After a record-breaking 2014, 2015 is shaping up to be another momentous year for biotech.
During the first few months of 2015 to the beginning of March, the value of M&A deals in the pharma sector hit $59.3bn, up 94% year on year. Over the past four weeks, at least four more multi-billion dollar deals have been announced.
And for investors that are looking to play this trend, three of the best picks areVectura(LSE: VEC),Hikma Pharmaceuticals(LSE: HIK) andIndivior(LSE: INDV).
In demand
Early-stage respiratory drug specialist Vectura has struggled to impress over the past five years, but the company is finally starting to show signs of progress.
The company has sealed a number of deals with key partners over the past 12 months. These includea collaboration deal for the companys latest asthma product, VR506,signed with an undisclosed US partner. And aglobal development and licence agreement with Janssen Biotech Inc, a unit of US healthcare groupJohnson & Johnson.
Whats more, Vectura hasnine products in its pipeline, which are expected to come to market during 2021.
As Vecturas deals add up, City analysts expect the group to reporta pre-tax profit of 1.6m this year its first profit for several years. Then, during 2016 and 2017, City analysts expect Vecturas earnings to take off. Analysts expect the companys earnings to expand by 200% during 2016 and 260% during 2017.
Generic producer
Generic drug production is one of the biotech markets hottest industries. Indeed, as consumers around the world switch to low-cost generic drugs to combat ever-higher medical bills, generic producers have struggled to meet demand.
Hikma is one of the companiesthat has been able to benefit from this trend.
Over the past five years Hikmas earnings have tripled and the company has recently been promoted to the FTSE 100 index. That said, earnings are set to contract by 7% this year, although during 2016, City analysts believe that Hikmas earnings will rebound by 18%, more than making up for this years decline.
Hikma is currently trading at a 2016 P/E of 19.7, compared to the biotech sector average P/E of 31.
Unwanted spin-off
Reckitt Benckisers spin-offIndivior isprobablyone of the cheapest biotechcompanies in the world. After failing to find a buyer for Indivior, Reckitt spun the company off at an astonishingly low valuation, due to the fact that Indiviors sales were coming under pressure from generic competitors.
Unfortunately, City analysts expect the companys sales to remain under pressure for some time. Revenue fell 8% during 2014 and is set to fall another 4% this year. Nevertheless, due to these low expectations Indivior is trading at a forward P/E of 14.2, around half the sectors average valuation. The company is set to offer a dividend yield of 3% this year.
But Indivior’s lack of growth is concerning. However,The Motley Fool’s top analysts have recentlyidentified a biotechthat they consider to be one of the market’s “top small-caps” whose potential upside, they reckon, could be as great as 45%!
All is revealed in our new free report entitled“Is This Stock Tomorrow’s Big Winner?”The company in question has a strong cash balance, proven advantage and is supported by some of the industry’s biggest players!
If you’d like to find out more, download thefree report today— but hurry, it’s only available for a limited time.
Rupert Hargreavesdose not own any share mentioned here. The Motley Fool UK has recommended Hikma Pharmaceuticals. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.