Biotechnology stocks have fallen out of favor for a number of reasons:
- because bioengineered product tends to be more expensive than chemically created drugs;
- cash strapped status of state and federal governments;
- a string of set backs in clinical trials in the past six months.
Also hurting the overall sector is that the oldest and most successful biotech firm, Genentech, was acquired in 2009 by F. Hoffmanm-LaRoche Ltd.. Since many of these companies are far from their 52 week highs, buying opportunities exist for the right situations. I will look at five established biotechs with a focus on their metrics and pipelines, to ascertain buying opportunities.
Human Genome Sciences, Inc. (HGSI)
I decided to include HGSI in this analysis. It has not made a profit in over ten years. But I see more upside here than any other stock in this report, and that is why it is here.
HGSI was trading recently at about $7.50 per share, close to the low end of its 52 week range of from $30.15 to $7.00. It has a market capitalization of $1.5 billion. It has lost money of late, so has no P/E, nor does it pay a dividend.
In the past six months, HGSI stock has fallen from about $30 per share to its current trading range, 75% off its high. What happened is that its drug Benlysta, the first new lupus drug in 50 years, had a rocky launch. But once distribution is ironed out, Benlysta appears to be a real game changer in lupus care.
In addition to Benlysta, HGSI has a handful of other drugs with great commercial appeal in its pipeline. I believe to those with a speculative bent, that HGSI holds tremendous long term potential. I recommend further research.
Amgen, Inc. (AMGN)
AMGN was trading recently for just over $58 per share. Its 52 week range is from $61.53 to $47.66. Its market capitalization is $51 billion, and it has a P/E of 14.4. It is one of the few biotechnology companies to pay a dividend, in its case of $0.28 per quarter, for a yield of 1.9%
AMGN is the world's largest independent biotechnology health company by revenues. It gets over 90% of its revenues from five principal medicines, Neupoge / Neulata Epogen, Embrel, and Aransep. Combined, these five drugs achieved $14.4 billion in sales in 2010. Several of these are newer medications, and have no real patent expiration issues at this time. Embrel, in particular, apparently got “lost in the patent office” and is now protected under patent law until 2028.
In the third quarter of 2011, AMGN reported revenues up 3%, to $3.94 billion. Adjusted earnings per share were also up 3% to $1.40 per share. That adjustment excludes the $780 million settlement of pending litigation.
In its favor, AMGN has far higher gross and operating margins (85.2%, 40%) than even well regarded competitors like Johnson and Johnson (JNJ) (69%, 25.4%) and Sanofi Aventis (SNY) (69.5%, 20.9%). While ANGN's current growth is sluggish, it has numerous drugs that have only recently come to market or are still in the pipeline. It also has a splendid balance sheet, and has committed $5 billion toward increasing an already existing stock buyback program. AMGN is a winner, and growth investors should have a nice ride.
Dendreon Corp. (DNDN)
DNDN is a Seattle based biotechnology company specializing in cancer fighting medicines. It is typical of many biotechs, in that it has not ever declared a profit, and only has one FDA approved medicine on the market.
DNDN was trading recently for about $8.50, near the low end of its wide $52 week range of from $43.96 to $6.46. It has a market capitalization of almost $1.2 billion, and has neither a P/E due to its net losses, nor does it pay a dividend.
DNDN is a cautionary tale about reliance on one new drug. In spring of 2009, DNDN's stock price rose from about $3 per share to about $20 per share, and continued a more gradual rise to over $40 earlier this year. It was then when DNDN's one and only drug, Provenge, received FDA approval and DNDN's management boasted of its $400 million first year sales potential. Because of concerns about the price and insurability of Provenge, it sold only a small fraction of the initial projection, and the stock was pummeled down to its current trading range. Its management has become something of a laughing stock.
Not only has DNDN not declared a profit in its history, in many years, including 2008 and 2009, it did not even report any revenue. Avoid it.
TECH is one of the more stable biotechnology companies out there. It is actually a holding company with interests in scores of biotechnology companies. Its lead business markets some 11,000 enzymes, antibodies, and similar biotechnology products domestically and overseas.
TECH was trading recently at about $66 per share, near the lower end of its 52 week range of from $86.43 to $61.01. It has a market capitalization of $2.45 billion, and a P/E of 21.7. It pays an annual dividend.of $1.12 per share, for a yield of 1.7%.
In TECH's first fiscal quarter of 2011 which ended September 30th, TECH reported that revenue increased by 14% to $77.2 million, and net profits increased by 13% to $30 million or $0.81 per share. Its balance sheet is in fine shape also, with $131 million in cash, and zero debt.
The average analyst rating of TECH is moderately positive at 2.2. I feel TECH is a quality company with relatively little risk, and encourage further examination.
United Therapeutics Corp. (UTHR)
UTHR is another one of the better established biotechs. It specializes in medications for pulmonary hypertension, and has other products advancing through the pipeline to treat cancers and infectious diseases.
UTHR was trading recently at a little under $42 per share, near the lower end of its 52 week range of from $70.74 to $36.55. It has a market capitalization of about $2.4 billion, and a P/E of 13.9, and does not pay a dividend.
UTHR has fallen fairly steeply throughout the year as its principal drug, Remodulin, failed clinical trials in UTHR's attempt to expand its delivery to an oral medication. Yet core sales of Remodulin, and UTHR's other products, Adcirca, and Tyvasa continue to march along. In its third quarter of 2011, UTHR reported revenues increased 20% to $202 million, and profits were up 112% to $84.4 million, or $1.38 per share.
With gross and operating margins of 88% and 37%, respectively, UTHR knows how to make money.. It has even announced a $300 million dollar stock buyback.
I believe UTHR has a period of solid growth ahead of it. I would place it near the top of my list for speculative growth over the next several years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.