Five pharmaceutical companies have made announcements about their trials recently, and all but one looks good at the moment. Merck (MRK), Celgene (CELG), and Gilead Sciences (GILD) have reported positive results, and Orexigen Therapeutics (OREX) also faces good news, as its trial may only take half as long as expected, allowing it to move forward more quickly. Eli Lilly (LLY) is the only one of these five facing bad news at the moment, due to negative trial results. I will address each of these five stocks in more depth in this article, but despite so many positive results, none of them look like incredible investments at the moment.
Merck is currently trading around $43 with a trailing P/E of 19.62. Merck's revenue growth has around a flat 1% for the previous four quarters. Second quarter numbers are coming soon, and analysts are expecting a net income of $1.01 per share, down from the $1.03 that had been predicted before.
Merck stock has been doing well in the market following the positive results of its late-stage trial of an osteoporosis treatment odanacatib. Merck even ended the trial early because there was clear evidence of success. A monitoring committee found some possible safety concerns that Merck will have to investigate further, but things still look good at the moment. This trial only compared Merck's drug to a placebo, so it will be interesting to see if the drug will be effective enough to take on the competition's offerings. Regardless, this is a win for the company. Unfortunately, Merck is currently quite expensive right now and its price per earnings ratio is a bit too high to recommend as a buy right now. As a brighter point, Merck did recently declare a fourth quarter dividend of $0.42.
Celgene is currently trading around $72 with a trailing P/E of 20.75. Celgen has performed well lately, marking a 13.15% revenue growth in 1Q and a profit margin of over 30%. These numbers are fairly consistent with numbers dating back to 2009, and it's hard to find a company more stable than Celgene. Above all, it's maintained healthy earnings per share numbers for each quarter, topping off at $0.90 in the first quarter.
Celgene announced positive results of a late-stage trial. This trial showed the effectiveness of apremilast, Celgene's experimental treatment for psoriatic arthritis, and there were no major safety issues either. A significant amount of the 495 participants improved by 20% in terms of their symptoms, and although "significant" is a rather unclear term at the moment, this looks good for the company. It plans to apply for market approval in the first half of 2013. Despite all this, the stock price dropped after the announcement. This may be due to poor results with a pilot study for apremilast as a part of a combination treatment for rheumatoid arthritis. I think this is the wrong thing to focus on with the drug's results, but it may prevent the stock from rising quickly. I expect small gains for now, though the introduction of the drug after market approval could make for a strong first quarter next year.
Gilead Sciences is currently trading around $57, and its 52-week range is $34.45 to $58.84. It has a market cap of $43.06 billion, and its trailing P/E is 17.24.
Gilead Sciences may be another decent option when considering its recent trial findings. It recently reported evidence that its once-daily anti-retroviral HIV drug Truvada may also be effective in preventing HIV from spreading between heterosexual partners. The study included 5,000 married couples in Kenya and Uganda, and it found that Truvada reduced the transmission of HIV by as much as 75%. This will make the drug even more popular, and it contributes to overall global health, making Gilead Sciences appear to be quite appealing at the moment. It is a little high in price right now, but I would still give a recommendation of the stock. Those seeking to make a large profit may wish to look elsewhere though.
Orexigen is currently trading around $4.35, and though there's some good news to share, the company hasn't been doing well. It's 1Q profit margin came in near -1333%. It declared a net loss of $10 million. With a loss of $0.50 per share, there hasn't been much reason to like Orexigen so far.
While Orexigen does not have positive results to report yet, it does have some good news to report about trial testing with its experimental obesity drug Contrave. The U.S. Food and Drug Administration (FDA) previously rejected the drug due to possible heart risks, so these tests are intended to assess the cardiovascular effects of Contrave. There has been greater participant enrollment than anticipated, so Orexigen now expects to complete testing by the first quarter of next year. This is about half the length these tests were expected to take, so Orexigen will be able to again seek FDA approval much sooner than it previously thought. Orexigen, needless to say, is hoping for a win and its first profitable quarter in a long time.
Eli Lilly is currently trading around $45 and its trailing P/E is 11.72. This leaves decent earnings per share potential, though that may be dwindling. Second quarter revenue is estimated to be $5.5 billion, with a quarterly earnings per share of $0.76. This would the 5th consecutive quarter with a drop in EPS, a bad sign for things at Eli Lilly.
Eli Lilly is the one facing the worst trial results, however, and with its price being so high, I think this would be the worst of the five stocks following the recent developments. It recently announced that its schizophrenia drug pomaglumetad methionil failed to produce results that differed from the placebo. Eli Lilly Research Labs EVP Science and Technology President Jan Lundberg noted that negative studies occur often in the field of psychiatry, so this may not have the greatest effect on Eli Lilly. Investors will hope Lundberg is right.
Even with the good news from the first four companies listed, I can't strongly recommend any of these stocks. Despite its bad news and slipping quarterly EPS, Eli Lilly may be the best of the bunch here. Of course, the testing successes have the potential to change a company's outlook completely, so don't rule any of these companies out quite yet.