The pharmaceuticals business is like two sectors in one we have the worlds giant blockbuster drug companies, and the much smaller firms developing new technologies and looking for a slice of the pie. Heres one from each.
Tiny upstart?
Sinclair Pharma (LSE: SPH) shares are down in the dumps, having fallen 32% so far in 2016 to 27.3p, although that includes a modest 1% rise after Wednesdays first-half results.
Sinclair, which specialises in aesthetic pharmaceutical products, reported a 125% rise in revenue over the previous six months, to 17.3m, though that appears to be largely due to de-stocking in the prior period. Compared to the same half in 2015, revenue was flat. Sinclairs pre-tax loss did fall, from 7.16m a year previously to 3.39m this half, and chief executive Chris Spooner told us the firm is on track to meet our guidance of 40% sales growth for calendar year 2016 now that it has disposed of its non-aesthetics business.
The biggest seller at the moment is something called Silhouette Soft, a non-surgical face-lift thing, though sales growth across the companys product range looks impressive.
The big problem for investors is that there are no sustained profits forecast yet, so its hard to quantify the value of the company but there was 24.4m in next cash on the books at 30 June, so I dont foresee any liquidity problems on the horizon.
The market for Sinclair Pharmas products must potentially be very large, especially in the US, and the firm has successfully launched products in Brazil, Hong Kong, Japan, Malaysia, and Singapore too. Its risky for sure, but if you dont mind that then Sinclairs share price weakness could provide a nice opportunity to stock up on a strong growth candidate.
Sleeping giant?
On the other hand, Ive considered GlaxoSmithKline (LSE: GSK) shares to be undervalued for some time, and though the shares have gained 28% over the past 12 months to 1,637p, I still think so. What were looking at is a forward P/E of 17 this year, dropping to 16 next, as the firms return to earnings growth finally looks like its on the cards after a slump caused by the expiry of some key patents and the resulting competition from generic alternatives.
On top of that, analysts have pencilled-in dividend yields around the 5% mark, and they look super reliable to me. Glaxo has maintained its dividend throughout the tough spell, even when last years wasnt covered by earnings, and the firm has sensibly decided to freeze its annual payments for a few more years. Cover should remain weak for a while, but I can only see it strengthening over the longer term.
Glaxo is in the news right now for the replacement of its chief executive. The head of its Consumer Healthcare division, Emma Walmsley, is to take over from the incumbent Andrew Witty in March 2017. While such a transition can lead to a spell of uncertainty, Ms Walmsleys internal promotion suggests to me that were unlikely to see anything traumatic and that itll be business as usual.
Which of these should you buy? How about a bit of both?
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
