Biotechnology is made up of an important set of innovative businesses with the goal of improving and saving the lives of others. It's interesting to take a look at the potential new drugs and the companies that are developing them to discover possible investment opportunities.
In this article, we'll look at four companies that have FDA approval decision dates in Q4 2012.
Raptor Pharmaceuticals (RPTP) has an FDA decision date of October 1, 2012, for RP103 for the treatment of cystinosis. Cystinosis is a rare genetic disorder characterized by the abnormal accumulation of the amino acid, cysteine.
RP103 is also in Phase II clinical trial for the treatment of Huntington's disease. The company also has a drug known as RP104 in Phase II for the treatment of Non-alcoholic Steatohepatitis. The company also has five other drugs in clinical and pre-clinical trials in its pipeline.
Since the company doesn't have any FDA approved drugs, it is not yet profitable, which makes the stock highly volatile and speculative. It is trading at 8.8 times book value per share. However, since the stock is volatile, investors interested in short-term trading may find it as a useful trading vehicle.
Celgene Corporation (CELG) has an FDA decision date of October 12, 2012, for Abraxane for the treatment of non-small cell lung cancer. Abraxane has already been FDA approved for the treatment of breast cancer.
Celgene is an established company with a number of FDA approved drugs on the market: Revlimid for the treatment of multiple myeloma and MDS; Vidaza for the treatment of MDS and acute myeloid leukemia; Thalomid for the treatment of multiple myeloma; and Istodax for the treatment of a specific form of T-cell lymphoma.
The company also has an extensive pipeline of drugs in various clinical trial stages under the categories of hematology, oncology, inflammation, and immunology.
If you're looking for an established biotech company with multiple FDA approved drugs, then Celgene might be the stock for you. It is fairly valued on the low end with a forward PE ratio of 12.24, a PEG of 0.58, and a price to book ratio of 5.06. The company has a high profit margin of 29.34%, operating cash flow of $1.84 billion, and levered free cash flow of $1.39 billion. The company is expected to grow earnings annually at 24.95% for the next five years. This growth could allow a $10,000 investment to grow to over $30,000 in five years.
Santarus (SNTS) has an FDA decision date on October 16, 2012, for Uceris for the treatment of ulcerative colitis. Ulcerative colitis is a form of inflammatory bowel disease.
Santarus is a biotech company with four FDA approved drugs on the market: Glumetza and Cycloset for type 2 diabetes, Fenoglide for high cholesterol, and Zegerid an OTC drug for heartburn. In addition to Uceris, the company has 3 other drugs undergoing clinical trials in its pipeline.
Santarus looks fairly valued with a forward PE ratio of 11.98, a PEG of 1.85, and a price to book ratio of 6.51. It has a slim profit margin of 4.1%, operating cash flow of $21.7 million, and free cash flow of $13.9 million. The company is expected to grow earnings annually at a healthy 20% for the next five years. Santarus looks promising, although not as compelling as Celgene.
Impax Labs (IPXL) has a drug currently known as IPX066 for Parkinson's disease up for an FDA decision on October 19, 2012. It is estimated that between 500,000 and 1 million people have Parkinson's disease in the United States, with 50,000 to 60,000 new cases diagnosed each year.
This generic pharmaceutical company has 43 abbreviated new drug applications (ANDAs) currently being marketed. Impax also has 39 pending ANDAs with 7 ANDAs having first-to-file or first-to-market potential.
Impax is currently undervalued with a forward PE ratio of 10.89, a PEG of 0.62, and a price to book ratio of 2.21. It has a double-digit profit margin of 12.01%, operating cash flow of $29 million and free cash flow of $31 million. The company has five upward earnings revisions for 2012 and 8 upward revisions for 2013. It is expected to grow earnings annually at 18.9% for the next five years.
Impax looks like a great potential investment as it's undervalued, has an extensive marketed pipeline, and since it is expected to grow earnings at an above average pace.
These are all interesting potential investments. However, the biotechnology sector presents extra risk with respect to stocks, as FDA approved drugs have been taken off the market for safety concerns. Even an established company like Merck (MRK) had Vioxx taken off the market years ago. The companies that don't yet have FDA approved drugs have most of their business riding on the pending drug in question. Despite these risks, investment opportunities abound for the short and long term. Of this batch of companies, I like Celgene as a standout biotechnology leader with high profitability and great growth prospects as a long-term investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.