We recently published a list of 10 Best Healthcare Stocks For Long-Term Investment. In this article, we are going to take a look at where Alkermes plc (NASDAQ:ALKS) stands against other best healthcare stocks for long-term investment.
Rising Healthcare Costs and the Impact of Tariffs on the US Industry
In the US, healthcare expenditures and costs have been increasing. According to the Centers for Medicare & Medicaid Services, US healthcare spending increased 7.5% from 2022 to $4.9 trillion in 2023. In 2023, the healthcare industry made up around 17.6% of the US economy, up 17.4% from 2022. The expansion of Medicare and commercial health insurance are the two main forces behind this growth.
The impact of tariffs on this continuing trend has become a major topic of contention in the healthcare sector, as more and more US corporations are turning to China for deals on the next promising molecule, whether in the obesity or cancer arena. Versant Ventures managing director Carlo Rizzuto spoke on the effects of tariffs on healthcare on CNBC’s “Fast Money” on February 7. Tariffs might affect the sector in two ways, according to Rizzuto. Products developed in China and introduced to the US or other markets would be the first. The sector would need to see how the tariffs are set up in the market to comprehend how they would impact such trade operations.
Second, and more concretely, the US healthcare industry uses China as a huge hub for contract production and research. As a result, anything that raises that expense is probably going to make the market more difficult. An increase in costs will not improve the running of the healthcare sector, which is already facing pressure from investors.
China’s Role in U.S. Healthcare and Long-Term Investment Opportunities
Speaking about China’s enormous influence in the pharmaceutical and healthcare industries, Rizzuto stated that the vast majority of healthcare organizations use a Chinese CRO or manufacturing partner in some capacity during the research and development phase. As a result, it plays a crucial role in the way biotech and pharmaceutical companies function in the nation. From the tiniest businesses to the biggest, this pattern is very common.
Simply said, the United States lacks the infrastructure to handle the transfer, thus healthcare corporations cannot reshore all of their externalized R&D and production to the country. Therefore, it is quite hard to understand how such a large-scale reshoring might occur. With the quantity of tariffs applied, the costs to accomplish this achievement can be computed linearly.
According to McKinsey, healthcare EBITDA is projected to rise from a baseline of $676 billion in 2023 to $987 billion in 2028 at a 7% CAGR. Recovery from post-pandemic lows is anticipated to support the improvement in several segments, while growth is anticipated to be faster in other areas (such as specialist pharmacy and HST). Software platforms are essential to the healthcare ecosystem because they make it possible for payers and providers to operate more effectively in a complicated setting.
By automating processes, fostering data connectivity, and producing actionable insights, technological innovation (such as generative AI and machine learning) keeps opening doors for stakeholders across all segments. McKinsey went on to say that increased utilization and pipeline expansion (as in cancer) are projected to drive substantial growth in specialty pharmacy revenue. Specialty pharmacy profit pools are still growing as a result of the rise in the use of specialty medications.
Our Methodology
For our methodology, we used a Finviz screener and picked stocks with a market cap of over 2 billion, a 5-year annual return of over 10%, and a low PE ratio under 20. We then ranked these stocks based on their total number of hedge fund holders as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A pharmacist handing someone a prescription bottle containing the company’s biopharmaceutical product.
Alkermes plc (NASDAQ:ALKS)
Number of Hedge Fund Holders: 36
Alkermes plc (NASDAQ:ALKS) specializes in neuroscience, developing treatments for mental health and neurological disorders like alcohol and opioid dependence, schizophrenia, and bipolar I disorder. The company generates revenue through its proprietary drugs, including Vivitrol, Aristada, and Lybalvi, and it stands ninth among the best healthcare stocks for long-term investment.
With a total revenue of over $1.5 billion in 2024, Alkermes plc (NASDAQ:ALKS) produced impressive financial performance, mostly due to its exclusive medicine portfolio. With $825 million in cash and no debt at the end of the year, the company produced over $450 million in EBITDA. The corporation also strengthened shareholder value by repurchasing 8 million shares.
The company’s key products did well, with Vivitrol sales hitting $457.3 million (up 14%), Aristada gaining 6% to $346.2 million, and Lybalvi rising 46% to $280 million. With Phase 2 trial results anticipated in late 2025, the business is also moving forward with its ALKS 2680 program for narcolepsy, setting up Alkermes plc (NASDAQ:ALKS) for future expansion in neurological medicines.
It is anticipated that the company will generate between $1.34 billion and $1.43 billion in revenue by 2025, with adjusted EBITDA falling between $310 million and $340 million. However, because of the expiration of the INVEGA SUSTENNA royalty, higher R&D costs for ALKS 2680 trials, and increasing competition in the antipsychotic market, the business expects a $215 million drop in manufacturing and royalty revenue, which is why it expanded its psychiatry sales team.
Overall, ALKS ranks 9th on our list of best healthcare stocks for long-term investment. While we acknowledge the potential of healthcare companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALKS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
