2 BioPharma Stocks To Consider: Data & Facts

David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Before investing in any biotech company, it is important to look at the pipeline and then specifically gauge the risk/reward. If positive data has been produced, it may mean nothing but lost bucks for new shareholders if the upside has been exaggerated (ie. see VIVUS and Arena). For this reason, I review 3 biopharmaceutical producers with a focus on how upside balances relative to the competition and possible negative catalysts.

3 Reasons To Buy Abbott (NYSE: ABT)

A little more than a year ago from today, Abbott went live with its plans to split into two. The spin-off "AbbVie" will contain the pharmaceutical business and, noteworthily, Humira, which is an arthritis drug that is expected to generate around half of the $18 billion in revenue. This top selling drug, however, will lose its patent protection in 2016 and then be open to competition from generics and biosimilars. The elimination of this headwind will keep Abbott investors focused on more of the upside factors, which there are several…

(1) Abbott is developing a blood test that will lower the time needed to diagnose a heart attack by a couple of hours. The test scans for troponin, a protein found in heart muscle that indicates injury, in the blood stream. (2) The company has gained greater exposure to Asia through the partnership with Sucampo Pharmaceuticals to market Amitiza, a treatment for chronic constipation, in Japan. (3) But, most excitingly, the company has a promising hepatitis C ("HCV") treatment that is being studied. 180 million individuals worldwide are effected with this virus, and the market potential is estimated to be worth $20 billion by 2020.

However, this market potential has brought in strong competition. Abbott's HCV candidate is actually a combination of three drugs, and it has delivered strong results in its 571-member Phase II trial where 99% of patients were cured of the virus. Yet, surprisingly, the stock price is up nowhere as much as Gilead's (NASDAQ: GILD), which has doubled from the 52-week low and is now around the 52-week high. In Gilead's Phase III trial, its once-daily oral medicine sofosbuvir cleared HCV in 78% of patients with genotype 2 or 3--100% of the 25 patients in the Phase II trial were cured after 12 weeks of treatment. It is important to note that Gilead's core business targets STDs: it owns Atripla, the main HIV treatment, and has several other HIV products under development, Complera and Stribild.

Bristol is yet another competitor in the market, and it has released positive Phase IIb results for its product, which showed a sustained virology response in targeting HCV. With Abbott's Phase III trial underway for the HCV candidate, I believe the market will become significantly more bullish upon favorable data.

Eli Lilly (NYSE: LLY): Pros & Cons

The reason why I am so positive about Abbott is because the company has generated favorable data while failing to generate the kinds of market responses that has been seen at other companies with similar results. Moreover, other biopharmaceutical producers are struggling. Lilly, for example, has halted its Phase III study of tabalumab in rheumatoid arthritis patients in light of a lack of positive efficacy data. Tabalumab will be tested in systemic lupus erythematosus sufferers in two Phase III studies, but the loss of momentum is devastating at a time when healthcare investors are focused on momentum.

Furthermore, the company's solanezumab Alzheimer's treatment will, in my view, be a loser. Researchers have struggled to understand the disease, and several drug manufacturers have failed to make inroads after much excitement. Solanezumab is for mild sufferers, and Lilly has delayed applying for approval, probably due to the lack of positive data in the previous two trials. The candidate has produced greater levels of beta amyloid in the blood, and scientists have long speculated that this protein is related to Alzheimer's.

However, Pfizer had a similar candidate under development, "bapi," that also targeted beta amyloid and, after four studies with over 4,000 patients, the company decided to shut down operations.  It was just too uncertain and, ultimately, went nowhere. Over 36 million individuals worldwide suffer from this debilitating condition, so the reward is very high. However, the market may be factoring in too much from solanezumab, which is entering its Phase III trial.

All of this is not to say that Lilly is a "sell." Its partnership with India-based Strides Arcolab to market cancer generics to emerging markets reflects highly on the company's growth story. Approvals of 5 mg of Cialis for prostatic hyperplasia and Alimta for lung cancer patients in Europe and America, respectively, further add to the upside.

While the approval of Cialis to treat a non-core condition (ie. it was released to treat erectile dysfunction) raises investor confidence over multiple product uses, Alimta sets a positive tone for gastric cancer drug ramucirumab. This is so because cancer drug Alimta was approved after positive Phase III data, and ramucirumab has also met its primary endpoint of increasing survival rates. So, while Lilly has fallen short on some measures (rheumatoid arthritis, Alzheimer's), it has potential in multiple high-reward areas (emerging markets, lung cancer, gastric cancer).

TakeoverAnalyst 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!

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