by Morgan Smith
The pharmaceutical industry has been buzzing with activity lately. Acquisitions, new drug developments, and positive study results have been capturing the attention of investors. Below, I will focus on six pharmaceutical stocks that are showing signs of positive growth.
There has been a lot of activity at GlaxoSmithKline (GSK) this month. It has been developing new treatments and acquiring others at a very rapid pace, keeping it atop the industry. Shareholders should be very happy about this string of productivity. Moreover analysts agree, with the average recommendation as a buy with an overweight rating. Although it has been a slow increase to its current price of about $45 for GlaxoSmithKline, I expect the pace to increase, especially if it can close the Human Genome Sciences acquisition soon.
Speaking of Human Genome Sciences (HGSI), its investors are banking on an increase in the tender offered by GlaxoSmithKline. Specifically, investors are expecting a 13% return on their stock. This might cause GlaxoSmithKline to increase the tender to $15 per share, a nice increase for investors. There also appears to be little risk in holding out as it is reported that GlaxoSmithKline could potentially get over $1 billion in revenues from drugs developed by Human Genome Sciences as well as saving at least $200 million by cutting costs. For these reasons it is no wonder that investors are trying to squeeze every ounce of value out of the company.
Continuing its spending spree, GlaxoSmithKline has also agreed to pay at least $226 million for Toctino, an eczema drug developed by Basilea Pharmaceuticals. In addition, GlaxoSmithKline agreed to pay over $50 million more if the drug meets certain goals and royalties. Since it purchased Stiefel a few years ago, this purchase is seen as an effort to give this company a drug. This deal appears to be better for GlaxoSmithKline than Basilea, as if the drug does well, most of the revenue will go directly to GlaxoSmithKline.
But it has not only been purchasing its way to success. GlaxoSmithKline is developing new treatments at a rapid pace, with many announcements coming in the past two weeks. Within seven days, the FDA approved two new treatments for GlaxoSmithKline, one treatment for post herpetic neuralgia and one for a meningitidis vaccine.
The first, Horizant, is a tablet that helps patients handle the pain associated with post herpetic neuralgia. The development of this drug was in partnership with XenoPort. The partnership gives GlaxoSmithKline the right to sell the product after approval, with XenoPort entitled to a payment of $10 million after a certain milestone is reached.
The second, MenHibrix, is a vaccine for meningitidis. The vaccine is intended to be taken in four stages, all of which occur in the first 15 months of life. This vaccine has been in development for about seven years and was undertaken due to the recommendations that infants should have vaccines for meningitidis. This development will be welcomed by healthcare professionals and investors alike.
Another exciting development is the results of a Phase 3 study on a therapy targeting cancer. The results of this study are statistically significant with respect to chemotherapy, meaning the results suggest that this treatment is potentially more effective. This is huge for patients as it is for GlaxoSmithKline. Serious illnesses such as cancer are seen as the major drivers of profit and drug development and this treatment would likely be no different. Any drug that is more effective than chemotherapy would see high usage and bring profits to the company and better treatment to patients. I would keep an eye on this treatment, as well as similar treatments in development at other big pharmaceutical companies.
The race to development and innovation is an industry wide trend that seems to be ramping up as of late. The pharmaceutical industry is highly competitive and there is no reason to think this will change anytime soon.
In a move that mirrors other giants in the industry, Pfizer (PFE) has gained significant partners in the academic world. Just this week it announced that it has definite partners from Harvard University, helping to push pharmaceutical development into the academic sphere. Pfizer has had some hiccups in the past few months and this is some much needed positive news. If it handles this well it should bring very good returns to the company.
And then there is Abbott Laboratories (ABT) which has been keeping up with GlaxoSmithKline step for step. There is much more happening at the company that I will mention here but it just released the results of yet another study, this one focused on treating Parkinson's disease patients. The results of this treatment are encouraging and this would be a welcome addition, especially prior to the company split.
As mentioned earlier, the development of drugs to treat major clinical illnesses will be a huge profit driver for pharmaceutical companies in the future. Johnson & Johnson (JNJ) appears to be tackling a major clinical illness with the results of a Phase 3 trial for a drug to tackle diabetes. The results suggest that the drug lowers blood sugar in patients with Type 2 diabetes. This is another good development for patients and industry alike.
Finally, Merck (MRK) has also announced encouraging results of a Phase 3 study on its drug to treat insomnia. This drug had a statistically significant improvement of patients' ability to fall asleep and remain asleep, and is consequently intended to be filed for approval this year. This drug will be welcomed by investors as it has the potential to overtake the market since it treats insomnia in a different way than all current drugs.
With all drug companies in the heat of development, the difference with GlaxoSmithKline is the sheer rapidity of its developments. It does not have all its eggs in one basket but instead is diversified through many developments and acquisitions, most of which look promising for the company's long term growth. With many drugs in the market losing patent protection in the coming years, developing new products while you still have revenues from patent protected drugs is huge. GlaxoSmithKline appears to have more than enough developments to keep it on its growth trajectory for quite a while.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.