Shockwave Medical (SWAV 0.31%), Bio-Techne (TECH 2.23%), and Ginkgo Bioworks (DNA 10.60%) may not be well-known to a lot of investors, but all three healthcare stocks could double over the next few years thanks to their strong growth potential.
The reason these three may not be familiar names is that they don't sell their products to the general public, but instead to healthcare professionals and pharmaceutical companies. Bio-Techne and Ginkgo Bioworks are good examples of pick-and-shovel companies in the gene-editing industry, while Shockwave Medical sells its products to healthcare systems for their use on patients.
Let's see what looks so promising about these three companies.
Shockwave should be back on track
Shockwave Medical's shares are down nearly 3% so far this year, providing a buying opportunity for a company that is seeing dramatic growth.
The driver for Shockwave's revenue is the medical equipment company's intravascular lithotripsy (IVL) technology, which uses sonic waves to break up calcium plaque in arteries. IVL has a long history of being used to break up kidney stones, and Shockwave sees IVL as having the potential for $8.5 billion in annual revenue. The company's IVL catheters can be applied with minimally invasive methods and can improve outcomes for patients. The IVL technology softens artery walls, making the use of an angioplasty balloon and stent safer.
In the second quarter, the company reported revenue of $180.2 million, up 49% year over year, and net income of $28.9 million, compared to net income of $25.6 million in the same period last year. The growth in revenue is mostly from increased sales of Shockwave's IVL catheters. The company's guidance for annual revenue is between $725 million and $730 million, a rise of between 48% and 49% over 2022.
That revenue should rise, as the reimbursement codes for IVL therapies were increased by the Centers for Medicare & Medicaid Services (CMS), beginning Oct. 1. The company also bought medical-device maker Neovasc in April for $75 million. If that company's product, the Neovasc Reducer System, to relieve pain for angina patients, is given clearance, the payoff could come as early as next year. The product has already been given Breakthrough Device Designation by the U.S. Food and Drug Administration (FDA) and is approved in Europe.
Shockwave itself has reportedly been a potential buyout target of Johnson & Johnson, Medtronic, and Boston Scientific.
Bio-Techne focuses on fiscally prudent growth
Bio-Techne's stock is down 16% so far this year, but the biotech product company has strong potential because it essentially makes products that help fuel drug discovery for pharmaceutical companies. Bio-Techne makes purified proteins and reagent solutions for the life sciences industry, with 81% of its products being consumables.
The company operates in two segments: Protein Sciences (which include specialized proteins such as cytokines and growth factors, immunoassays, antibodies, and reagents) and Diagnostics and Genomics (which includes blood chemistry and blood gas quality controls, hematology instrument controls, immunoassays, and custom reagents for the in vitro diagnostic market).
In the fiscal 2023 fourth quarter, the company reported revenue of $301.3 million, up 5% year over year, with earnings per share (EPS) of $0.47, compared to EPS of $0.38 in the same period a year ago. For the fiscal year, the company said that revenue grew by 3% to $1.14 billion, and yearly EPS rose to $1.76 compared to $1.66 the year before.
The company has seen a five-year compound annual growth rate (CAGR) of 50% in cell and gene therapy product revenue, and with the rise of gene-editing therapies in the industry, it sees the potential for plenty of future growth there. Bio-Techne said it has seen a 19% CAGR in revenue from proteomic analytical instruments, and again, with the rise of cell therapies, that area should grow as well. Proteomics refers to the proteins expressed by a genome, cell, tissue, or organism.
Unlike some biotech stocks, Bio-Techne has a relatively strong balance sheet, with only $350 million in long-term debt. Its ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) is only 0.630. Its strong margins show in its profitability. Over the past five years, its quarterly revenue has climbed 84.89%, while its quarterly EPS has risen 317.8%.
TECH Revenue (Quarterly) data by YCharts
Ginkgo Bioworks makes itself useful to industry giants
Ginkgo Bioworks focuses on cell engineering, using RNA solutions for myriad problems in food, agriculture, pharmaceuticals, and specialty chemicals. The company just announced a partnership with Pfizer to help find RNA-based drug candidates. In return, it will receive an upfront payment and is eligible for fees and milestone payments up to $331 million, not including royalties on sales of future therapies.
The company has other collaborations with Sumitomo Chemical, Novo Nordisk, and Merck, which are among its 63 customers. Ginkgo said it expects to add 100 new cell programs into its foundry platform this year, run by its highly automated laboratory.
In August, Ginkgo moved into a five-year partnership with Alphabet, the parent company of Google, to develop large language models to make its biological engineering services more efficient, using artificial intelligence to speed up its cell engineering.
The company's shares are up a little more than 5% so far this year. The biggest problem for Ginkgo is that it isn't profitable yet and won't be until its partnerships start bearing more fruit, providing the company with milestone and royalty payments. In the meantime, it has done a good job of trimming expenses, reducing losses through six months by 70% year over year.
Ginkgo said it is expecting total revenue of between $245 million and $260 million this year, compared to $477.7 million last year. That's because the company has changed its contracts so that they will pay off more in the long run, switching from fixed-price and cost-plus deals to milestone-based contracts. In the meantime, the inherent risk in investing in a company that isn't yet profitable is ameliorated by this company's $1.1 billion in cash.
