We recently compiled a list of the 10 Cheap Pharmaceutical Stocks to Buy According to Analysts. In this article, we are going to take a look at where Novartis AG (NYSE:NVS) stands against the other pharmaceutical stocks.
The Evolving Landscape of Healthcare and Biopharma Innovation
Almost no other industry goes as far as the phrase “defensive” as the healthcare sector, which encompasses a wide range of companies that provide patient care, research and development of new medicines, and design, manufacture, and sell diagnostic instruments and tests. Patient care has evolved due to advancements in therapeutic techniques, drugs, and medical technology. Pharmaceutical companies in particular have received much attention as the demand for speedy results has increased. Grand View Research predicted that the value of pharmaceutical manufacturing worldwide was $516.48 billion in 2022. The sector is anticipated to increase at a compound annual growth rate (CAGR) of 7.63% between 2023 and 2030.
The biopharma industry now has the most extensive and varied clinical pipeline to date, due to decades of groundbreaking research. In 2012, there were 3,200 distinct medications under development; by 2022, that number had nearly doubled to 6,100. The average cost of producing a single treatment is over $1 billion, while just 14% of medications in clinical trials reach FDA clearance, according to MIT research. This could be a game-changer for AI. For instance, generative AI helps identify illness patterns in large data sets to determine the optimal medicine combinations while enabling researchers to investigate far more possible compounds than they could with conventional techniques. Additionally, according to PwC, AI-driven analytics and automation could cut operational costs by more than 30% and process timeframes by 60–70%.
In a similar vein, the market has grown significantly due to consumer interest in weight-loss medications like Ozempic and Wegovy. According to a recent study in the scientific journal Addiction, GLP-1 medications may reduce the prevalence of alcohol and opioid addiction by as much as 50%. Additionally, these medications are being evaluated for Alzheimer’s disease and other disorders that are frequently associated with obesity. The development of GLP-1s is becoming crucial for pharmaceutical businesses that want to be leaders in fields like cardiovascular and renal health. Competition with the leading companies in the anti-obesity business, which is expected to grow to $130 billion by 2030, is no longer the main emphasis.
The possibility for additional participants to enter the field is growing along with the possible applications of GLP-1s. For example, the Swiss business Roche entered the weight-loss drug sweepstakes in 2023 when it paid up to $3.1 billion to acquire California-based Carmot Therapeutics. The corporation wants to “fast-track” its anti-obesity medicines to regain faith in its pipeline and take a share of the weight-loss market.
Challenges and Opportunities in the Pharmaceutical and Biotech IPO Market
The pharmaceutical sector may appear to be flourishing at first glance. However, it has its own set of difficulties, just like every other industry. Compared to 2021, funding for biotech and pharmaceuticals fell by a sharp 48.6% last year. In 2022, the IPO market also saw a significant decline, with profits falling as a result of market volatility and instability. Many general investors were apprehensive of the spike in drug-developer initial public offerings (IPOs) in 2020 and 2021, which garnered about $46.5 billion, more than the total from the preceding eight years combined.
Future initial public offerings (IPOs) are being closely watched due to the high-risk, high-reward nature of the biotech sector as well as macroeconomic and geopolitical issues that impact larger markets. However, as of September 3, 2024, drug developers had raised $2 billion through initial public offerings (IPOs) this year, a 24% increase over the same period in 2023. However, according to BNN Bloomberg, over two-thirds of these funds were raised in the first two months as a result of a spike in new listings. However, pharma companies’ portion of U.S. IPO profits has decreased from 17% in February to 6.5%, with less than $800 million raised in the next six months.
Tim Hunt, CEO of the Alliance for Regenerative Medicine (ARM), emphasized increased funding in cell and gene therapies in 2024 in his opening remarks at the October 7 conference. According to him, thirteen of the fifteen biggest pharmaceutical companies in the world by market capitalization now have an “active presence” in this area. Major pharmaceutical corporations are increasingly turning to cell and gene therapies to fill possible revenue shortages as many product patents are about to expire. Despite this optimism, there has been a reduction in related patent filings, and the number of cell and gene therapy deals in the pharmaceutical industry fell by 38% in Q2 2024 compared to the same time in 2023. Nevertheless, the sector is appealing and should not be disregarded by possible investors. Given this, we will take a look at some of the best cheap pharmaceutical stocks according to analysts.
Our Methodology
Our methodology involved selecting stocks with a market capitalization exceeding $3 billion, a P/E ratio below 40, and a price target upside of more than 10%. We then ranked these stocks based on their upside potential, as of February 17.
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 363.5% since May 2014, beating its benchmark by 208 percentage points (see more details here).
A doctor holding a microscope in front of a laboratory sample of healthcare products.
Novartis AG (NYSE:NVS)
Price Target Upside: 17.30%
Novartis AG (NYSE:NVS) is a Swiss global healthcare company that develops prescription medicines across multiple therapeutic areas, including cardiovascular, immunology, neuroscience, oncology, and ophthalmology.
In a deal valued at much to $3.1 billion, Novartis AG (NYSE:NVS) announced on February 11, 2025, that it would repurchase Anthos Therapeutics and recover the rights to abelacimab, which is a drug that may be a breakthrough in the prevention of blood clots and strokes. The medicine was first licensed from Novartis by Blackstone Life Sciences in 2019, and the company invested $250 million in clinical trials to support its development. To acquire complete control, the business is paying $925 million upfront, with potential further payments contingent on future milestones.
With net income rising 26% to $3.93 billion in Q4 2024, Novartis AG (NYSE:NVS) exceeded Wall Street’s forecasts. The business now anticipates sales growth of at least 5% until 2029. With its emphasis on pharmaceuticals, the company also achieved a record-high free cash flow of $16.3 billion, up 24%. As one of the cheap pharmaceutical stocks with strong financials, the company continues to reward investors by raising its dividend by 6% to CHF 3.50 per share, marking 28 years of consecutive increases, and expects to repurchase $5.4 billion worth of shares in 2025.
In the third quarter, 24 hedge funds owned shares in Novartis AG (NYSE:NVS), up from 30 funds in the previous quarter, according to Insider Monkey’s database. The largest shareholder in the business was Renaissance Technologies, owned by Jim Simons, with 2.30 million shares valued at $264.6 million.
Overall NVS ranks 8th on our list of the cheap pharmaceutical stocks to buy according to analysts. While we acknowledge the potential of NVS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
