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The Medicines Company (MDCO), AstraZeneca plc (ADR) (AZN): A Small-Cap Pharmaceutical Company With 2014 in Its Sights

A few months back, Barron’s featured an intriguing pharmaceutical company that goes by the name The Medicines Company (NASDAQ:MDCO). This stock is said to have strong catalysts that could lift the share price over the years. The company was at $20.40/share in November 2012 and is now trading at $31.60. The company has reported a 52-week high of $37.40.

The Medicines Company (NASDAQ:MDCO)

The biggest catalyst for a pharmaceutical company is an FDA approval. The Medicines Company (NASDAQ:MDCO) is pending approval for four drugs and the verdict is expected by next year. Would it be worth investing in the company right away or wait it out until next year? Well, let’s find out.

Angiomax has been its trump card so far

Argatroban, Recothrem, Recothrem and company-favorite Angiomax are the four products The Medicines Company (NASDAQ:MDCO) markets. The products focus on a crowd that does not interest other pharmaceutical companies much.

More than 95% of the total revenue generated last year was through the sales of its key product, Angiomax. This product was able to generate $548 million in total revenue last year. The company seems to be investing this money into licensing partnerships and acquisitions to improve its overall drug portfolio.

Partnerships and prospects

A year ago, The Medicines Company (NASDAQ:MDCO) tied-up with AstraZeneca plc (ADR) (NYSE:AZN) with regards to selling and marketing AstraZeneca plc (ADR) (NYSE:AZN)’s oral-antiplatelet medicine known as BRILINTA. This four-year tie-up states that The Medicines Company (NASDAQ:MDCO) receives $15 million/year for sales and marketing, plus an extra $5 million/year if it manages to meet or beat its targets.

Last December, The Medicines Company (NASDAQ:MDCO) agreed upon a global licence with Bristol Myers Squibb Co. (NYSE:BMY) for its product called Recothrom. This is a product that deals with bleeding during surgeries. As per the two-year agreement, The Medicines will be in charge of the supply and Bristol Myers Squibb Co. (NYSE:BMY) will take care of the production of the drug.

With a dividend yield of 3.1%, Bristol Myers Squibb Co. (NYSE:BMY) has six compounds in its final stage of FDA approval. Investors should watch out for the cancer treatment drug “Nivolumab.” This drug has shown an 80% tumor shrinkage on patients and might be yet another breakthrough drug for the company.

The Medicines was keen on increasing its portfolio and hence went by this strategy. As per the agreement, The Medicines will make a payment of $150 million to Bristol Myers Squibb Co. (NYSE:BMY) with the option of acquiring Recothrom assets for an extra $10 million. This arrangement can help improve the EPS of The Medicines, but it wouldn’t help as much for Bristol Myers Squibb Co. (NYSE:BMY).

The Medicines’ pipeline

Among the four drugs that are in the final stages of FDA approval is a drug that goes by the name Cangrelor. This drug is an antiplatelet agent that was bought from AstraZeneca plc (ADR) (NYSE:AZN) a decade ago. At the time of purchase, The Medicines possessed the rights to develop and sell this drug globally, the only exception being specific markets in Asia.

The Medicines is set to grow with AstraZeneca plc (ADR) (NYSE:AZN) digging the gold

As of now, The Medicines has a market cap of approximately $1.7 billion. The company is valued at 3.1x sales and 35x its trailing earnings. With the absolute valuation at a high, the company’s PEG ratio is only at 0.7.

The Medicines’ partner Bristol Myers Squibb Co. (NYSE:BMY) is valued at a market cap of $67 billion, 3.8x sales and 35x trailing earnings. AstraZeneca plc (ADR) (NYSE:AZN) is worth a market cap of $63 billion, 3.8x sales and 10.3x trailing earnings.

AstraZeneca plc (ADR) (NYSE:AZN) seems to be investing a lot of its resources in its R&D segments.

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