Pharma stocks were in the spotlight during the pandemic as the industry played a crucial role in developing vaccines and therapies. While the pandemic benefits have waned, the long-term prospects of the pharmaceutical industry remain strong, given the aging population and increasing prevalence of chronic diseases.
However, not every medical stock is well-positioned to capitalize on the industry’s growth prospects. For reasons mentioned throughout this article, Apellis Pharmaceuticals, Inc. (APLS) should not be the stock to invest in from this industry.
APLS’ loss per share came below analyst estimates in the fourth quarter, while its revenue missed the consensus estimate by 7.6%. APLS failed to surpass the consensus EPS estimate in three of the four quarters.
However, the company recently announced that the U.S. Food and Drug Administration (FDA) had approved SYFOVRE (pegcetacoplan injection) for the treatment of geographic atrophy (GA) secondary to age-related macular degeneration (AMD).
SYFOVRE is the first and only FDA-approved treatment for GA. Eleonora Lad, M.D., Ph.D., lead investigator for the OAKS study, director of ophthalmology clinical research, and associate professor of ophthalmology at Duke University Medical Center, said, “The approval of SYFOVRE is the most important event in retinal ophthalmology in more than a decade.”
“Until now, there have been no approved therapies to offer people living with GA as their vision relentlessly declined. With SYFOVRE, we finally have a safe and effective GA treatment for this devastating disease, with increasing effects over time,” she added.
The FDA nod for treating geographic atrophy came a week ahead of expectations. APLS’ Chief Executive Cedric Francois said there are 1 million patients in the United States and 5 million globally.
Wedbush analyst Laura Chico expects SYFOVRE to generate $63 million in sales this year, below Street expectations of $106 million.
APLS’ shares have gained 42.7% over the past nine months and 47.1% over the past year to close the last trading session at $64.98.
Here’s what could influence APLS’ performance in the upcoming months:
Disappointing Financials
APLS’ total revenue declined 62.4% year-over-year to $22.66 million for the fourth quarter ended December 31, 2022. Its operating expenses increased 24.7% from the prior-year period to $186.72 million. The company’s net loss widened 12.2% year-over-year to $165.99 million. In addition, its loss per share narrowed 6.8% year-over-year to $1.50.
Mixed Analyst Estimates
Analysts expect APLS’ EPS for fiscal 2023 and 2024 to remain negative. Its revenue for fiscal 2023 and 2024 is expected to increase 153% and 162.6% year-over-year to $190.81 million and $501.02 million.
Stretched Valuation
In terms of forward P/S, APLS’ 39.26x is 780.4% higher than the 4.46x industry average. Likewise, its 36.93x forward EV/Sales is 827.5% higher than the 3.98x industry average.
Poor Profitability
APLS’ 2.02% trailing-12-month Capex/Sales is 55.9% lower than the 4.58% industry average. Likewise, its 0.09x trailing-12-month asset turnover ratio is 73% lower than the 0.34x industry average.
POWR Ratings Reflect Bleak Prospects
APLS has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. APLS has a D grade for Value, consistent with its stretched valuation.
It has a D grade for Quality, in sync with its weak profitability. Also, its 1.20 beta justifies its F grade for Stability.
APLS is ranked #164 out of 168 stocks in the Medical - Pharmaceuticals industry. Click here to access APLS’ Growth, Momentum, and Sentiment ratings.
Bottom Line
APLS recently received FDA approval for the treatment of geographic atrophy, and the treatment, SYFOVRE, is expected to be available through specialty distributors and specialty pharmacies nationwide this month. However, Wedbush analyst Laura Chico believes capacity constraints may impact the launch.
Moreover, APLS might soon face competition from IVERIC bio, Inc. (ISEE) as the U.S. Food and Drug Administration completed its filing review and accepted the company’s New Drug Application (NDA) for avacincaptad pegol (ACP), used to treat geographic atrophy (GA) secondary to Age-Related Macular Degeneration (AMD).
Given its disappointing financials, stretched valuation, and poor profitability, it could be wise to avoid the stock now.
Stocks to Consider Instead of Apellis Pharmaceuticals, Inc. (APLS)
The odds of APLS outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these stocks with A (Strong Buy) or B (Buy) ratings from the Medical - Pharmaceuticals industry instead:
Novo Nordisk A/S (NVO)
Bristol-Myers Squibb Company (BMY)
Amphastar Pharmaceuticals, Inc. (AMPH)
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APLS shares were trading at $65.09 per share on Monday morning, up $0.11 (+0.17%). Year-to-date, APLS has gained 25.88%, versus a 6.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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