Here’s a question for you: What determines the value of a drug? Is it the number of lives it saves or how much it costs to make? Is it the deadliness of the disease it prevents or treats? To an individual living with diabetes, insulin is priceless, when in reality, it’s incredibly cheap to produce. On the other end of the spectrum, complex chemotherapeutics for rare cancers are exceptionally expensive due their biochemistry and production scale, but are priceless to those battling cancer.
To investors, the value of a drug is based on how much it increases a pharmaceutical company’s bottom line. Understanding this concept can give tremendous insight into how to find undervalued pharma stocks, as they can often hide behind more hyped-up stocks. Thus, investors should keep an eye out for pharmaceutical companies that report strong medication sales numbers relative to production costs when picking pharma stocks for their portfolios.
Ionis Pharmaceuticals (IONS)
With three decades of drug development expertise driving it, Ionis Pharmaceuticals (NASDAQ:IONS) exhibited steady financial growth for its quarter ending in December of 2023. As a pharmaceutical developer, the company has specialized in the niche of RNA-targeted medicines. These drugs focus on interacting with ribonucleic acid, a precursor to deoxyribonucleic acid (DNA), to modify and edit genes associated with genetic disorders.
The company is likely undervalued by most analysts due to its $1 billion in operating expenses eclipsing its revenue, resulting in an operating loss of $247 million for 2023. However, it’s worth noting that $822 million of its total operating expenditure is on research and development which indicates the company invests heavily in the future.
As a result, the company is launching three new drugs in 2024, with four more pending regulatory actions. IONS could reach its high price target of $75 if pricing and market accessibility align favorably.
Sanofi (SNY)
Soaring high above its competitors in the respiratory drug category, Sanofi (NASDAQ:SNY) has earned a reputation for quality in recent years. Through its research and development of drugs for respiratory diseases such as asthma, respiratory syncytial virus (RSV), and chronic obstructive pulmonary disease (COPD), the company has positioned itself to treat a niche of diseases with a wide patient population.
The company reported 6.7% overall net sales growth year-over-year for Q1 2024, indicating a healthy improvement in existing drug sales. However, the real big ticket item for Sanofi could be its new infant life-saving drug, beyfortus. The drug, which combats RSV, could deliver blockbuster sales in 2024 thanks to its high clinical trial efficacy.
One trial found that the drug had 90% effectiveness when administered to infants in the U.S. and an 85% average effectiveness across Spanish and French trials. Considering that on average, 2.1 million children under 5 years are reported each year in the U.S. with RSV, beyfortus could be a significant catalyst for Sanofi’s position among undervalued pharma stocks.
Biogen (BIIB)
Specialized in the treatment of neurological and neurodegenerative diseases, Biogen’s (NASDAQ:BIIB) stock price has seen a discount of 30.92% over the last 12 months. However, its recent Q1 2024 earnings report clued in investors about its potential resurgence. With the increased uptake of its drug leqembi and an E.U. launch coming for its drug skyclarys, Biogen could stand poised for a very good 2024.
Due to the relatively narrow patient population of skyclarys, its expansion into the E.U. markets could prove to be a catalyst for the company, as it could double its customers. This helps Biogen as it relies on new launches to generate revenue in response to its declining multiple sclerosis franchise.
Ultimately, Biogen’s average price target of $284 and 30% upside seems quite likely when considering the newly expanding adoption of its drugs into larger markets.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.