This Biotech Is Opportunistic With Recent CEO Buys
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Company insiders should have more knowledge about the industry as well as their company than investors. Thus, following an insiders’ move could bring a decent return for investors over time. I am particularly excited to look at the investment opportunities when the company chief is accumulating shares. This is the recent case for United Therapeutics (NASDAQ: UTHR). On Dec. 21, Martine Rothblatt, the company’s CEO, bought 9,000 shares at $51.85 per share, with the total transaction worth nearly $467,000. Should we follow her move into the company she is currently leading? Let’s dig deeper.
The Top Three Drugs
United Therapeutics is a biotech company developing therapeutic products for patients with chronic and life-threatening conditions, with the majority of revenue from three main products including Remodulin, Tyvaso, and Adcirca. These three products are used to treat Pulmonary Arterial Hypertension (PAH), the life-threating disease affecting blood vessels in the lungs, increasing the pressure in the blood vessels leading from the heart to the lungs. Remodulin is the biggest source of revenue for United Therapeutics, accounting for 58% of the total revenue in 2011. Tyvaso is the second biggest revenue source, accounting for 32% of the total net sales in 2011. Adcirca ranked third, representing 9% of the total company’s revenue.
Potential Risks and Recent Glitch
However, the Remodulin patent in the US will expire in October 2014. That would post big risks for the company unless Martine comes up with the next big medicine to treat PAH. In October, the company received a letter from the FDA denying the company’s new drug application for its oral Remodulin. The FDA questioned 6 Minute Walk Distance effect size in the FREEDOM-M study. Right after the news was released, the company dropped as much as 17%. However, the FDA has suggested that the company might try a fixed-dosing with higher dosing regimen. CEO Martin Rothblatt commented: “We will continue using our best efforts to gain approval of oral treprostinil, and we will focus on doing so within the next four years.”
Decent performance with Strong Financial Foundation
In the last 2 years, United Therapeutics has delivered double-digit return on invested capital, of 10.12% in 2010 and 18.69%, with the extremely high growth compared to 2009. The company’s 2009 EPS was $0.35, whereas 2010 EPS was $1.78 and 2011 EPS was as high as $3.67. In addition, it also generated increasing and positive free cash flows. For the trailing twelve months, the operating cash flow was $270 million, and the free cash flow was $180 million. Furthermore, the growing business performance was delivered with a reasonable amount of leverage only. As of September, United Therapeutics booked more than $1 billion in stockholders’ equity, $503 million in cash and short-term investments, and only $273 million in long-term debt. Thus, it had a net cash of $230 million.
The company is trading at $52.51 per share, with the total market capitalization of $2.67 billion. The market is valuing United Therapeutics at 6.23x EV/EBITDA. Compared to its peers including Gilead Sciences (NASDAQ: GILD) and Pfizer (NYSE: PFE), the company is valued the cheapest. Gilead Sciences, with the market capitalization of $55.14 billion, is valued at 14.16 EV multiples, whereas Pfizer, with the market capitalization of $184.65 billion, is valued at 7.5x EV/EBITDA.
Interestingly, United Therapeutics is in the portfolios of several investment gurus including Joel Greenblatt and John Hussman. Joel Greenblatt currently holds 332,744 shares of the company, whereas John Hussman holds 500,000 shares.
Foolish Bottom Line
United Therapeutics seems to be an opportunistic investment for investors. With the decent growing performance on the strong financial base, valued cheapest and supported by CEO’s buy and two investment gurus buy, investors might find comfort putting some of their money to work invested in this opportunistic stock.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Gilead Sciences. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!