The biotechnology industry is one of the most volatile spaces in the stock market. Companies with little or no earnings can rally significantly or drop dramatically on news that may seem speculative and minor to the average market watcher. But despite the risky valuations and uncertainty inherent in the biotech names, there is a method to much of the madness.
Here are some biotechnology drug companies that may be primed for significant upside. Investors should take a closer look at these names.
Dendreon Corp (DNDN)
Dendreon is one of the most popular stocks in the pharmaceutical industry. There is no doubt that Dendreon's stock valuation is pricey after bouncing from $2 to its current levels of just under $40 in around two years, but the company's cancer drug Provenge provides tremendous upside that far exceeds trailing results. With a trailing price/sales of 76.14, a quarterly burn rate of $100 million and projections of profits that don't occur until 2012, investors should be rightfully cautious, but there is reason for optimism.
Provenge has created headlines because Medicare and other insurance companies are covering this revolutionary $93,000 prostate cancer treatment. Their main constraint right now is the company's production capacity for Provenge. If their facilities are FDA approved in Atlanta and California, this will dramatically change their financials. Dendreon should hear back from the FDA on June 30, 2011 about the Orange County facility and in September about the Atlanta facility. There should also be additional upside as the company expands to other facilities in the future. With Medicare and insurance industry support, demand will continue to outstrip supply in the near future.
In addition, there is a secular demand for cancer drugs. These supplies are quickly running out and until production rates increase, companies producing these cancer treatment drugs will continue to enjoy pricing power. In addition, the company's Provenge drug is so revolutionary in its approach to cancer treatment that large pharmaceutical companies may eventually target it because of applications that are outside of just late stage prostate cancer.
Notable shareholders include: SAC Capital Advisors and Soros Fund Management.
AstraZeneca PLC (AZN)
The drug company is hoping for better look this time around as it seeks another FDA decision regarding its blood thinner drug, Brilinta, used for acute coronary syndrome. The FDA previously rejected the drug in December 2010. Drug reapplications do not have a good probability of success and as such the market is likely pricing in a low chance of success. If the company's luck changes this time around, it could see some stock price upside.
The stock is already cheap by most conventional metrics. It trades at a trailing P/E of 8.56, a forward P/E of 8.06 and has profit margins of nearly 25%.
Gilead Sciences Inc (GILD)
The company is waiting on FDA approval for its drug Btripla, which is used to treat HIV. The FDA decision should come on August 10, 2011. Despite being a large pharmaceutical company, Gilead could see price upside if it receives a favorable ruling because of the drug's potential market and because of the pressure on the stock following the Department of Justice subpoena. Gilead already has a formidable position among HIV drugs, but Btripla could be an important evolution.
Gilead trades at a trailing P/E of 12.42 and a forward P/E of 8.75. The company has a PEG ratio of 0.64 and profit margins of nearly 35%.
Life Technologies Corp (LIFE)
The California life sciences company is at the forefront of a $30 billion market. The company currently makes a majority of its revenues on genotyping, protein analysis, cell culture, primary and stem cells, sample preparation and transfection but as the company continues to develop through acquisitions as well as reap gains from its nearly 4,000 patents and a strong drug pipeline, the company's stock price could find upside. Forward P/E is expected to drop to around 11 from about 25. With a large portion of the investing community hesitant to overpay for growth, there could be meaningful stock upside if LIFE is able to achieve their forward earnings projections.
Glenview Capital, Capital Research Global and Global Thematic Partners are some of the company's notable investors.
Seattle Genetics Inc (SGEN)
The Washington based biotechnology company focuses on treatments for cancer and autoimmune diseases. In 2010, the company produced $107.47 million of revenues. The company's Adcetris drug should receive notification from trh FDA on August 30, 2011. The drug is meant to treat Hodgkin's Lymphoma and Analplastic Large Cell Lymphoma. The company did not generate profits and is not expected to make money in the upcoming year, but for the constantly forward looking stock market, a major drug approval would move the stock price.
Optimer Pharmaceuticals (OPTR)
The FDA recently approved their clostridium difficile associated diarrhea (CDAD) drug received FDA drug approval. This company is interesting because of the growing occurrences of this disease in adults and individuals in long-term care facilities. This could imply a secular growth opportunity. The stock rallied following the positive FDA news but has since slumped. For bullish investors, this may be a longer term buying opportunity.
Their partnership with Cubist Pharmaceuticals could provide potential for acquirer down the road.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AZN, GILD, LIFE, DNDN over the next 72 hours.