MF Pharma - how do 5 stocks compare

Hi all,

I have too many stocks in my portfolio and am going on a diet. I’ve already made a little progress, and the next area I’d like to tackle is pharma, an area I don’t know enough about.

I have recently had 5 pharma stocks in my portfolio, and did a little digging to see if there are any I should trim. Here is their current allotment.

1.7% HZNP Buy Saul
1.6% CELG Buy RB
1.1% VRX Buy SA Tom
0.5% CBST Buy RB
0.0% APPY Sell Saul recently sold

I thought rather than just ask opinion, I’d do a little digging of my own first to see what I could uncover. I find pharma harder to diagnose than most other sectors, as the prospects appear to be lumpier based on new drug offerings. Maybe this is obvious to experienced pharma investors. Here’s what I was able to glean from the Nasdaq site and the 10Ks and a few conference call transcripts (sorry about the formatting, couldn’t figure out how to make it look good despite several attempts):

2012 2013 2014 1Y%G
PE Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
HZNP NE REV 2.5 3.8 6.5 6.0 8.7 12.7 26.2 26.4 51.9 496%
EPS -98 -63 -42 -23 -36 -29 -8 -161 -307 -752%
From 10K: On April 23, 2011, the U.S. Food and Drug Administration, or FDA, approved DUEXIS, a proprietary tablet formulation containing a fixed-dose combination of ibuprofen and famotidine in a single pill. DUEXIS is indicated for the relief of signs and symptoms of rheumatoid arthritis, or RA, osteoarthritis, or OA, and to decrease the risk of developing upper gastrointestinal ulcers in patients who are taking ibuprofen for these indications. In the second half of 2011, we hired our initial commercial organization, including approximately 80 sales representatives… In December 2013, as a result of the acquisition of the U.S. rights to VIMOVO, we began the expansion of our sales force to approximately 250 primary care representatives and 40 rheumatology sales specialists and recognized revenues under our transition agreement.

From CC: On a non-GAAP basis the first quarter of 2014 was the first profitable and cash flow positive quarter for the company with record revenues from our base business which includes DUEXIS, VIMOVO and RAYOS…
We announced on March 19th that Horizon will acquire Vidara Therapeutics in a reverse merger for stock in cash valued at approximately $660 million at the time of announcement, including $200 million in cash subject to certain adjustments.

CELG 44 REV(b) 1.2 1.37 1.4 1.4 1.4 1.6 1.67 1.76 1.73 18%
EPS 45 41 49 31 45 56 43 25 33 -26%
This is the only company of the 5 turning a consistent profit. From 10K: Revenue increased by $987.2 million to $6.494 billion in 2013 compared to 2012 primarily due to the continued growth in unit sales of REVLIMID ® and ABRAXANE ® as well as the FDA and EC approvals of POMALYST ® / IMNOVID ® in February 2013 and August 2013, respectively, as noted above. The $6.3 million decrease in net income to $1.450 billion in 2013 compared to 2012 was primarily due to a $446.3 million increase in payments made related to research and development collaboration arrangements, a $61.9 million increase in ABRAXANE ® amortization expense due to the October 2012 FDA approval of ABRAXANE ® for treatment of NSCLC, a $94.8 million increase in share-based compensation expense and increased spending in support of our currently marketed products and those that we plan to launch. The increases in expense were nearly offset by the favorable impact from a higher level of net product sales. The $0.07 increase in diluted earnings per share in 2013 compared to 2012 was favorably impacted by the repurchase of 22.3 million common shares under our common share repurchase program, reducing our outstanding share base.

VRX NE REV 856 820 884 920 1068 1095 1541 2063 1886 77%
EPS -4 -7 2 -2 -9 4 -308 43 -7
Valeant strikes me a lot like DDD - lots of acquisitions. A stated focus on cost cutting through these acquisitions. They acquired Bausch & Lomb in Q3 2013 and that seems like a big chunk of the business. A lot of energy around a hostile takeover of another large pharma company Allergan, makers of Botox.

CBST NE REV 212 231 238 246 230 259 266 300 261 13%
EPS 45 59 55 51 9 23 -51 -8 30
From 10K: Late-Stage Clinical Pipeline: During 2013, we advanced our clinical pipeline as we sought to leverage our acute care-focused business model. As of December 31, 2013, we have four product candidates in Phase 3 clinical trials. Three of these late-stage product candidates, assuming successful clinical trial results and receipt of required regulatory approvals, would be used to treat hospitalized patients with serious infections.

APPY NE REV 7 27 11 17 19 21 78 23 75 295%
EPS -121 -118 61 -6 -28 -20 -10 -14 -14 -30%
From 10-K: The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as product development, regulatory activities, contract consulting and other commercial and product development related expenses are incurred. The Company believes that its current working capital position will be sufficient to meet its estimated cash needs for the remainder of 2014 and into early 2015. If the Company does not obtain the FDA clearance, the Company would potentially be required to change the scope of its product development activities, change its strategic focus or cease operations. The Company continues to explore obtaining additional financing.

Note: All EPS are from the NASDAQ site for convenience (e.g., I’m not sure if those are GAAP or not, I need to check.

Overall thoughts:
APPY sounds scary and I’m glad to be out. Based just on 2 years of numbers, CBST is the next one I’d be most likely to sell off. But the prospect of a bunch of new drugs coming online (how likely is a drug in phase-3 clinical trials to make it all the way to market?) has me second guessing that. And VRX, not so keen on a distracting hostile takeover that may or may not come out well for them, but it seems like they are pretty good at integrating the companies they acquire. While their revenue has grown a lot, probably due to acquisition, they have also only made money 3 of the last 9 quarters. No clear outcomes for me yet. I can’t wait to see what this board has to say.

Lastly, is there an easy way to get quarterly results during the quarter that a company publishes a 10K rather than a 10Q, besides subtracting away all of the other 3 quarters? Seems cumbersome. Also a site that summarizes non-GAAP quarterly earnings?

Thanks all, please feel very free to correct me if I’ve made mistakes above. Really enjoying this board a lot. Cheers.

ps- is there a way to search through the posts in this board for a keyword?


And VRX, not so keen on a distracting hostile takeover that may or may not come out well for them, but it seems like they are pretty good at integrating the companies they acquire. While their revenue has grown a lot, probably due to acquisition, they have also only made money 3 of the last 9 quarters. No clear outcomes for me yet. I can’t wait to see what this board has to say.

Hi UtahChris,

I’ll just weigh in on VRX. I’m expecting they will be successful in their hostile takeover. If so, I would think the stock price has a lot of room up, somewhere past the $160 that Ackerman needs to be whole on this deal.

If they aren’t successful, I would expect the stock to sink a bit but eventually come back to the $120 range. Mind you I am not giving advice since this is way out of my expertise, but I have been watching this due to having way too many option exposure and based upon the $120 price. That price seems pretty solid to me, even when lots of negative news came out against VRX it held. My guess (don’t invest on guesses) is the big players/ALG owners all want this to happen and it will. Plus, this was one of Tom’s picks anyway so I feel a strong measure of confidence in management and their business plan.

DO NOT DO as I do or say since, I’m just saying what my premise is and what I have done so far, successfully. I’ve even been thinking (again since Tom recommended it), to buy some but the risk of them NOT taking over Allergan is too high and I already have a bunch of money riding on those options.

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