Best of the Biotech Industry
Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The biotechnology industry is one of the most interesting industries on the block. Picking a biotechnology stock is a delicate process because the pick should not only be based on a drug's potential, but also on management and company strength. The following two companies are, in my opinion, the best positioned pharmaceutical stocks in terms of interesting pipelines and major upside potential. Bristol Myers Squib (NYSE: BMY) is a joint venturing with both of these companies on drugs that have multi-billion sales potential, and can see upside on a candidate's success.
Pfizer (NYSE: PFE)
Pfizer is one of the largest pharmaceutical companies in the world and probably has the richest pipeline. For example, the company has a star in PD-0332991, which is still in the pipeline, and has already received approval for Xeljanz.
The last week was an exciting one for Pfizer investors with the company winning its patent case against Watson Laboratories for using Sirolumus, which is found in RAPAMUNE. In other good news the company has announced is that it has received the FDA nod for the use of Prevnar 13 in older children and adolescents aged between 6 and 17. Prevnar is Pfizer’s pneumococcal conjugate vaccine and was initially restricted for use in this age class. The drug will be administered as a onetime dose for patients who have never received Prevnar 13.
There are a number of interesting catalysts approaching for this attractive giant that can positively affect its valuations. The company plans to separate its animal health unit and the Wall Street Journal expects the offering to take place in February. This offering is expected to raise almost $2.2 billion in cash for Pfizer and can significantly impact its valuations. The FDA review of Eliquis can also happen in March and can positively impact Pfizer’s valuations. Equilis is a blood thinner the pharmaceutical giant is developing in partnership with Bristol-Myers Squib.
Trading at a P/E of 11.7x, the stock is still trading at a 62% discount to the average P/E of the market. The company also offers a dividend yield of 3.5% and has given investors a YTD return of 29%.
Gilead (NASDAQ: GILD)
Gilead is one of the most interesting and surest bets in the healthcare sector. Unlike other major pharmaceutical giants, Gilead has focused on a niche market. This drug company is way ahead of its competitors in HIV and hepatitis treatments and has developed a competitive advantage which seems to be unbeatable. It is focusing on diversifying its existing ‘viral’ portfolio and strengthening it with new and interesting combinations. Gilead has recently won FDA approval for the use of Truvada for Aids prevention. This means that only people involved in high Aids risk professions would be able to use Truvada for prevention.
Gilead has also received FDA approval for Quad, which is expected to have a peak sales potential of around $4 billion. The drug will target HIV patients that have not taken any HIV treatment before. Bristol Myers Squib will be a beneficiary from this approval because BMY’s Sustiva is an integral part of Quad. This also gives an insight into BMY’s effective joint venture strategy, and I believe BMY has one of the most effective strategies for minimizing the impact of the patent cliff.
As I have mentioned above, Gilead is focusing on growth and diversification. The company has successfully completed its acquisition of YM Bioscience, with the aim of acquiring its drug myelofibrosis. This will significantly improve the oncology segment of Gilead's business. The drug will enter Phase III trials in the second half of 2013. The company also continues to make progress in its hepatitis segment with positive trial results for the cocktail of Sofobuvir and Ribavirin. According to trial data made public, 78% of patients were virus free after 12 weeks of the therapy. According to sell-side estimates, this cocktail can bring in peak revenues of around $3.8 billion.
I believe Gilead is one of the most attractive and safest biopharmaceutical bets on the block. The stock is currently trading at a P/E of 17x, which is almost 20% below the industry average. The stock is currently trading at 20% discount to mean sell side estimates, and I believe will have appreciated approximately 20% by the end of 2013.
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