3 Pharmaceutical Stocks Armed With Cash And Analyst Backing

Includes: HZNP, PCRX, WX
by: ZetaKap

As the U.S. population ages, the demand for innovative and ground-breaking medicine grows every day. If you're a smart investor looking to seize this opportunity, one worthwhile place to look is at pharmaceutical stocks that have amassed sizeable war chests of cash. After all, cash is what fuels cutting-edge research and development, and can sustain a company through lengthy clinical trials. Today we focus on pharmaceutical companies that not only have high cash reserves, but that also have strong analyst confidence to boot. If stocks of this nature sound interesting, you will probably like the short list we came up with.

The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.

The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio, because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).

We first looked for pharmaceutical stocks. We then looked for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then looked for companies that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). We did not screen out any market caps.

Do you think these stocks failed to price their value accurately? Use our screened list as a starting point for your own analysis.

1) WuXi PharmaTech (Cayman) Inc. (NYSE:WX)

Sector: Healthcare
Industry: Drug Manufacturers - Major
Market Cap: $1.01B
Beta: 1.75

WuXi PharmaTech (Cayman) Inc. has a Current Ratio of 2.35, a Quick Ratio of 2.03, and a Analysts' Rating of 1.70. The short interest was 1.29% as of 07/09/2012. Wuxi PharmaTech (Cayman) Inc., through its subsidiaries, operates as a pharmaceutical, biotechnology, and medical device research and development outsourcing company primarily in the People's Republic of China and the United States. It operates in two segments, Laboratory Services and Manufacturing Services. The Laboratory Services segment offers synthetic chemistry, discovery biology, medicinal and analytical chemistry, DMPK/ADME, formulation process chemistry, cell line and bioprocess development, toxicology, safety pharmacology, clinical development, bioanalytical services, genomics, and research reagent production services for pharmaceutical, biotechnology, and medical device companies, as well as testing services for biologics, medical devices, and combination products.

2) Horizon Pharma, Inc. (NASDAQ:HZNP)

Sector: Healthcare
Industry: Drug Manufacturers - Major
Market Cap: $256.46M
Beta: -

Horizon Pharma, Inc. has a Current Ratio of 4.29, a Quick Ratio of 4.17, and a Analysts' Rating of 1.30. The short interest was 6.17% as of 07/09/2012. Horizon Pharma, Inc., a biopharmaceutical company, through its subsidiaries, develops and commercializes medicines for the treatment of arthritis, pain, and inflammatory diseases. The company offers DUEXIS for the relief of signs and symptoms of rheumatoid arthritis and osteoarthritis, and to decrease the risk of developing upper gastrointestinal ulcers in patients who are taking ibuprofen for these indications; and LODOTRA/RAYOS for the treatment of moderate to severe active rheumatoid arthritis in adults when accompanied by morning stiffness. It also develops LODOTRA/RAYOS, which is under Phase 2 clinical trial for the treatment of polymyalgia rheumatica.

3) Pacira Pharmaceuticals Inc. (NASDAQ:PCRX)

Sector: Healthcare
Industry: Drug Manufacturers - Major
Market Cap: $511.63M
Beta: -

Pacira Pharmaceuticals Inc. has a Current Ratio of 3.25, a Quick Ratio of 2.98, and a Analysts' Rating of 1.40. The short interest was 9.69% as of 07/09/2012. Pacira Pharmaceuticals, Inc., a specialty pharmaceutical company, engages in the development, commercialization, and manufacture of pharmaceutical products for use in hospitals and ambulatory surgery centers. The company develops pharmaceutical products based on its proprietary DepoFoam drug delivery technology. Its product portfolio includes EXPAREL, a long-acting non-opioid postsurgical analgesic for postsurgical pain management; DepoCyt for the treatment of lymphomatous meningitis, a cancer of the immune system; DepoDur for controlling post operative pain; DepoNSAID, which is in preclinical trials for the relief of acute pain; and DepoMethotrexate that is in preclinical trials for the treatment of rheumatoid arthritis oncology.

*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.