We recently published a list of 12 Most Profitable Pharmaceutical Stocks Right Now. In this article, we are going to take a look at where Novartis AG (NYSE:NVS) stands against the other most profitable pharmaceutical stocks.
The Pharmaceutical Industry: Growth, Innovation, and Emerging Challenges
Healthcare, which includes numerous businesses that offer patient care, conduct research and development of novel treatments, and design, produce, and distribute diagnostic tools and tests, takes the term “defensive” a step further than practically any other industry. Improvements in medical technology, medications, and therapeutic approaches have changed the course of patient care. As the need for quick results has grown, pharmaceutical corporations in particular have drawn much attention. Global pharmaceutical manufacturing was estimated to be worth $516.48 billion in 2022, according to a Grand View Research analysis. From 2023 to 2030, the industry is expected to expand at a compound annual growth rate (CAGR) of 7.63%.
The biopharma industry now has the most extensive and varied clinical pipeline, 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. To identify the optimum medicine combinations, generative AI, for instance, helps researchers identify illness patterns in large data sets and explore a far greater number of possible compounds than traditional approaches can. 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-1 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 of additional participants entering the field is growing along with the possible applications of GLP-1s.
The pharmaceutical industry faces challenges despite appearing robust. Biotech and pharma funding dropped 48.6% in 2022 compared to 2021, with IPO proceeds also declining amid market volatility. While 2020 and 2021 saw drug-developer IPOs raise $46.5 billion, surpassing the previous eight years combined, investor caution has increased. In 2024, drug developers raised $2 billion through IPOs by September 3, a 24% year-over-year increase. However, two-thirds of these funds came early in the year, with proceeds falling sharply later, reducing their share of U.S. IPO proceeds from 17% in February to 6.5%.
In his October 7 remarks, Tim Hunt, CEO of the Alliance for Regenerative Medicine, highlighted increased 2024 investment in cell and gene therapies, noting that 13 of the 15 largest pharma companies are active in this space. With numerous patents expiring, these therapies offer potential revenue opportunities. However, Q2 2024 saw a 38% drop in cell and gene therapy deals compared to 2023, alongside fewer patent applications. Despite these challenges, the field remains a strong investment prospect.
A doctor holding a microscope in front of a laboratory sample of healthcare products.
Our Methodology
Our methodology focuses on identifying high-growth stocks by applying a rigorous Stock Analysis filter. We considered companies with positive net income growth for 5 years and then ranked them accordingly. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 900 as of Q3 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Novartis AG (NYSE:NVS)
Net Income Growth 5Y: 8.32%
Novartis AG (NYSE:NVS) is a leading global healthcare company based in Switzerland, recognized for its innovative pharmaceutical products and commitment to improving patient outcomes. The company primarily focuses on developing and manufacturing prescription medications across various therapeutic areas, including oncology, cardiovascular diseases, immunology, and neuroscience.
In the third quarter of 2024, Novartis AG (NYSE:NVS) reported a 10% increase in net sales. This growth was fueled by strong demand for key products, including Entresto and Cosentyx, which saw sales increases of 26% and 28%, respectively. The company also achieved a 20% rise in core operating income, with a core margin climbing to 40.1%, marking a 340 basis point improvement year-over-year. Core earnings per share (EPS) rose to $2.06, reflecting an increase of 20% compared to the previous year.
For the first nine months of 2024, Novartis AG (NYSE:NVS) reported an 11% growth in net sales and a similar 20% increase in core operating income. The core EPS for this period was $5.83, up 21%, and free cash flow reached a record $12.6 billion, up 15% year-over-year. The company recently received FDA approval for early breast cancer treatment, which could potentially triple its addressable market.
As tracked by the Insider Monkey database, 24 hedge fund holders held shares in Novartis AG (NYSE:NVS) in Q3 2024, with Renaissance Technologies being the largest stakeholder with shares worth roughly $264.6 million.
Overall, NVS ranks 12th on our list of most profitable pharmaceutical stocks right now. While we acknowledge the potential of pharmaceutical 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 NVS 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.