Investors hate to be limited, which is why a selection of choices is always better than just one. It helps to compare companies in the same price range or the same industry because not all good buys are right for everyone. Investing is an individualized science. There are some strong alternatives that, for whatever reason, might not appeal to everyone. The inverse is also true. Some riskier investments that do not sit well with average investors might be right for a few people out there. Comparing a group of five stocks is usually enough to recognize the pros and cons and make the decision that is right on a case by case basis.
I am going to begin with Questcor Pharmaceuticals (QCOR). Questcor's focus on one drug and non-diversified pipeline make some nervous, but I like what I see from the company, in spite of its unconventional approach. Usually I am a huge fan of a healthy pipeline, and Questcor has nothing officially new in development. However, Questcor has maintained steady earnings, even in tough times.
What I like about Questcor is its dedication. The company's main drug is Acthar, a treatment approved in the United States to treat multiple sclerosis. It is also effective in treating infantile spasms and to induce diuresis or remission in nephrotic syndrome. Questcor is also focused on finding as many other uses for Acthar as possible. It hopes to market Acthar for use in treating collagen diseases allergies, rheumatic disorders ophthalmic disease, dermatological diseases and respiratory conditions. Essentially, it is putting all of its eggs into the single Acthar basket; that is scary for some investors, but effective so far for Questcor. The company is the only one capable of manufacturing Acthar due to a trade secret, which gives Questcor the ultimate edge.
Questcor faces significant uncertainty from the FDA approval process. Most people expect one of two things to happen based on Questcor's strategy. If it works out, fine; the company will get Acthar approved for several more uses and it will not need a huge selection of drugs. If the FDA does not come through, and Acthar is limited in its use, the unorthodox strategy could hurt Questcor. Nonetheless, I still view it as a great investment and rank it in my top five opportunities at the moment. Investors should understand that this is a high risk stock, but with $220 million in cash, no debt, and over $100 million in operating cash flow, I do not think permanent capital impairment is on the horizon.
Investors who cannot get beyond Questcor's strategy have plenty of other options. Spectrum Pharmaceuticals (SPPI) is not terribly diversified, but has a strong pipeline, and two drugs already on the market. Both of the drugs are in the cancer treatment family. Zevalin targets lymphoma, and Fusilev treats colorectal cancer. There are also a dozen drugs in the company's pipeline, three of which are in phase three trials and one is just waiting for final approval. The demand for Fusilev is high, and Spectrum has chosen to expand manufacturing of the drug. Many believe Spectrum is a great opportunity because it is forward-looking and it has a strong base from which to build.
Spectrum also faces significant uncertainty from the FDA. However, as I note above, it does have sales from already-approved products. It has $186 million in cash and no debt on its books. Shares are much less risky than biotechs that lack any solid candidates in their pipelines.
Next up is VIVUS (VVUS). The company's weight loss drug, Qnexa, is expected to make a big splash. Qnexa is a drug intended to treat obesity, which means Vivus is in a position to do well in the coming months, as well as in the coming years. Look at it two ways: weight problems can be considered seasonal. Twice a year people become weight focused, at the start of the new year and as summer approaches. The mass desire to drop the pounds could give Vivus a boost each and every year during certain times. Few companies have the ability to predict exactly when sales will soar, but this is one.
The second way to view the potential profitability of a weight loss drug is to look at the dark outlook on the country's health in regard to weight. By 2020, the majority of the country is expected to be overweight. Though this is bad news for the health of the country, it is good news for those invested in a surefire solution to help reduce weight. Qnexa appears to be a likely "hit" drug and those who jump on Vivus will benefit.
Qnexa's market includes the 150 million obese people in the U.S. I highlight the company, because it has a very healthy current ratio of 13, with no debt and $146 million in cash. This is not a bankruptcy candidate at all. It is important that investors differentiate speculative biotechs from high risk ones, like Vivus.
Next on the list is Vertex Pharmaceuticals (VRTX). The stock recently shot up 41% during intraday trading after a study showed that patients suffering from cystic fibrosis had improved lung function after taking a combination of Kalydeco and the experimental drug VX-809. Vertex, like Questcor, is potentially great long-term investment. The company currently manufactures two drugs on the market, which reduces its overall risk and uncertainty, post-FDA approval. Kalydco is a prescription medication for treating cystic fibrosis and Incevik is a prescription medication for treating chronic Hepatitis C infections.
Vertex has eight products in its pipeline, including one drug in phase 2 trials and two drugs in phase one trials for treating hepatitis C, two drugs in phase 2 trials for treating cystic fibrosis, one drug in phase 2 trials for treating epilepsy, one drug in phase 2 trials for treating immune-mediated inflammatory disease, and one drug in phase 1 trials for treating influenza. The company faces real risk in the FDA approval process for the drugs in its pipeline. Vertex should have over $1 billion in cash against $400 million in debt by the end of this quarter.
The final stock in my analysis is Valeant Pharmaceuticals (VRX). It is a favorite among investors, and most agree it could be a part of any diverse portfolio. The company stands out because it continues to grow through its strong pipeline, and by acquiring other companies and products. Its latest venture was purchasing Atlantis Pharma, a Mexican drug manufacturer responsible for generic drugs focused on gastro-intestinal, anti-inflammatory, and analgesic treatments.
Valeant's main focus is on dermatology, and its recent announcement had experts buzzing. The company will be moving its headquarters from Toronto to Quebec and plans to establish a state-of-the-art center for dermatology in its new location. In addition to dermatology, there is also a focus on neurology, as well as numerous over-the-counter products. Its line of OTC products includes skin and hair care products, pain relief, vitamins, topical care, and other items. There are a number of familiar brand names in this lot including CeraVe, Hissyfit, Dermaglow, Ultra, Dermaveen, Nyal, Dr. Renaud, Kinerase, and Dr. LeWinn's.
Investors should note that Valeant faces significant execution risk as a serial-acquirer. Nonetheless, its track record in acquisitions is absolutely solid. The company does carry $6.6 billion in debt, though its debt is managed so as to not significantly impact cash flows in a given year. Operating cash flows are nearly $700 million per year.
There is no need to pursue hyper-speculative biotechs like Keryx (KERX) if you do not want to. Whether your cup of tea investment-wise is a strong pipelines, unorthodox marketing strategies or geographical growth, there is a stock on the list for you.