Healthcare is a huge industry, and you can find any kind of stock you want here – fast-growing tech stocks, dividend plays, internet disruptors, or safe places to stash your money in a bear market.
Perhaps you are interested in healthcare companies with high profit margins. Here’s why three Fool.com contributors are bullish on Doximity (DOCS 9.46%), iRadimed (IRMD 3.12%)and Gilead Sciences (BROWN 1.84%).
A bargain at these prices
Taylor Carmichael (Doximity): Doximity is my favorite internet healthcare game because the company is highly profitable (45% profit margins) and has three different verticals to drive growth. Most exciting is the company’s telehealth offering, Dialer. On August 4, the company reported that 360,000 healthcare professionals had used Dialer this quarter to meet patients online. Perhaps even more phenomenal is an average of 200,000 patient calls on Dialer each business day.
More than a third of American physicians subscribe to Dialer. Given that 80% of physicians in the US are on Doximity’s platform, I expect the number of physicians using Dialer to grow over time.
Another major vertical for Doximity is its advertising business. Big pharma spends a lot of money every year bringing drugs to market, and all of the doctors’ eyes on Doximity’s platform are incredibly valuable. The company conducted 25 return on investment (ROI) studies for its clients during the quarter, and its median returns were more than 10 to 1.
Doximity achieved a net retention rate of 139% in the quarter and 145% count among its top 20 customers. By far, the largest portion of revenue — 87% — comes from 273 customers who each paid $100,000 or more in subscription fees over the past year. The company estimates that its clients spend around 25% to 30% of their advertising budgets on digital, and it expects that figure to grow to 50% over the next decade, thanks to this exceptional return on investment.
I believe Doximity will continue to establish itself as the cloud resource for physicians. Dialer will be a huge revenue generator over time. And more and more pharma ad dollars will try to reach all of those doctors through the platform. At $36 a share, this stock is a screaming buy.
Helping patients get the tests they need
Patrick Bafuma (iRadimed): Unfortunately, Magnetic Resonance Imaging (MRI) machines are often hidden away in the depths of hospitals, so patients often face a long journey to get there and back. To make matters worse, the vast majority of IV infusion pumps and patient monitoring systems are not MRI compatible. These hurdles cause delays in imaging for some of the hospital’s sickest patients.
Fortunately, iRadimed is the leader in the development of MRI compatible devices. Specifically, it is the only known supplier of a non-magnetic IV infusion pump system, as well as non-magnetic patient monitoring systems. This allows each of these devices to be used near an MRI device. It also means that critically ill patients can get the monitoring and imaging they need in a timely manner: this is called mission critical.
Not only did this founder-led medical device company report a gross profit margin of 79.7% for the second quarter, but it was actually able to increase its margin by 76.2% in the same period. a year ago.
This adds to the announcement of its third consecutive quarter of record revenues. In fact, IRadimed has grown its revenue sequentially every quarter since the second quarter of 2020, when COVID-19 temporarily caused sales to plummet. And with a strong backlog entering the second half of the year and expectations for another record-breaking third quarter, the growth doesn’t seem to be stopping anytime soon.
A money printing machine
George Budwell (Gilead Sciences): California-based biotech Gilead Sciences is one of the most profitable companies in the entire healthcare industry, and has been for a long time. The diverse mix of biotech cancer drugs and therapies, breakthrough HIV drugs and Hepatitis C treatments has generated gross margins averaging over 78% (across the company’s portfolio) to now this year. When biotech hepatitis C drugs were at their peak in the middle of the last decade, Gilead’s gross margins exceeded 88%. On the other hand, the average gross margin for all health products is much more modest at 56.4%.
Gilead’s eye-popping product gross margins, however, reflect the company’s enormous risk profile. Over the past decade, for example, Gilead has lost billions of dollars on ill-fated research and development projects, licensing deals that turned into dead ends, and acquisitions that failed to live up to expectations. This is the price to pay for doing business in the risky world of biopharmaceuticals.
In fact, biopharmaceutical companies tend to cite this very reason as the primary cause of sky-high drug prices in the United States. In this regard, a recent study found that the average cost of bringing a drug to market ranged from a low of $314 million to a high of $2.8 billion.
Regardless of the correct estimate, it is extremely expensive to get a new compound or biological therapy from the lab to the pharmacy shelf. And that’s doubly true when it comes to the development of breakthrough biologics like Gilead’s cancer cell therapies, Yescarta, and Tecartus.
Simply put, Gilead’s high profit margins on approved products are not unreasonable when the cost of development – as well as the cost of clinical failures – is taken into account.