We can also compare Medivation Inc (NASDAQ:MDVN) to larger biotech companies including Abbott Laboratories (NYSE:ABT) and Biogen (NASDAQ:BIIB). These companies both generated positive earnings in 2012, though in Biogen’s case the trailing P/E is quite high at 34. While its recent financial performance has not been particularly encouraging- in the fourth quarter of 2012, revenue increased only 7% versus a year earlier and earnings were actually down slightly- the sell-side is expecting improvements in net income over the next couple years and so the forward P/E is only 20. We still think that we would avoid the stock for now. Abbott Laboratories (NYSE:ABT), meanwhile, carries a forward P/E of 16. It’s also not been in a particularly good situation, with earnings falling 35% in its most recent quarterly report compared to the fourth quarter of 2011.
We do expect earnings of these biotech companies to be a bit noisy but at this point it looks to us that Abbott Laboratories (NYSE:ABT) is too speculative to treat as a value stock as well as Biogen. The other three companies we’ve covered here, including Medivation, are yet to be profitable as well and so we’d advise against buying them as well. We do think that Medivation looks to be an unwise short given the emerging success of its drug and the sizable cash on the company’s balance sheet as it attempts to bring Xtandi into additional markets.
Disclosure: I own no shares of any stocks mentioned in this article.