6 Biotech Firms With Encouraging DuPont Breakdowns

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 |  Includes: ACOR, EBS, MNTA, NBIX, SHPG, TMO
by: Kapitall

If you're interested in biotech ideas, the following list might offer a good starting point.

We performed a DuPont analysis on the Return on Equity (ROE) of about 60 U.S. biotech firms, from which 6 companies emerged with favorable results. We broke the ROE equation into three parts:

ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

All of the stocks mentioned below have seen rising ROE values for the recent quarter, year-over-year. Then we wanted to analyze the sources of these returns, so we narrowed down the original universe to only focus on companies with the following characteristics:

- Decreasing leverage, i.e. decreasing Asset/Equity ratio
- Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

To provide perspective on these results, we'll also include recent developments of these firms, as well as other pertinent data. Full details below.

ROE data sourced from Google Finance, all other data sourced from Finviz.



The list has been sorted by the increase in ROE. Note: All ratios compare the most recent quarter's values against last year's corresponding quarter.

1. Neurocrine Biosciences Inc. (NASDAQ:NBIX): Market cap of $389.72M. Return on Equity increased from -200.51% to 12.87%.

When analyzing the sources of return, Net Profit Margin increased to 18.23% during the most recent quarter. Sales/Assets increased from 0.0104 to 0.0946, while Assets/Equity decreased from 17.9291 to 7.4674.

NBIX has a relatively low correlation to the market (beta = 0.41), which may be appealing to risk-averse investors. The stock has had a couple of great days, gaining 8.07% over the last week.

Recent developments: Announced FY11 earnings guidance above analysts’ estimates (Feb. 2011).

2. Momenta Pharmaceuticals Inc. (NASDAQ:MNTA): Market cap of $701.48M. Return on Equity increased from -15.60% to 17.59%.

When analyzing the sources of return, Net Profit Margin increased to 62.16% during the most recent quarter. Sales/Assets increased from 0.0477 to 0.2563, while Assets/Equity decreased from 1.2580 to 1.1042.

The stock is a short squeeze candidate, with a short float at 21.18% (equivalent to 8.59 days of average volume). The stock has lost 5.46% over the last year.

Recent developments: Announced receiving a U.S. patent for methods to prepare a generic version of Copaxone (Feb. 2011). Announced completion of public offering of 4 million common shares, generating $54.2 million.

3. Acorda Therapeutics, Inc. (NASDAQ:ACOR): Market cap of $882.88M. Return on Equity increased from -16.36% to 2.43%.

When analyzing the sources of return, Net Profit Margin increased to 5.49% during the most recent quarter. Sales/Assets increased from 0.0452 to 0.1953, while Assets/Equity decreased from 2.3263 to 2.2617.

Short float at 17.07% (equivalent to 6.94 days of average volume), implying the stock is a short squeeze candidate. The stock has lost 34.53% over the last year.

Recent developments: Announced initiating Phase I of the first clinical trial for Glial Growth Factor 2, for treatment of heart failure (Dec. 2010). Announced positive results from a second Phase III trial of Dalfampridine, for the treatment of walking ability in patients with multiple sclerosis – these results were published in the Annals of Neurology Oct. 2010 (Nov. 2010).

4. Emergent BioSolutions, Inc. (NYSE:EBS): Market cap of $795.44M. Return on Equity increased from 0.40% to 4.75%.

When analyzing the sources of return, Net Profit Margin increased from 2.20% to 17.73%. Sales/Assets increased from 0.1366 to 0.2020, while Assets/Equity decreased from 1.3459 to 1.3256.

The stock has had a couple of great days as well, gaining 11% over the last week.

Recent developments: Announced initiating a Phase Ib/II study for TRU-016, a protein therapeutic to treat chronic lymphocytic leukemia (Jan. 2011).
Announced FY10 revenue and net income guidance above analysts’ estimates; FY11 revenue guidance above analysts’ estimates, FY11 earnings guidance was in line with estimates (Jan. 2011).

5. ViroPharma Inc. (VPHM): Market cap of $1.50B. Return on Equity increased from 1.60% to 4.20%.

When analyzing the sources of return, Net Profit Margin increased from 13.67% to 30.81%. Sales/Assets increased from 0.0810 to 0.0945, while Assets/Equity decreased from 1.4452 to 1.4449.

VPHM might be undervalued at current levels, with a PEG ratio at 0.84, and P/FCF ratio at 7.89. Short float at 7.28% (equivalent to 6.73 days of average volume), implying the stock is a short squeeze candidate.

The stock has had a couple of great days as well, gaining 6.95% over the last week.

Recent developments: Announced board authorization to use $150M to repurchase common shares and/or senior convertible notes due in 2017 (Mar. 2011).

6. Life Technologies Corporation (NASDAQ:LIFE): Market cap of $9.52B. Return on Equity increased from 1.21% to 1.59%.

When analyzing the sources of return, Net Profit Margin increased from 5.61% to 7.58%. Sales/Assets increased from 0.0956 to 0.0983, while Assets/Equity decreased from 2.2638 to 2.1394.

Recent developments: Announced launching the first real-time PCR-based detection kit for Salmonella in poultry eggs, providing an approx. ten-fold reduction in wait time (Jan. 2011). Announced a $500M share repurchase program (Jan. 2011).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.