Investors, Take A Look At This Global Pharmaceutical Company
Abir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The invention of drugs contributed a lot to human society. As the days pass by, more and more drugs have been invented by the pharmaceutical companies just to serve people by combating different diseases. Although life expectancy has greatly increased over the past several decades, this doesn't necessarily mean that people are living healthier. Along with longer lives can also come the potential for many more physical and mental ailments - most of these requiring at least some form of pharmaceutical medication to cure, or to at least keep at bay.
This will be a good news for big pharmaceutical companies, because each and every year they spend millions, or even billions, for testing and applying their medicines to get on pharmacy shelves and physician's prescription pads. When successful, a medication can equate to tremendous profits for these drug manufacturers and their distributors. This also helps the investors to fetch a good return from their hard earned money. Eli Lilly (NYSE: LLY), one of the world's biggest pharmaceutical companies, is in a position to provide a lot of income and growth for its investors.
About the company
Eli Lilly develops medicines for a variety of health problems; these include Zyprexa, for pancreatic cancer; antidepressants Cymbalta and Prozac; Evista, for osteoporosis; Humalog insulin; and Cialis for erectile dysfunction. LLY’s products reach to its customers via independent wholesale distributors as well as directly through pharmacies across the globe.
The Indianapolis-based company has experienced over 5% in its sales growth, and a net profit margin of more than 17% throughout the past year. But these numbers could increase a great deal if Sola, an Eli Lilly drug that is designed to slow down the progression of Alzheimer's disease, receives acceptance from the FDA. Eli Lilly has given its raw data from the Sola trials to academic researchers, who will announce their own conclusions on Oct. 8 at a conference of the American Neurological Association. This product could prove to be extremely lucrative for the company, bringing in as much as $7,000 in annual revenue per U.S., and as much as $5,000 per patient per year in Europe.
Doctors and stock analysts concluded that, the world's largest manufacturer and distributor of psychiatric medications needs to conduct another long clinical trial to prove the drug’s effect. But still, the company's investors are receiving a solid dividend yield in excess of 4.1% while they await the results.
Eli Lilly possesses multiple strengths that I feel can make it a great part to an investor's portfolio - including its solid financial position with reasonable debt levels. Lilly's debt-to-equity ratio stands at just below 0.40, which is well below the industry average as a whole, implying that there has been a successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.37, which illustrates its ability to avoid short-term cash problems. Eli Lilly also has an exceptionally high gross profit margin of 86%, equating to a net profit margin of approximately 16.5%. Year-to-date for 2012, Eli Lilly's shares are up over 14%.
Graphs from TheStreet.com
Some of the other big Pharmaceutical Companies
Over the past few years, one of the other key players in the pharmaceutical industry - Johnson & Johnson (NYSE: JNJ) - has been faced with a number of issues. These include some recent product recalls and the resignation of its CEO, both of which could’ve had a negative effect on shares - but the company has rallied so far this year.
On April 2012, a judge in Arkansas ordered Johnson & Johnson and a subsidiary, Janssen Pharmaceuticals, to pay more than $1.2 billion in fines a day after a jury found that the companies had minimized or concealed the dangers associated with Risperdal, an antipsychotic drug. The company also pleaded guilty in April 2011 to bribing European doctors, and agreed to pay $70 million in fines, as a wide-ranging government investigation of corrupt overseas marketing practices by drug and device makers scored its first major victory. Despite these blows to its business, the firm offers its investors a dividend yield of just under 4%, but its shares are only expected to increase about 3.7% over the next year.
Another big pharmaceutical company, Pfizer (NYSE: PFE) has not had an impressive year as far as share growth in concerned - which was likely due in large part to lower U.S.-generated revenue. Pfizer profited from hit drugs like Lipitor and Viagra, and has been swallowing up smaller companies from the 1990s onward. But it has no immediate successor to Lipitor, the best-selling drug in history, which lost patent protection in fall 2011. The problem was punctuated in May 2012, when the company said that profit declined 19% last quarter, largely because of declines in Lipitor sales.
Pfizer is one of many pharmaceutical companies racing to reinvent itself. This year alone, at least 19 drugs — including the anti-stroke drug Plavix — are scheduled to lose patent protection, a potential $38.5 billion in lost sales. In early August 2012, the Securities and Exchange Commission announced that it had reached a $45 million settlement with Pfizer to resolve charges that subsidiaries of Pfizer and Wyeth, which it acquired in 2009, bribed overseas doctors and other health care workers to increase sales of their drugs. At the same time, the Justice Department announced that another subsidiary, the Pfizer H.C.P. Corporation, had agreed to pay a $15 million penalty to settle similar charges.
Pfizer is the world’s largest drug company. But in recent years, it has handled mergers badly, invented too few drugs, and left its reputation in disrepair after two criminal cases. The company is beefing up its emerging markets unit in areas such as China and Russia, where it currently has seen a 14% increase in its operational revenue growth.
Abbott Laboratories (NYSE: ABT) is engaged in the discovery, development, manufacture, and sale of a range of health care products. Abbott operates in five segments: Proprietary Pharmaceutical Products, Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products, and has a market cap of over $107 billion.
The company recently received FDA approval for its drug Humira to be used as a treatment for ulcerative colitis. Humira is currently Abbott Labs' biggest selling drug, with sales in the United States alone amounting to more than $1.8 billion in just the first half of 2012. Abbott brought in over $19.2 billion during this same time period, of which worldwide sales of Humira accounted for over $4.2 billion. The company currently pays investors a dividend of $2.04 per share, equating to a dividend yield of roughly 2.9%.
Certainly, when considering pharmaceutical giants, Merck (NYSE: MRK) should not be left out - and for very good reason. It is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. In addition, Merck has also made inroads with remedies that may be used in the management and treatment of an issue that is taking the spotlight in both the U.S. and overseas – obesity. This company could also provide investors with both income and growth opportunities in the near and long-term.
Merck has a current market cap of approximately $138 billion and a cash flow that is just shy of $13 billion. Investors receive a dividend yield of 3.5%. With sales growth over the past 12 months of roughly 4.5%, Merck has achieved an income growth of over 625% during that same time period. The company's shares are expected to rise, though, by just over 3.5% over the next year.
While there are definitely positives that surround most of its contemporaries in the pharmaceutical sector, there are also numerous strong points that make Eli Lilly a great growth and income investment. The company has a firm financial position with a reasonable amount of debt levels - especially as compared to some of its competitors in the sector.
The company has a P/E ratio of 13.1, equal to the average drugs industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of its weak earnings. Turning our attention to the future of the company, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment this stock still has good upside potential despite the fact that it has already risen in the past year. Eli Lilly's solid share price performance, along with profit margins that continue to expand and offer a nice return on equity, could quite possibly make this stock a real winner.
abirk has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.