One of the biggest concerns investors have with biotech stocks is whether the company has enough liquidity to last into the future. Many smaller biotech firms have little or no profits because they haven't yet brought a drug to market. Keeping these ideas in mind, we ran a screen.
We began with stocks in the biotech industry with market caps above $100 million. We then screened for those with strong liquidity, with current ratios above 3. The current ratio is current assets divided by current liabilities, and it indicates the level of a company's liquidity.
Finally, we screened for those names with strong sales trends relative to receivables, which further emphasizes strong financials. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee that the money will ever be received, the smaller receivables is relative to revenue the better.
For this reason, companies with lower accounts receivable relative to revenue are considered to have higher quality revenues.
We ran a screen on biotech companies seeing these positive trends, with faster growth in revenue than accounts receivable year-over-year, and receivables comprising a smaller portion of current assets over that time period.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these biotech companies are in strong financial positions? Use this list as a starting point for your own analysis.
List sorted by growth in revenue year-over-year.
1. 3SBio Inc. (SSRX): Engages in the research, development, manufacture and distribution of pharmaceutical products in the People's Republic of China. Market cap at $304.12M. Price at $13.74. Current ratio at 15.54. Revenue grew by 38.24% during the most recent quarter ($139.88M vs. $101.19M y/y). Accounts receivable grew by 20.16% during the same time period ($161.19M vs. $134.15M y/y). Receivables, as a percentage of current assets, decreased from 16.91% to 16.24% during the most recent quarter (comparing three months ending 2011-12-31 to three months ending 2010-12-31).
2. Biogen Idec Inc. (BIIB): Develops, manufactures and markets therapeutics in the areas of neurology, immunology, hemophilia and oncology in the United States and internationally. Market cap at $30.51B. Price at $128.66. Current ratio at 3.26. Revenue grew by 8.83% during the most recent quarter ($1,326.71M vs. $1,219.07M y/y). Accounts receivable grew by -1.04% during the same time period ($831.23M vs. $839.99M y/y). Receivables, as a percentage of current assets, decreased from 33.07% to 27.94% during the most recent quarter (comparing three months ending 2011-12-31 to three months ending 2010-12-31).
3. Obagi Medical Products, Inc. (OMPI): Develops and markets topical aesthetic and therapeutic prescription skin care systems. Market cap at $247.27M. Price at $13.14. Current ratio at 4.65. Revenue grew by 1.02% during the most recent quarter ($30.61M vs. $30.3M y/y). Accounts receivable grew by -13.37% during the same time period ($21.77M vs. $25.13M y/y). Receivables, as a percentage of current assets, decreased from 51.38% to 32.75% during the most recent quarter (comparing three months ending 2011-12-31 to three months ending 2010-12-31).
*Accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.