It can take years for biotechnology investments to pay off, and in most cases, it requires lots of patience and vision. But for the investors that can hold fast, there are generally solid rewards for doing so. Today we wrote with those investors in mind, and focused on biotechs that have potential to be winners in the long run. To hone in the best companies in the biotech space, we focused first on those with solid profits sources to fuel their long-term viability. To further separate the wheat from the chaff, we narrowed our sights specifically for companies that biotech analysts have stamped recently as "Buy" or "Strong Buy", which suggests that these companies are solid on other levels in addition to profitability. Under these criteria, we came up with a rather interesting set of biotech companies worth examining further.
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability.
Net Margin = Net Income/Total Revenue
We first looked for biotechnology stocks. We then looked for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). From here, we then looked for companies that have strong profitability relative to their asset base (ROA [TTM]>10%)(Net Margin [TTM]>10%). We did not screen out any market caps.
Do you think these stocks should be trading higher? Use our list to help with your own analysis.
1) BioDelivery Sciences International, Inc. (NASDAQ:BDSI)
BioDelivery Sciences International, Inc. has Analysts' Rating of 1.50, a Return on Assets of 29.75%, and a Net Margin of 28.32%. The short interest was 6.44% as of 08/16/2012. BioDelivery Sciences International, Inc., a specialty pharmaceutical company, focuses on developing and commercializing therapeutics in the areas of pain management and oncology supportive care. The company uses its patented BioErodible MucoAdhesive (BEMA) drug delivery technology that consists of a small, bi-layered erodible polymer film for application to the buccal mucosa in the development of its products. Its pain franchise consists of products utilizing the patented BEMA technology, including ONSOLIS, a fentanyl buccal soluble film for the management of pain in opioid tolerant adult patients with cancer; and BEMA Buprenorphine that has completed a Phase III trial for the treatment of moderate to severe chronic pain in a mixed opioid nave and opioid experienced population, as well as BEMA Buprenorphine/Naloxone, which is in development stage for the treatment of opioid dependence.
2) Biospecifics Technologies Corp. (NASDAQ:BSTC)
Biospecifics Technologies Corp. has Analysts' Rating of 1.50, a Return on Assets of 10.42%, and a Net Margin of 18.01%. The short interest was 3.63% as of 08/16/2012. Biospecifics Technologies Corp., a biopharmaceutical company, involves in the development of an injectable collagenase for various indications. It has a development and license agreement with Auxilium Pharmaceuticals, Inc. for injectable collagenase for clinical indications in Dupuytren's contracture, Peyronie's disease, and frozen shoulder.
3) Questcor Pharmaceuticals, Inc. (QCOR)
Questcor Pharmaceuticals, Inc. has Analysts' Rating of 1.30, a Return on Assets of 71.38%, and a Net Margin of 39.14%. The short interest was 34.81% as of 08/16/2012. Questcor Pharmaceuticals, Inc., a biopharmaceutical company, provides prescription drugs for the treatment of multiple sclerosis, nephrotic syndrome, and infantile spasms indications.
4) China Biologic Products, Inc. (NASDAQ:CBPO)
China Biologic Products, Inc. has Analysts' Rating of 1.00, a Return on Assets of 14.44%, and a Net Margin of 21.87%. The short interest was 0.47% as of 08/16/2012. China Biologic Products, Inc., a biopharmaceutical company, through its subsidiaries, engages in the research, development, manufacture, and sale of human plasma-based biopharmaceutical products to hospitals and inoculation centers in the People's Republic of China. It offers Human Albumin for the treatment of shock caused by blood loss trauma or burn; raised intracranial pressure caused by hydrocephalus or trauma; oedema or ascites caused by hepatocirrhosis and nephropathy; and neonatal hyperbilirubinemia, as well as for the prevention and treatment of low-density-lipoproteinemia. The company also offers Human Hepatitis B Immunoglobulin for the prevention of measles and contagious hepatitis; Human Immunoglobulin and Human Immunoglobulin for Intravenous Injection products for original immunoglobulin deficiency, secondary immunoglobulin deficiency, and auto-immune deficiency diseases; and Thymopolypeptides Injection that is used in the treatment of various original and secondary T-cell deficiency syndromes, auto-immune deficiency diseases, and a range of cell immunity deficiency diseases, as well as assists in the treatment for tumors.
5) Immunomedics Inc. (NASDAQ:IMMU)
Immunomedics Inc. has Analysts' Rating of 1.20, a Return on Assets of 27.16%, and a Net Margin of 24.47%. The short interest was 14.08% as of 08/16/2012. Immunomedics, Inc., a biopharmaceutical company, engages in the research, development, manufacture, and marketing of monoclonal, antibody-based products for the treatment of cancer, autoimmune, and other serious diseases in the United States and Europe. The company's products include epratuzumab, a Phase III clinical trial product for the treatment of systemic lupus erythematosus and non-Hodgkin's lymphoma; Veltuzumab, a Phase I/II clinical study completed product for the treatment of patients with non-Hodgkin's lymphoma, immune thrombocytopenic purpura, and chronic lymphocytic leukemia; Yttrium Y 90 Clivatuzumab tetraxetan, a humanized monoclonal antibody for pancreatic cancer that is in Phase Ib/II clinical trial; and Yttrium Y 90 epratuzumab tetraxetan, a Phase I/II clinical study product for patients with non-Hodgkin's lymphoma. Its early phase clinical trial products comprise Milatuzumab, a transmembrane protein product for antibody-drug conjugate therapy.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.