Strategic investments in technology empower pharmaceutical practices to manufacture small, tailored drug batches, demanding flexible facilities for rapid formulation changes. This evolution is optimizing drug customization and elevating patient-centric care, revolutionizing the industry.

Considering this, I assessed two prominent pharmaceutical stocks, Catalyst Pharmaceuticals, Inc. (CPRX) and Johnson & Johnson (JNJ), to determine which possesses the potential to deliver superior long-term returns next year. Let’s understand this in detail.

In 2023, AI unequivocally asserted dominance, ushering in an era defined by technological prowess, a trajectory set to endure into 2024. Generative AI, particularly instrumental in drug discovery, accelerates the design, property prediction, and optimization of candidates, eclipsing conventional methods with unparalleled efficiency.

In a landscape characterized by continuous progression, companies are allocating a substantial portion, often exceeding 20%, of their sales revenues to R&D initiatives. This dedicated commitment propels the discovery of novel medicines and the refinement of existing ones, perpetuating advancements in the pharmaceutical domain.

Additionally, as per a Research and Markets report, the global pharmaceutical drugs market is set to ascend from $1.14 trillion in 2022 to $1.20 trillion in 2023, showcasing a 5.6% CAGR. Furthermore, projections indicate a heightened acceleration at an 11.4% CAGR, culminating in a valuation of $1.85 trillion by 2027.

In terms of price performance, CPRX has gained 31.9% over the past three months, while JNJ plunged 5% during the same period. Moreover, CPRX witnessed a 27.3% gain over the past six months, while JNJ plummeted 5.7% over the same duration.

However, CPRX declined 2% over the past nine months, closing the last trading session at $16.07, whereas JNJ has marginally gained during the same period, closing the last trading session at $154.84.

But which Medical - Pharmaceuticals stock could be a better pick? Let's find out.

Recent Developments

On November 2, CPRX disclosed that the United States Patent and Trademark Office (USPTO) notified the company of the allowance of two additional patents for FIRDAPSE® Tablets 10 mg. Expected to be granted within the next two months, this development underscores CPRX's steadfast commitment to advancing its core objectives.

In addition, the patent allowances are expected to fortify the company's comprehensive grasp of FIRDAPSE's uniqueness, reinforcing a robust intellectual property portfolio and providing heightened patent protection.

On November 30, JNJ declared the successful finalization of the acquisition of Laminar, Inc., a privately held medical device company. Integrated into Johnson & Johnson MedTech under Biosense Webster, Inc., Laminar would enhance the global leadership of Biosense Webster in the field of cardiac arrhythmia treatment.

Consequently, JNJ stands to strengthen its medical device portfolio, offering innovative solutions and expanding its footprint in the rapidly evolving field of cardiovascular care.

Recent Financial Results

For the fiscal third quarter that ended September 30, 2023, CPRX’s net revenues increased 79.4% year-over-year to $102.69 million. Its non-GAAP net income and non-GAAP net income per share grew 95.2% and 88.5% from the prior year’s period to $55.87 million and $0.49, respectively.

However, as of September 30, 2023, the company’s cash and cash equivalents stood at $120.97 million, compared to $298.40 million as of December 31, 2022.

For the third quarter that ended October 1, 2023, JNJ’s sales to customers increased 6.8% year-over-year to $21.35 billion. Its gross profit grew 6.7% from the year-ago value to $14.75 billion. Also, net earnings and net earnings per share rose 483.8% and 507.7% from the prior year’s period to $26.03 billion and $10.21, respectively.

Past and Expected Financial Performance

Over the past three years, CPRX’s revenue and EBITDA increased at a CAGR of 43.4% and 35%, respectively. However, its net income and EPS declined at a CAGR of 4.6% and 6.4%, respectively, over the same time frame.

For the fiscal year ending December 2024, analysts expect CPRX’s revenue to increase 19.5% year-over-year to $469.71 million. The company’s EPS for the same period is expected to grow 133.8% from the previous year to $1.28.

JNJ’s revenue and EBITDA rose at a 6.9% and 8.8% CAGR over the past three years. Furthermore, its net income and EPS increased at a CAGR of 26.8% and 27.6% during the same period.

For the fiscal year ending December 2024, JNJ’s revenue is expected to increase 3.7% year-over-year to $87.87 billion. Likewise, the company’s EPS for the same period is expected to rise 8.3% from the prior year to $10.74.

Valuation

In terms of trailing-12-month Price/Sales, JNJ is trading at 4.02, 7.4% lower than CPRX, which is trading at 4.34x. Moreover, JNJ’s trailing-12-month EV/Sales of 3.80x compares with CPRX’s 4.04x. Furthermore, JNJ’s trailing-12-month EV/EBITDA of 10.72x is 23.6% lower than CPRX’s 14.03x.

Profitability

JNJ’s trailing-12-month revenue is 283.4 times that of what CPRX generates. Moreover, JNJ is more profitable, with a trailing-12-month gross profit margin of 67.56%, compared to CPRX’s 59.06%. Also, JNJ’s trailing-12-month EBITDA and net income margin of 35.49% and 35.10% compare with CPRX’s 28.78% and 17.81%, respectively.

POWR Ratings

CPRX has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, JNJ has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CPRX has a D grade for Stability, in sync with its 60-month beta of 1.11. On the other hand, JNJ has a B grade for Stability, consistent with its 60-month beta of 0.57.

Moreover, CPRX has a C grade for Quality, justified by its mixed profitability. The stock’s trailing-12-month CAPEX/Sales of 43.75% is 933.6% higher than the 4.23% industry average, whereas its trailing-12-month cash per share of $1.13 is 6.5% lower than the $1.21 industry average.

Conversely, JNJ has a B grade for Quality, as evidenced by its higher-than-industry profitability. The stock’s trailing-12-month CAPEX/Sales and trailing-12-month cash per share of 4.60% and $8.20 are 8.7% and 576.3% higher than the industry averages of 4.23% and $1.21, respectively.

Of the 159 stocks in the Medical - Pharmaceuticals industry, CPRX is ranked #50, while JNJ is ranked #9. 

Beyond what we've stated above, we have also rated both stocks for Growth, Value, Momentum, and Sentiment. Click here to view CPRX’s ratings. Get all JNJ ratings here.

The Winner

Amidst the pharmaceutical industry's favorable conditions, as technology expedites the drug discovery process, both CPRX and JNJ stand to gain. However, considering JNJ’s superior financial performance, heightened profitability, and enhanced stability, it could be a better buy than CPRX in the current landscape.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Medical - Pharmaceuticals industry here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

JNJ shares were trading at $155.79 per share on Friday morning, up $0.95 (+0.61%). Year-to-date, JNJ has declined -9.13%, versus a 25.91% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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