Celgene Corporation (CELG), Alexion Pharmaceuticals, Inc. (ALXN): Is It Time To Invest In Mid & Small Cap Pharmaceuticals?

Although Jakafi is currently Incyte’s sole relevant product, it is also the only approved drug that can treat intermediate or high-risk myelofibrosis (MF), a rare bone marrow condition; as the population affected by this disease is not large, competition is unlikely to emerge soon. Furthermore, as, unlike similar drugs, Jakafi is self-administered, physicians feel more inclined to prescribing it. This is because it does not imply costs for them; the reimbursement process is faced directly by the patient.

Meanwhile, Incyte’s broad product pipeline looks quite promising. Not only is Jakafi being studied for further indications, including PV, refractory metastatic pancreatic cancer, ET, psoriasis, and lymphoma, but it is also studying another promising drug, Baricitinib, that could treat rheumatoid arthritis. If approved, Incyte’s sales potential could rocket.

Another encouraging sign can be found in the firm’s association with big-cap pharmaceuticals that can help market its product outside the U.S. The deal with Novartis, for example, does this in the E.U. and has already retrieved about $300 million in revenue to Incyte. The Eli Lilly agreement will do something similar for Baricitinib, although Lilly will receive worldwide rights to the drug. However, it has already resulted in approximately $200 million in revenues, mainly from milestone payments, which are expected to retrieve about another $600 million. In addition, royalty rates could reach the high twenties when the compound is approved. I’d say buy while it’s still small, because its growth potential is large (actually it’s expected to be 105.4% per year over the next five years).

Bottom line

Mid and low-cap companies offer very interesting investment opportunities for long-term shareholders, mainly because their products have not reached full market potential and its pipelines look quite promising. Above I have analyzed three options that, I believe, offer excellent investment prospects. Consider the opportunities and choose your favorite, and you will probably not be disappointed.

The article Is It Time To Invest In Mid & Small Cap Pharmaceuticals? originally appeared on Fool.com and is written by Victor Selva.

Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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