Specialty pharmaceutical companyIndivior(LSE: INDV) is rising today after the company issuedan upbeat trading statement for the first half of the year.
The company announced that trading for the period was ahead of expectations and managementraised its guidance for the full year.
Indiviornow expects full-year 2015 revenue of between $935m to $965m, compared to its previous guidance of $850m to $880m. Net income is now expected to be in the region of $185m to $210m, compared to previous guidance of $130m to $155m.
First-half pre-tax profit fell to $199m, down from $327m as reported last year.
Lack of diversification
Even thoughIndiviorsresults beat expectations, the company is still a one-trick pony. Indeed, with only one key treatment on the market at present,Indiviorssuccess is highly dependent upon the companys ability to monetise its drug pipeline.
Indiviorskey product is its opioid dependence treatment Suboxone Sublingual Film, the sales of which are falling as low-cost generic competitors breakIndiviorsgrip over the market.
To a certain extent,AstraZeneca(LSE: AZN) is in the same position asIndivior. As Astras sales from legacy drugs are falling, the company is pinning its hopes on a raft on new treatments to help return the companyto growth.
However, as all investors know, diversification is key to achieving the best returns while minimising risk. And when it comes to treatment diversification, Astras broad offering should win over investors every time.
Its estimated that only 7% of new drugs make it from the initialdiscovery stage to commercialsale, which means that its crucial for pharmaceutical companies to hedge their bets by developing a broad range of new potential treatments.
Astra has 222 new products currently under development. On the other hand,Indivioris expecting one new product roll-out every year from 2016 to 2020 assuming everythinggoes to plan. In other words,Indivioronly has four new products under development.
Premium valuation
Indiviorsperformancehas eclipsed that of Astra over the past six months. While Astras shares have slipped by 11.4% since the end of January,Indiviorsshares have gained a staggering 53% over the same period.
However, these gains have leftIndiviorlooking expensive, considering the companys earningsare set to slide by more than 40% this year and a further 20% during 2016. At present levels,Indivioris trading at a forward P/E of 14.1 and a 2016 P/E of 17.5. City analysts believe the companys shares will support a dividend yield of 2.5% this year.
In comparison, Astras earnings per share are set to fall by around 1% this year and 3% during 2016 before returning to growth during 2017. Whats more, the group currently trades at a forward P/E of 15.6 and supports a dividend yield of 4.3%.
The bottom line
Overall, Astra is cheaper, supports a more attractive dividend yield, and has a greater number of new treatments under developmentthanIndivior.
So, while Indivior may have outperformed its larger peer over the past six months, I’m placing my money on Astra for the long-term. But if you’re not convinced about Astra’s long-term prospects, then The Motley Fool’s top analysts have recentlyidentified a biotechwhose potential near-term upside, they reckon, could be as high as 45%!
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Rupert Hargreaves owns shares of AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.