Three bio-pharma companies with different business models focused on small molecular therapeutics have surged to their all-time highs in 2015, with their market price appreciating by nearly three-fold.
So what lies beneath this meteoric rise? And by applying time-tested valuation criteria, do they still have momentum for 2016?
Here are the full details.
The road to market launch from the drug discovery stage is an uncertain and arduous territory. The process can take years.
Intra-Cellular Therapies is a bio-pharmaceutical entity with a strong focus on creating drugs for the Central Nervous System. The company reported a net loss of $32.2 million or $(0.91) a share for the third quarter of 2015 against $6.4 million or $ (0.22) a share for the third quarter of 2014. The loss could partially be attributed to costs incurred on the phase 3 clinical trials for ITI-007 in schizophrenia, which started in late 2014.
For a $ 2.36 billion market cap bio-pharma company that won't report any significant revenue for the next several years, investors should look at assessing if the company has multiple revenue drivers over the long term in the form of clinical assets.
Intra-Cellular boasted of a cash pile of $510.7 million as of Sept. 30, 2015. Clearly, the company has raised sufficient resources to meet its operating expenses and capital expenditure requirements until the end of 2018. During the current year, the company has successfully raised a net cash reserve of $121.8 million in March 2015 and $327.4 million in September 2015.
The stock's gain to date works out to more than 200%, as it received a thumbs-up from investors on positive results on its lead molecule for schizophrenia treatment. Its price-to-book ratio, the best metric to judge a maturing biotech company, looks solid at 4.5 against an industry average of 8.0.
This stock is ideal for investors who have the patience to hold for a period of at least three years. In the short term, however, analysts have suggested a price target of $79.80.
Prothena Corporation is a leading clinical biotech firm that is built around the development of novel protein immunotherapies. This aids the potential treatment of diseases, involving amyloid or cell adhesion.
The company expects to fund its future cash needs in excess of its cash from operations largely through current cash and cash equivalents, as well as its collaboration with Roche (RHHBF) . The balance if necessary, will be met through debt, equity, loans or other means.
As of Sept. 30, the company had an accumulated deficit of $104.9 million and cash and cash equivalents of $387.8 million. The management believes this cash cushion should meet its fund requirements for the next 12 months, a metric that value investors watch carefully, especially in the biotech realm.
Prothena reported a net loss per share for the third quarter and the first nine months in 2015 of $0.73 and $1.89, respectively, as against a net loss a share for 2014's third quarter of $0.48 and net income a share for the first nine months of 2014 of $0.24 on a fully diluted basis.
Its total revenue dropped (as a result of lower revenues from the collaboration with Roche) to $0.4 million and $1.3 million for the third quarter and first nine months of 2015, compared to a total revenue of $1.5 million and $48.8 million for third quarter and the first nine months of 2014, respectively.
The stock, like its peers, has done exceptionally well in 2015 with a year-to-date gain of well over 200% propelled by the positive news on its three lead protein immunotherapy programs in the most recent quarterly results. The company has recorded a three-year average revenue growth of 364.6% compared to an industry average of 22%, but it is largely the result of a low revenue base in 2012.
For 2016, analysts estimate a revenue growth of 1.10% versus the sector growth rate of 50.70%. The company's price-to-book ratio of 5.5 is favorable compared to the industry average of 8.0 but it remains to be seen how its lead programs pan out next year.
A recent UBS report is pretty bullish on the biotech sector and Prothena, among others. Analysts have given a price target of $69.33 for Prothena in the short term.
Anacor Pharmaceuticals (ANAC)
Anacor Pharmaceuticals provides development and commercialization services for unique small-molecule therapeutics based on its boron chemistry platform.
Net loss for the third quarter of 2015 was $16.2 million compared to $31.3 million for the third quarter of 2014. Net loss a share was $0.37 for the third quarter of 2015 against a net loss a share of $0.74 for the third quarter of 2014.
Cash holdings hit $153.4 million at Sept. 30, 2015, against $191.6 million at Dec. 31, 2014.
Anacor stock's year to date market gain works out to 236.37%.
The positive news from the company going forward is the "Crisaborole Opportunity". It is a leading product in late-stage development for treatment of atopic dermatitis. The company expects limited branded competition when it is launched, subject to FDA approval. The company expects to submit new drug application in the first half of 2016.
Analysts estimate sales to grow by 328.70% in the year to December 2015 and a still robust 53.20% in the year to December 2016. Their estimates show that next year the company is expected to grow 92.10% compared to industry growth of 47.60%.
Jefferies Group has reaffirmed a "buy" rating and issued a $171 price target on shares of Anacor Pharmaceuticals in a research report.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.