June 30, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Not all biotech stocks are volatile and speculative. Keith Speights, writing for The Motley Fool today, cites three biotech companies he feels are currently undervalued and will make good returns over the long run.
Foster City, California-based Gilead Sciences has a current lock on the hepatitis C market with its Harvoni and Sovaldi, but sales are expected to slow. And the company’s HIV franchises is losing patent protection fairly soon. Those are the downsides.
On the upside, the company is buying back shares, including a $15 billion program started in 2015, and this year with another $12 billion.
“Even though Gilead’s earnings growth will likely be anemic for a few years,” Speights writes, “Wall Street doesn’t expect the biotech to experience any serious earnings decline. That means Gilead could easily keep on buying back shares at a rate that pushes earnings per share up around 10 percent or more annually. I’d say buying a stock trading at only seven times earnings that can accomplish that feat is a pretty smart move.”
Interestingly, Gilead, which has taken a lot of hits over drug pricing because of its $1,000-per-pill HCV strategy, recently raised eyebrows when its Epclusa for all variants of hepatitis C was approved by the U.S. Food and Drug Administration and listed the drug’s price as $74,760 for a possibly curative 12-week course of treatment.
Although hardly cheap, this lower-than-usual price, including lower than Harvoni and Sovaldi, suggests a new strategy on the company’s part to compete in the market.
Summit, New Jersey-based Celgene Corporation is often on analysts radar as the fastest growing biotech stock, although investors have had a pretty rocky ride with it. The company has fewer than 10 drugs in its portfolio, mostly cancer drugs, which make up the majority of company revenue. Revlimid, used to treat several blood cancers, is responsible for 60 percent of company revenue. The rest are for inflammatory diseases.
But the company also has about 30 drugs in its development pipeline. It has clinical trials for additional indications for its currently marketed Revlimid, Abraxane, and Otezla. The company’s Ozanimod for MS has the potential to hit peak annual sales between $4 billion and $6 billion.
Speights writes, “All these likely blockbusters added to Celgene’s arsenal translates to growth. Analysts project the biotech will increase earnings at an average pace of 22 percent per year over the next five years. I think those projects are realistic considering the sales trajectory of Celgene’s current drugs and its pipeline prospects.”
Ligand Pharmaceuticals , headquartered in La Jolla, California, recently bought the economic rights to several programs from CorMatrix. It paid $17.5 million and will get a portion of revenue from the company’s existing marketed products, as well as the right for future synthetic royalties from potential future products. The products are medical devices that are involved in the regrowth of human tissue.
This is consistent with the company’s strategy, which is based on assisting other pharma companies in being more effective in drug development. Some of its partnerships have involved Amgen ’s Kyprolis and Novartis ’ Promacta, which are responsible for the bulk of the company’s revenue.
But there are four drugs using Ligand’s technology close to approval, and another eight being developed by licensing partners that are even closer in late-stage trials. And the company also has more than 40 drugs using its technology currently in Phase I and II testing.
“Could this massive pipeline lead to ginormous earnings growth?” Speights writes. “Wall Street thinks so. Analysts project Ligand will grow earnings at nearly 46 percent annually over the next five years. Even if they’re overly optimistic, Ligand still looks attractively valued considering its potential.”
