Biotech Industry On The Upswing
Sharmistha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There’s a huge surge at a record-setting pace in biotech employment at hundreds of companies, a recent survey shows. It’s estimated the industrial biotechnology sector will create 100,000 jobs in the United States during the next five years. The survey shows that hiring demand over the next 12 months among these companies is expected to be strongest for molecular/cell biologists, chemists, chemical engineers, fermentation specialists and process engineers.
The industry has fared well despite global economic turmoil and have done so by making smart acquisitions, paying attention to global opportunities, investing in R&D, looking beyond the bottom line—and valuing and respecting the scientists who work for them.
The top names that are featured in the list are Regeneron Pharmaceuticals (NASDAQ: REGN), Vertex Pharmaceuticals (NASDAQ: VRTX), and Genzyme, a Sanofi company (NYSE: SNY). Since its founding, Regeneron leadership has focused on making the company a science-driven blend of academia and industry. In a time where companies are cutting more and more on R&D expenses, Regeneron reached an agreement with Sanofi where these costs are shared. In fact, Sanofi has agreed to fund antibody discovery (until 2017) by $160 million each year. “We give our scientists much greater freedom to go where the science takes them to do innovative things; we’re not constantly hounding them about expenses and minor administrative details,” says Ross Grossman, Regeneron’s vice president of human resources. The social factor is important for Regeneron, as well. To be a Regeneron person you also have to have personality and charisma. Science magazine has ranked Regeneron as the #1 employer in the global biopharmaceutical industry in the journal's annual Top Employers Survey.
Apart from being employer friendly the company can be profit friendly also. Regeneron owns 100% of Eylea's and Arcalyst profits. In fact 2012 is considered a milestone year in Regeneron’s history. On the verge of becoming profitable for the first time, this company has a carefully planned strategy and it's on the pathway of being one of the most interesting biotech players. With a robust revenue growth of 7.0% and strong earnings growth of 201.44% the stock has surged by 127.22% over the past year, outperforming the rise in the S&P 500. A solid financial position along with an impressive record of earnings growth and a P/E ratio of 17.7 we feel the strengths outweigh the weaknesses. The Street rates it as a buy with a ratings score of B.
Other top employers include names like Vertex Pharmaceuticals Incorporated and Genzyme, a Sanofi company. Vertex Pharmaceuticals Incorporated is the 23rd largest biotechnology company in the world by revenue and a forefront developer for Telaprevir and Lexiva, which are treatments for HCV and HIV. The company is characterized by its approach to recruiting and retaining the best talent for growth purposes. Vertex Parma’s second quarter revenues consisted of revenue earned from the sale of Incise ($327.7 million), Kalydeco ($45.5 million; launched in January 2012), royalty revenue (up 234.5% to $33.5 million) and collaborative revenue (down 61.3% to $11.6 million). Reportedly Vertex Pharmaceuticals has undergone a net loss of $200.0 million, or $1.00 per share for the quarter ending June 30 but the company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, and notable return on equity. We cannot ignore the fact that the impressive revenue growth exceeded the industry average. The company maintains a quick ratio of 3.86, which clearly demonstrates the ability to cover short-term cash needs. There has been a definite upward shift in the stock trend and compared to where it was 12 months ago, the stock is up. There is potential upside of 16.0% for shares of Vertex Pharmaceuticals based on a current price of $56.62 and an average consensus analyst price target of $65.67. Vertex Pharmaceuticals shares have support at the 50-day moving average (MA) of $53.66 and additional support at the 200-day MA of $46.74. I expect Vertex Pharma to continue performing well in future, riding on Incivek (telaprevir) sales and its strong pipeline.
Scientists have named Genzyme, a fully owned subsidiary of Sanofi, as one of the most highly regarded employers in the biopharmaceutical industry. In a survey commissioned by Science and the American Association for the Advancement of Science, Genzyme ranked among 20 companies in the industry with the best reputations as employers. Genzyme was recognized in particular for valuing and respecting its scientists, for its social responsibility, and for doing important, quality research.
This is the 10th consecutive year that Genzyme has earned this distinction. Acquiring Genzyme gave Sanofi its own dedicated research team in the U.S., and better links to other U.S. research partners in academia and the biotech industry. . Genzyme’s treatments are less likely to face generic competitors because they’re made from living cells and are harder to copy than traditional pills made from chemicals. The deal which is said to be accretive at $69 Per Share offers a Premium for Genzyme Shareholders. The offer represents a multiple of 36 times of Genzyme’s 2010 earnings per share and 20 times 2011 earnings per share. The combination of both companies would create a global leader in developing and providing novel treatments, giving both companies significant new growth opportunities. The positive ruling for Aubagio marks the Food and Drug Administration’s first approval of a Genzyme drug since French pharmaceutical giant Sanofi SA bought Genzyme for $20.1 billion in 2010. It enters the lucrative broader market for multiple sclerosis drugs estimated at about $13 billion a year worldwide. Sanofi, said first-quarter profit rose to 13 percent, helped by the purchase of U.S. biotechnology Genzyme Corp. With a market cap of $$117,607 million and a strong cash flow per share of $4.42 Sanofi is among the 50 top companies offering a dividend yield of 3.80%
The Days Ahead
Results clearly indicate that the Biotechnology Sector is growing at a rapid pace almost 19 % between last year and this year and the trends show the industry will continue to grow very swiftly in the future. Employment in the industry climbed 16.5 percent from 2000 to 2011 and with the companies investing more and more in R&D, the innovation and development of the companies seem brighter. From an investor’s point of view the future looks appealing and beneficial and one must appreciate the fact that the companies are not surviving but thriving.
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