In this article we have analyzed the three stocks in the biopharmaceutical sector that are awaiting FDA approval this and next month. We believe that the approval of the drugs mentioned in the article will prove to be catalysts for stock price appreciation. Particularly in the case of Impax (IPXL), with its upcoming approval for a drug that will treat Parkinson's disease, we see a substantial upside potential once the approval kicks in.
Impax produces both generic and branded products. It operates through two divisions, namely Global Division and Impax Division. The former is engaged in the selling of generic products under its established drug names, while the latter produces drugs aimed at central nervous system disorders such as Parkinson's disease, Alzheimer's disease, attention deficit hyperactivity disorder (ADHD), depression, and epilepsy, and also promotes third party branded products.
It awaits approval for its drug called Rytary a.k.a. IPX066, used for the treatment of idiopathic Parkinson's disease. The drug could be a potent catalyst for high growth for Impax. Parkinson's disease is a progressive neurodegenerative movement disorder that affects about 3% of the total population in the U.S. The drug is a reformulation of the existing immediate release version of levodopa. In its capsule formulation, the drug aims to provide patients more long lasting improvements. A report cites that clinicians are enthusiastic about the drug's efficacy and fewer side effects. Furthermore, analysts expect the drug to generate $300mn in annual revenues.
The Prescription Drug User Fee Date (PDUFA) for a decision is October 21, 2012. IPX066 has furthermore been licensed to GlaxoSmithKline (GSK) for all countries, except the U.S. and Taiwan. In the meantime, Impax has kept its growth on track with drugs that target migraines and ADHD. Analysts expect Impax to earn $2.07 per share by the end of this year and $2.11 by the end of next year. Gross margin for the company stood at 22.37% and hasn't taken up any debt. It trades at a forward P/E multiple of 11x. At a PEG ratio of 0.5, the stock is attractively valued. The stock has generated a one year return of 32.45%.
Regeneron Pharmaceutical Inc (REGN) is an integrated biopharmaceutical company aimed at discovering and producing drugs for serious medical disorders. At the moment it has two products in the market: Arcalyst and Eylea. The FDA gave a nod for Eylea last November, for the treatment of macular degeneration, which may lead to blindness. Eylea accounted for $124 million in revenues in the first quarter.
Chart 1: Revenue
The approval of this drug has been the primary driver of growth for this stock, with a YTD return of 127%. To continue on this high growth path, Regeneron must continue to strengthen its pipeline and work to grow Eylea itself. Regeneron now seeks approval (expect Sep 21) for Eylea as a treatment for central retinal vein occlusion (CRVO). The disorder is caused by a blood clot in the central retinal vein, which disrupts the flow of blood leaving the retina. We believe the approval will bolster high growth sales of Eylea further.
Analysts show great confidence in its growth over time, and expect it to generate EPS of $2.77 for the year ending 2012 and $4.23 for the year ending 2013. Debt levels seem manageable, with a debt-to-equity ratio of 75%. It trades at 19x its sales.
Celgene Corp (CELG) is engaged in the business of producing therapies that treat cancer and immune-inflammatory-related diseases. It awaits the approval of the FDA for its drug, Abraxane, which is used for the treatment of non-small lung cancer. Abraxane has already been approved for the treatment of breast cancer. The decision is expected in October. When Celgene presented the data on its phase III study, analyzing Abraxane as the first-line combination therapy for patients diagnosed with non-small lung cancer, it showed that the drug was more effective in extending the survival of patients than Bristol-Myer Squibb (BMY)'s chemotherapy drug, Taxol. Since Abraxane is already approved for breast cancer treatment, the pending approval, if granted, will bolster Celgene's sales.
There is a reasonable chance that the FDA will give the drug the green light given the dearth of alternatives and its proven efficacy in the case of older patients. Analysts expect EPS for the year ending 2012 to be $4.87, and $5.51 for the year ending 2013. This translates into a growth of ~13% over the year. Estimates for the long term growth show a rate of 22%.
Celgene has a total debt-to-equity ratio of 28%, representing sound management of debt, and no problem seems to be in sight for this high growth company. Analysts estimate a mean price target of $78. It currently trades at 13x forward (2013) earnings and has yielded a one-year return of 23.11%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.