2 Biopharma Stocks You Should Be Buying This Month

| About: Amgen Inc. (AMGN)
This article is now exclusive for PRO subscribers.

To sustain growth under stiff competition, biotech companies are always under pressure to improve their drug pipeline through continuous drug development initiatives. These initiatives help the companies offset potential revenue loss that occurs with patent expiration. Apart from launching new drugs, biotech companies also look for Merger and acquisition route for top line growth, as this strategy helps them expand their domestic and foreign operations.

Continuing our research on Healthcare Picks, (Read: 2 Pharma Stocks With More Than 25% YTD Returns To Consider AND Don't Miss These 3 Healthcare Sweet Spots) we at Fusion Research scouted out three biotech companies that are taking such initiatives to provide solid returns to their shareholders. Let's discuss these initiatives in detail.

Good revenue growth opportunity from the Multiple Myeloma drug market

Pomalyst is the new drug in Celgene's (CELG) Multiple Myeloma portfolio. This drug is a third line treatment medication for Multiple Myeloma, a type of blood cancer disease. Third line treatment signifies that doctors can only give it to patients after two dosages of other drugs. The FDA approved this drug in February this year, and according to a survey by R.W. Baird, it has attained 27% market share in third line blood cancer drugs in March this year. On August 9, 2013, the drug has received approval for distribution in the European Union.

Pomalyst is currently priced at $10,500 for a 28 day cycle. If we assume Pomalyst will achieve the same 27% market share in Europe's drug market too, then annual revenue of Pomalyst is expected to cross $122 million with 43,000 new Multiple Myeloma patients who are diagnosed each year in the U.S. and Europe combined. This calculation is just a small reflection of potential revenue growth that Pomalyst can generate due to growing multiple myeloma patients and expected market share growth.

The company has a strong presence in the Multiple Myeloma drug market. Its blockbuster drug Revlimid commanded 41% share in second line treatment. Second line drug treatment signifies that this drug can be given only after the first dosage of a different drug hasn't produced the desired improvement. With this strong share in the second line drug market, the company is striving to register this drug as a first line treatment drug, so doctors can give it to newly diagnosed patients. For registration, the company is conducting a MM-020 study, and recently it announced that it has achieved its first target of progression free survival, or PFS, in Phase III MM-020 study. PFS is the length of time during and after the treatment that the patient lives with the disease without it getting worse.

Based on this result, the company has initiated Revlimid's registration process as a first line treatment in the U.S. and Europe. Looking at the growth potential from newly diagnosed patients and an expected 5.2% annual growth in the Multiple Myeloma drug market until 2021, this approval could bring strong revenue growth from Revlimid.

Pomalyst is expected to capitalize on the company's strong presence in Multiple Myeloma, with Revlimid achieving 41% market share. Celgene can expect revenue growth potential from this market and with current MM-020 trials, the company will increase its presence in first line treatment of this disease.

Is $10.4 billion acquisition justifiable?

Amgen (NASDAQ:AMGN) is expected to increase its share in the cancer drug market with the recent acquisition of ONYX Pharmaceuticals (NASDAQ:ONXX) for $10.4 billion, or $125 per share. Onyx sells liver and kidney cancer treatment drugs under the Nexavar brand name, and it sells a third line Multiple Myeloma treatment drug under the brand name Kyprolis, which it launched last year. Kyprolis is the most preferred third line treatment drug with 52% share in the third line treatment drug market. Therefore, due to its market leadership and growth in multiple myeloma patients, analysts have pegged the drug's annual revenue to reach an expected $1 billion by 2016. This acquisition provides Amgen the opportunity to sustain top line growth in the future. The company is facing increased pressure from the market to increase its drug development program since patents on four of its five best selling drugs are expiring in 2015.

Kyprolis is approved in the U.S. market only, so Onyx is conducting Phase III FOCUS trials in order to register it in the European market for patients suffering from Multiple Myeloma. The company is expected to apply for registration approval after the interim results of these trials, which are due during the fourth quarter of this year. Looking at the company's previous trials results, Onyx should post good results in the current trial, and it expects no hurdle in approval. Europe is among the biggest markets for Multiple Myeloma drugs with registration of 21,240 new cases each year.

Meanwhile, Amgen is developing a heart failure drug called AMG 423. Heart failure accounts for 30% of global deaths in those suffering from heart diseases, and the demand for new effective drugs has been growing accordingly. AMG 423 is currently in phase two testing, and its result is expected to come in the first quarter of next year. It expects to conduct a phase three test after that.

To have a look at the potential of this drug, we can look at figures of Johnson & Johnson's (JNJ) Natrecor, which was approved in 2001 for acute heart failure. The frequency of this drug was around once a week. Its cost was around $500 per dose. If we consider three months of use at the same cost as Natrecor, AMG 423's annual cost comes to around $6,000 per patent.

If we assume that this drug achieves a peak penetration level of 20% of the 1 million patients that are hospitalized with heart failure in U.S., as per healthcare research and quality agency, then this drug's annual revenue is expected to reach $1.2 billion.

Acquisition of Onyx and the AMG 423 drug trial provide Amgen an opportunity to sustain its market leadership in the drug market. As patent expiration dates come near, the company has increased its research and development to enhance its drug pipeline, which can minimize the potential loss expected to come from patent expirations.


Both companies are expecting good revenue growth from the Multiple Myeloma market.

Celgene's drugs are expected to leverage the Multiple Myeloma drug market growth, thus providing bright future prospects for the company and with MM-020 results on the chart, investors can expect good growth in company's top line, resulting in earnings growth.

Amgen's acquisition of Onyx provides good opportunity for it to benefit from the leadership of Kyprolis in the Multiple Myeloma drug market. Also, with new drug AMG 423 in the pipeline, it is expected that company will sustain growth in the future despite patent expirations in 2015. Investors can expect good top line growth reflecting in the company's EPS, which is expected to increase from $6.51 in 2012 to $8.28 in 2014. Investors have to remain patient for sustained growth from Amgen, as the world's biggest biotech company faces tough conditions ahead with patent expirations.

Both Amgen and Celgene currently trade at a 12 months trailing PE of 18.35 and 39.87 respectively, against the industry average PE of 53. Therefore, their current initiatives in the growing Multiple Myeloma market and low PE ratio, signify that both these stocks have upside potential.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.