Biotech companies are leaving no stone unturned in developing new and advanced medicines by focusing on R&D. In this article, I analyze key mid-cap biotech companies that sophisticated investors should keep an eye on in 2012. These companies have potential catalysts that could propel their shares higher.
Roche Holding AG (OTCQX:RHHBY) was one of the first biotech companies to enter into industrial manufacturing of medicines. A Swiss company with China as its third-largest market, Roche has big expansion plans. Roche has a commitment of about $100 million and is developing a R&D center in Shanghai. Roche is trading near the $42 mark with a price-to-earnings multiple of 16 times.
Roche has kept aside a total of $3 billion for investment in 2012 and to look for strategic mergers and acquisitions to focus on medicines for specific and tailored needs of patients. Roche has planned an interesting offer in Germany to offer refunds to hospitals if its cancer drug Avastin does not help tumor patients. Roche provides a high return on equity of 92% compared with its peers in the industry such as Abbott Laboratories (ABT), which provides a meager 20%.
Gilead Sciences Inc. (GILD) is a research-based pharmaceutical company that focuses on developing drugs for HIV, Liver and cardiovascular diseases. More than 70% of the sales for Gilead Sciences are generated from HIV treatment drugs. Gilead Sciences is poised to benefit big in 2012 as it has many HIV drugs in the pipeline and also has a potential approval pending with the FDA for its Quad Pill in 2012. Gilead Sciences is trading near the $40 mark, near its 52-week high of $43.
Gilead Sciences reported operating margins nearing 50%, but the management feels that the growth is not being reflected in the stock price. In 2012 Gilead Sciences could be a target for potential merger or acquisition as it has a high debt to equity of 62%. Gilead Sciences is also looking forward to approval for its precautionary drug for HIV Truvada in 2012 and will try to take advantage of its acquisition of Pharmasset for making it into the hepatitis treatment field.
AEterna Zentaris (AEZS) is Canadian biotech company, which specializes in oncolgy and endocrine therapies. It is the developer of Cetrorelix, which is used for in-vitro fertilization in many countries across the globe. AEterna Zentaris, in October 2011, announced phase two clinical trials of its drug Perifosine, which is now, as of January , 2012, in phase three of clinical trials. AEterna Zentaris is trading at near the $1.50 mark, which I believe is the right time to consider investing as it is near its 52-week low of $1.35.
AEterna Zentaris partners with many firms around the world such as Yakult Honsha of Japan, Hikma Pharmaceuticals from the Middle East and North Africa and Zentaris AG (AEterna Zentaris's wholly owned subsidiary) for marketing its drugs in North America. nine out of 11 analyst haves a strong buy or buy rating for AEterna Zentaris and Hold rating for the other two.
Spectrum Pharmaceuticals (SPPI), voted one of the best companies to work for in 2005 and 2009, focuses on oncology and anti-cancer drugs. Spectrum Pharmaceuticals already has two of its anti-cancer drugs, Fusilev and Zevalin in the market and another two additional drugs, Belinostat and Apaziguone which are in last stages of clinical trials. Spectrum Pharmaceuticals is trading near the $15 mark.
Spectrum Pharmaceuticals has reported a whopping quarterly revenue growth of 200% (year-over-year) on account of growing sales of two drugs Fusilev and Zevalin, with 80% of the sales contributed by Fusilev. I was correct on Spectrum last quarter, when I called it a worthwhile investment. Zevalin sales have also seen an upsurge as the FDA has removed the bio-scan requirement, which will bring down the total cost of treatment for the patients. One of the remarkable points to be noted is that Spectrum Pharmaceuticals has almost no debt compared with some of its peers such as Cubist Pharmaceutical (CBST). I recommend a buy on this biotech company as it is already trading well above its 50- and 200-day moving average and 2012 can be an excellent year pending approval by FDA of its two additional drugs.
Arena Pharmaceuticals (ARNA) is a pharmaceutical developer focusing on oral drugs for cardiovascular and nervous system diseases. Arena Pharmaceuticals have had a tough time since lead drug candidate for the treatment of obesity, Lorcaserin, was rejected by the FDA, among the only three drugs to be rejected for obesity. The stock was trading near the $2 mark, near its 52-week high of $2.62, which it recently made in December 2011.
Arena Pharmaceuticals plans to resubmit its application for Lorcaserin drug with the FDA by the end of 2011 or beginning 2012. The problems for Arena do not end here, as many hedge funds have offloaded their stake of shares in the company - such as Mega Funds cutting $7 million in the quarter ended September 2011, and Wellington Capital Management selling around $8 million in the same period. I believe if the FDA approval doesn't come in time, it would be a troublesome year for Arena.
The increasing numbers of diabetics' patients in the world and the quest to find a cure helps encourage pharmaceuticals such as MannKind Corporation (MNKD) to focus on developing new drugs for diabetes. MannKind Corporation developed a hiccup in its growth when the FDA asked for additional trials for its leading drug Afrezza. The stock is currently trading just below the $3 mark, 75% down from the 52-week high of $10 in January 2011.
MannKind Corporation has also tried to introduce inhalable insulin, but it has not been commercially viable, another setback for the company. Although insider purchases have increased over the last few months, with about 3.5 million shares being picked up, MannKind Corporation provides a negative 5-year average return on equity and its latest quarterly results are in deep red. I would recommend a sell on this stock.