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Contrary to what you may expect, many publicly traded biotech firms do not yet produce significant cash flows. This is because many biotechs are developing products but do not yet have a drug on the market.

This uncertainty turns many investors off, so biotech firms with healthy cash flows are viewed especially well.

In the search for potentially undervalued stocks, we screened the biotech industry for those that appear undervalued by the ratio levered free cash flow/enterprise value. Stocks with high ratios are more likely to be undervalued in terms of enterprise value, or the value of the company from all ownership perspectives including debt and equity.

(Levered free cash flow is the company’s free cash flow after paying interest on outstanding debt. This is the cash flow available to shareholders, since debtholders are always paid first.)

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬


We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these companies produce attractive cash flows? Use this list as a starting-off point for your own analysis.

List sorted by levered free cash flow/enterprise value.

1. PDL BioPharma, Inc. (PDLI): Engages in the management of antibody humanization patents and royalty assets, which consist of Queen et al. Market cap of $803.79M. Levered free cash flow/enterprise value at 18.06% (levered free cash flow at $189.65M and enterprise value at $1.05B). The stock is a short squeeze candidate, with a short float at 12.21% (equivalent to 7.58 days of average volume). The stock has gained 11% over the last year.

2. Aastrom Biosciences, Inc. (ASTM): Engages in developing autologous cell therapies for the treatment of severe and chronic cardiovascular diseases. Market cap of $92.33M. Levered free cash flow/enterprise value at 15.81% (levered free cash flow at $11.75M and enterprise value at $74.33M). The stock is a short squeeze candidate, with a short float at 8.08% (equivalent to 9.15 days of average volume). The stock has gained 49.38% over the last year.

3. ViroPharma Inc. (VPHM): Engages in the development and commercialization of products that address serious diseases with a focus on products used by physician specialists or in hospital settings in the United States and internationally. Market cap of $1.43B. Levered free cash flow/enterprise value at 13.38% (levered free cash flow at $145.88M and enterprise value at $1.09B). The stock is a short squeeze candidate, with a short float at 10.68% (equivalent to 8.08 days of average volume). The stock has gained 15.4% over the last year.

4. Obagi Medical Products, Inc. (OMPI): Develops and markets topical aesthetic and therapeutic prescription skin care systems. Market cap of $172.42M. Levered free cash flow/enterprise value at 12.86% (levered free cash flow at $20.37M and enterprise value at $158.45M). The stock is a short squeeze candidate, with a short float at 5.89% (equivalent to 15.76 days of average volume). It's been a rough couple of days for the stock, losing 6.17% over the last week.

5. Medicis Pharmaceutical Corp. (MRX): Engages in the development and marketing of products for the treatment of dermatological and aesthetic conditions in the United States, Canada, and Europe. Market cap of $2.30B. Levered free cash flow/enterprise value at 12.04% (levered free cash flow at $203.50M and enterprise value at $1.69B). The stock has gained 24.37% over the last year.

6. China Biologic Products, Inc. (CBPO): Engages in the research, development, manufacturing, and sale of plasma-based pharmaceutical products. Market cap of $229.44M. Levered free cash flow/enterprise value at 10.33% (levered free cash flow at $17.88M and enterprise value at $173.15M). The stock is a short squeeze candidate, with a short float at 6.18% (equivalent to 58.08 days of average volume). However, the stock still trades 28.23% below its SMA200. The stock has had a couple of great days, gaining 10.18% over the last week.

*Levered free cash flow and enterprise value data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 6 Biotech Stocks Undervalued By Their Levered Free Cash Flows