In the biotech and pharmaceutical world, FDA approval is the number one needle mover for drug stocks. Why? Because FDA approval for a drug or treatment can bring years or even decades of steady, high-margin revenue. This is why investors who specifically look to target drug stocks are always aware of an upcoming FDA catalyst for that company.
FDA approvals are bullish whether the company is a pre-revenue startup or a global pharmaceutical giant. At the same time, FDA rejections can tank a drug stock and erase years of gains in a single session. In this article, we’ll look at three companies that are awaiting key FDA decisions over the next couple of months. Depending on how that decision goes it could be a major catalyst that sends these stocks soaring in April.
Merck & Co (MRK)
Merck & Co (NYSE:MRK) is an American multinational pharmaceutical company based out of New Jersey. It was originally the American division of Merck Group, a German company that was founded in 1668. It is the fourth-largest pharma company in the world by market capitalization. Merck has an average analyst price target of $137.02 which represents a near 10% upside from the current price.
For Merck, its largest source of revenue is the cancer drug Keytruda. This treatment provided Merck with over 40% of its annual revenues in 2023 and saw $6.6 billion in sales alone in the fourth quarter. In May, Merck is expecting an FDA decision on approval for Keytruda to treat certain types of bladder cancers. The treatment is already approved in other countries with physicians providing positive feedback on its effects on the cancer.
Merck trades at a decent forward-looking valuation with shares trading at just 14.6x forward earnings. Revenue growth has slowed to a 7.0% CAGR over the past five years and earnings-per-share has also been on the decline. Still, Merck and especially Keytruda are essential to several million cancer patients who use it daily.
Amgen (AMGN)
Amgen (NASDAQ:AMGN) is an American biotech and pharmaceutical company that was founded in 1980. AMGN stock is a favorite among Wall Street analysts with 25 giving it a rating of hold or better. The average price target from analysts sits at $308.33 and the Street-high price target is $380.00. These targets are 15% and 30% higher than the stock’s current price.
This company has plenty of drugs and treatments under its umbrella. Investors are currently waiting on a June FDA decision on the oral drug Tarlatamab which treats small-cell lung cancer. Tarlatamab utilizes an immunotherapy called BITE or Bispecific T-cell engager. It is one of several cancer treatments that Amgen has in its near-term pipeline.
Amgen stock trades at shareholder-friendly multiples, trading at 5.1x sales and 13.7x forward earnings. As with most drug stocks of Amgen’s size, revenue growth has slowed but is steady enough to pay a generous 3.37% dividend yield. An FDA approval would further cement Amgen as one of the leaders in oncology treatments.
Aquestive Therapeutics (AQST)
Aquestive Therapeutics (NASDAQ:AQST) is an American pharmaceutical company that was founded in 2004. Piper Sandler and Raymond James have both recently initiated coverage with an overweight and outperform rating respectively. The average price target of $9.00 is nearly triple the current price of $3.91.
The drug in question that is pending FDA approval is Libervant. It currently has tentative FDA approval for adults but Aquestive is seeking approval for use in children ages two to five. Unlike other treatments, Libervant dissolves in the patient’s cheek which makes administration easier than other market alternatives.
Aquestive is essentially a pre-revenue company with just $50 million in trailing twelve-month sales. Currently, AQST trades at 4.7x sales which is a lower multiple than both Merck and Amgen. If the FDA approves Libervant for toddlers, it could easily become the most desired drug in the pediatric epilepsy market.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (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.