role in the success of a pharmaceutical company since the pharmaceutical industry is highly dynamic, and the competition between Big Pharma is especially high, I advise readers to pay attention to the track record of the CEO, especially how he copes with force majeure situations, as well as how effective the R&D policy is carried out under his leadership.
8/ Identifying Entry and Exit Points for Long-Term Investments
The eighth step is in addition to the information that was obtained in the previous steps, as well as the analysis of financial risks and various financial metrics of the company, including its net debt, maturity dates of bonds, historical revenue growth rates, EBIT, gross margin, I build a DCF model with the ultimate goal of determining the price target.
it is necessary to conduct a technical analysis of them, as well as the main ETFs that include them. In my opinion, the key ETFs are the SPDR® S&P Biotech ETF AMEX:XBI , Fidelity Blue Chip Growth ETF AMEX:FBCG , iShares Biotechnology ETF NASDAQ:IBB , and VanEck Pharmaceutical ETF $PPH. The purpose of technical analysis is to determine the stop-loss level and entry points at which the risk/reward profile is most favorable. taking profit is not that easy cuz you must master your emotions and greed which damn hard
9/ Creating a Watchlist Based on Risk/Reward Ratio
The purpose of which is to create a watchlist of the companies I have selected based on the previous steps. I make several lists of companies based on their market caps and also rank them according to risk/reward profile, that is, in the first place is the stock that I think has minimal risks and at the same time can bring the greatest potential profit.
I also advise creating small notes on each company, which can include information about risks, support/resistance zones, dates of publication of clinical data, and any thoughts you have that will make your decision more conscious when opening a position
“What’s your secret sauce for choosing pharma stocks?”
AZN
AZN AstraZeneca PLC Options Ahead of EarningsAnalyzing the options chain and the chart patterns of AZN AstraZeneca PLC prior to the earnings report this week,
I would consider purchasing the 80usd strike price Calls with
an expiration date of 2024-7-26,
for a premium of approximately $1.23.
If these options prove to be profitable prior to the earnings release, I would sell at least half of them.
LLY rides its success against obesity and diabetes LONGLLY shown on a daily chart has doubled in the past year with the introduction of new FDA
approved drugs into the market. It has but out a series of favorable earnings reports with
optimistic realistic guidance and glowing analysts' forecasts. It has done so without any volume
pumps and just keeps grinding higher. This is because it is in the shadows of big technology
stocks. Revenues consistently beat analysts' forecasts quarter after quarter.
Institutions add small lots trying to preserve the price for future buys without any
run-ups. I have done the same thing and I will continue to do so. While day trading
biotechnology penny stocks, LLY along with UNH, PFE, and AZN is where the profits are
parked for growth and compounding.
AZN AstraZeneca PLC Options Ahead of EarningsAnalyzing the options chain and the chart patterns of AZN AstraZeneca PLC prior to the earnings report this week,
I would consider purchasing the 66usd strike price in the money Puts with
an expiration date of 2023-11-10,
for a premium of approximately $2.30.
If these options prove to be profitable prior to the earnings release, I would sell at least half of them.
Looking forward to read your opinion about it.
LLY Earnings Play LONG ( Flat Bottom Triangle Breakout)My analysis is on the 2H. I am uniquely qualified in my fundamental analysis. This is a one
day until earnings. My thesis is the earnings will stimulate what will be a breakout from
a flat bottom triangle. I will buy one share of stock. I will spend a similar amount on
call options striking $460 expiring August 11th. I see LLY as surging while PFE is a bit
challenged with the fall off in Covid vaccine work. If you find this idea interesting and
might appreciate my ideas as to a stop loss and targets, leave a comment. Like and
subscribe. Trade well !
PFE Large Cap Pharma increased its dividendPFE just raised its dividend On the chart it has been trending downward
as shown also by a down sloping anchored VWAP bands. Price is currently
sitting at long term support and two standard deviations below VWAP.
It appears to be ready to reverse from the deep undervalued area.
In confirmation, teh voume indicator shows moderate increased relative
volume compared with March. I see this as a good opportunity to enter
a swing long trade or investment. PFE has its increased dividend as a
hint to shareholders of increasing earnings also with the next generation of
COVID vaccines in the pipeline along with a diversified line of other
products. The only thing that will slow PFE down in federal legislation to
limit the retail MSRP prices of its products to all consumers including those
with no insurance and commercial coverage outside federal programs.
PFE is solid as a rock. I see the buy signal.
AZN To Test Yearly Pivot Support AstraZeneca marginally eclipsed its prior cycle highs through the 72.00 level before pulling back to suggest a potential weekly double top pattern, however, I would highlight the lack of momentum divergence at this point, which suggests to me that the current retreat is corrective. On the four-hour time frame, we can clearly see an interim 5-wave sequence has been completed, I am now looking for a corrective cycle to unfold that ultimately tests and hold the yearly pivot point at the 64.00 area, from hear I will be looking for bullish reversal patterns to re-engage long exposure to target are retest and break of the prior cycle highs through 72.00 to challenge the weekly projected trend channel support towards the 76.00 level. A loss of the yearly pivot support on a daily closing basis would suggest a deeper correction is likely to unfold opening a test of the weekly high-volume node and projected trend channel support at the 55/56.00 area.
Amazon to loose more ground. AZNImmediate targets 55, 53 and 50. Invalidation at 65. Invalidation at 70.
