On Tuesday, several of biotechnology’s hottest names announced earnings. Despite strong results, the market appears to have grown accustomed to perfection. Therefore, can these stocks go any higher? Or, have these stocks reached their peak?
New Product Launch Suggests More Upside
For the third consecutive quarter, Santarus, Inc. (NASDAQ:SNTS) raised its 2013 top line guidance, and significantly beat revenue and earnings expectations for the quarter. The stock is up by nearly 10% this week, which is somewhat minor considering the size of the company’s quarterly beat, and its 15% plus performance compared with the previous earning reports.
For this last quarter, the diversified biotech grew revenue 89% to $89.4 million (beat by $8.5m) and posted an EPS of $0.31 (beat by $0.14). In terms of stock performance, Santarus has returned a gain of 650% since January 2012. These gains have been created due to explosive fundamental improvements, including continued growth of their lead drug Glumetza, the re-launch of Zegerid, and the successful launch of their promising drug Uceris.
Unfortunately, after such large gains, it is getting harder and harder for the stock to move higher. However, I still think Santarus, Inc. (NASDAQ:SNTS) is a buy. The company has five total products, with sales of three of those products growing year-over-year. Moreover, its launch of Uceris has been much better than expected, as it produced $16.2 million in its first full quarter of sales. Now, Santarus is adding 25 new salespeople to its Uceris team, which should help catapult sales even higher.
The stock is trading at 5.8 times sales, which isn’t cheap, but considering the company’s growth I think is a fair ratio. Therefore, with Uceris having the potential to double the company’s annual sales, Santarus should have more upside ahead.
A Takeover Target With Solid Growth?
Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) is trading lower after slightly missing Q2 estimates. The company, which markets 10 products, saw strong sales growth of nearly 70% year-over-year.
The company’s two lead products contributed $133.7 million of its $208.25 million in total revenue. Xyrem, which produced sales of $177.9 million, grew 50% year-over-year, and Erwinaze’s sales increased 36% in the same period. Moreover, Jazz boosted its Xyrem, Erwinaze, and total sales outlook for 2013.
Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) has rallied 6,000% since 2009, and more than 60% in 2013. As a result, investors have high expectations for a stock that’s trading at 6.75 times sales. Fortunately, Jazz has incredible operating margins over 35%, due to the fact that it’s based in Ireland, which has a corporate tax rate of just 12.5%.
This brings me to my “don’t sell” point: Elan was purchased for $8.6 billion for its tax rate and because of its royalty structure. Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) trades at $4.5 billion with the same tax structure and growing sales that far exceed Elan’s royalties. Therefore, with U.S. biotechs looking for lower taxes, I think Jazz should be watched for future gains, or at least one big pop following its takeover.
A Pipeline Opportunity
Last but not least is Regeneron Pharmaceuticals Inc (NASDAQ:REGN), a stock that has rallied 1,100% in the last five years but fell 6% on Tuesday after Q2 earnings.
The company slightly missed expectations on the top line, which created a little fear. The company’s drug Eylea typically exceeds expectations, but was $3 million shy of estimates with sales of $330 million.
Eylea treats wet age-related macular edema, which is the leading cause of blindness in the elderly. However, on Tuesday Regeneron Pharmaceuticals Inc (NASDAQ:REGN) announced that Eylea proved better than laser surgery in treating diabetic macular edema – the leading cause of blindness in younger and middle-aged adults. Now, the company will seek FDA approval for this indication, which would expand Eylea’s outlook to another six million patients worldwide.
Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is a rapidly growing biotech with a market cap of $24.6 billion. The stock trades at 15.5 times sales, but the majority of its upside lies in the expansion of Elyea, as well as its large pipeline. In biotechnology, the pipeline is what creates value, and Regeneron’s is among the best. The company has late-stage products in treating rheumatoid arthritis, cholesterol, and asthma, which combined could add peak sales of $11-$13 billion globally. As a result, Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is an investment for the future, and in my opinion, it is a very good one.
I think each of these stocks bring something different to the table. Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) looks very promising in the immediate future due to the excitement surrounding Ireland-based biotechs and their tax structure.
Santarus looks to be a good medium-term position as Uceris expands and the company’s pipeline develops further. However, Santarus’ pipeline is no match for the potential of Regeneron Pharmaceuticals Inc (NASDAQ:REGN), and because of Regeneron’s history as a successful product developing company, I think it makes the best long-term position. Therefore, the decision on how to play these stocks is dependent upon your goals, although I think all are good companies.
The article Have These 3 Biotechs Reached A Peak? originally appeared on Fool.com and is written by Brian Nichols.
Brian Nichols is long Santarus, Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ), and Regeneron Pharmaceuticals.. The Motley Fool has no position in any of the stocks mentioned. Brian 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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