We are not in the business of getting every prediction right, no one ever does and that is not the aim of the game. The Fibonacci targets are highlighted in purple with invalidation in red. Fibonacci goals, it is prudent to suggest, are nothing more than mere fractally evident and therefore statistically likely levels that the market will go to. Having said that, the market will always do what it wants and always has a mind of its own. Therefore, none of this is financial advice, so do your own research and rely only on your own analysis. Trading is a true one man sport. Good luck out there and stay safe
ARDS first Investor call of 2022. Phase 3 news ???Aridis Pharmaceuticals announced first Investor call of 2022 for today, after the closing bell.
Exiting pipeline with 2 phase 3 drugs and their monoclonal antibody cocktail.
AstraZeneca PLC (AZN) has a stake in this company.
CEO has co-developed several drug which have been sold to Astra Zeneca, Megabits and MedImmune.
Aridis Pharmaceuticals can be a potential buyout for AZN.
Analyst Vernon Bernardino from H.C. Wainwright reiterated a buy rating and $19 price target on ARDS: "the cocktail binds to the S2 spike protein subunit, which mediates viral cell membrane fusion in SARS-CoV-2 variants and also binds to the omicron variant with no loss in affinity compared to the original Wuhan strain."
Aridis Pharmaceuticals Inc 's monoclonal Covid-19 Antibody Cocktail is potentially First-in-Class treatment!
Cantor Fitzgerald also said last week that Aridis' pipeline is "underappreciated."
ARDS Pan-Coronavirus Monoclonal Antibody Cocktail Retains Effectiveness Against the Omicron variant, other COVID-19 Variants, SARS, MERS , and the Common Cold Human Coronaviruses.
It provides relevant drug levels for up to 1 year from prophylactic or therapeutic treatment.
Market Cap of only 22.48Mil
52 Week Range 1.13 - 8.4
£AZN 1-day classic patternsQ: What has the highest probability of occurring?
After being one of the strongest performers in 2020 during the initial UK lockdown the stock lost over 30% of its value.
In 2021 it has staged a modest recovery but is still over 15% below its all time high requiring an over 20% rally.
There is well tested support at 8100p and resistance at 8775p.
There is 2 classic patterns 1 that has not validated. 1 that has validated.
The bull flag, with a breakout of 8775p, stop at 8100p, and projected target at 10150p. A risk-to-reward ratio of 2R.
The breakout from the bull flag needs to be confirmed by a close outwith both the flag and resistance. A difficult task therefore requiring more time to confirmation.
The double top, with a breakout of 8100p, and projected target at 7400p. Using a stop half the size of the range creates a 2R opportunity.
The stock also pays a 2.48% dividend semi-annually. Given the length of the setup this trade may run deep into 2022 to allow that dividend to be collected.
Although before that point there will be 2 earnings releases adding volatility to any potential positions held.
The short trade is therefore not of interest here however considering it has validated this may act as a catalyst for the long side. But again it is not yet validated.
PIRS Pieris Pharmaceuticals Huge Upside Potential Big pharma working with Pieris Pharmaceuticals, Inc. (PIRS):
AZN AstraZeneca 70Mil upfront payment and 5.4Bil potential milestone payments
Boston Pharmaceuticals 10Mil upfront payment and 353Mil potential milestone payments
Genentech member of RHHBY Roche Group 20Mil upfront payment and 1.4Bil potential milestone payments
SGEN Seagen 35Mil upfront payment and 1.2Bil potential milestone payments
Servier 40Mil upfront payment and 447Mil potential milestone payments
inhaled program PRS-220 for the treatment of IPF. selected to receive a Bavarian government grant of approximately $17 million to evaluate the program for post-COVID pulmonary fibrosis
On 8/16/2021 Morgan Stanley reported 1,675,969 shares of PIRS for $6.42Mil, an increase of +104.6% for an ownership of 2.512% in the company
On 4/26/2021 HC Wainwright brokerage Reiterated Rating to Buy and a price target of $9.00
On 6/30/2021 Jefferies Financial Group brokerage Boosted Price Target to Buy from $6.00 to $8.00
Usually i have price targets lower than most analysts, but on PIRS, my price target is 10usd.
I`m looking forward to read your opinion about it.
PIRS Pieris Pharmaceuticals a Sleeping Giant ??PIRS Pieris Pharmaceuticals has collaboration agreements with AstraZeneca, Boston Pharmaceuticals, Servier, Seagen and Genentech, part of Roche.
AZN AstraZeneca 70Mil upfront payment and 5.4Bil potential milestone payments
Boston Pharmaceuticals 10Mil upfront payment and 353Mil potential milestone payments
Genentech member of RHHBY Roche Group 20Mil upfront payment and 1.4Bil potential milestone payments
SGEN Seagen 35Mil upfront payment and 1.2Bil potential milestone payments
Servier 40Mil upfront payment and 447Mil potential milestone payments
So a best case scenario company with 9Bil Revenue
PIRS Pieris Pharmaceuticals Market Cap is only 254Mil now!!!
On 4/26/2021 HC Wainwright Brokerage set up a price target for PIRS at $9.00 per share.
What do you think it`s the real upside potential of Pieris Pharmaceuticals??
PIRS was on my private calls list since 3.42usd.
AZN BUY/LONG NOW READY! 54.45 to 68.60 by End 2021!TICKER CODE: AZN
Company Name: ASTRAZENECA PLC
Industry: US Stocks Health Technology Pharmaceuticals: Major
Position Proposed: BUY
FOMO ENTRY: 56.00-57.00
ENTRY: (NOT READY) 54.45 - 57.55
1st Partial Take Profit at: 68.60 (End 2021)
Stop Loss: 52.00
Technical Analysis:
1) Rising Wedge (Existing Analysis; TP @ 68.62)
2) Inverse Head and Shoulders (Forming 2nd shoulder)
3) Chart touched Fibonacci retracement 0.786
4) Fibonacci Expansion Take Profit level at 1.618