I recently highlighted a small biotech firm, ISIS Pharmaceuticals, as a potential "value" growth play. Isis Pharmaceuticals, Inc. (NASDAQ: ) took a tumble after earnings despite being just a penny off of estimates. Despite slightly lower than expected earnings, the Company showed a strong cash position, moderate cash burn, and a likelihood that it would be able to at least make it through full trials for its most promising drug. I know that for some even this doesn’t count as value. Afterall, the Company is not free cash positive and any value ascribed to the Company is derived from future expectations of its drug pipeline of which there are none currently in distribution.
For those looking for more proven business models but still looking to take advantage of the coming shift towards genetic pharmaceuticals as opposed to small molecule pharmaceuticals, a look at ISIS’s partners may clue you into some interesting finds.
Big Biotech
Though the idea of approaching drug discovery through genetic pathways or possibly even creating genetic therapies seems like science fiction, biotechnology is not all about small, cash flow negative startups hoping to change the world. In fact, the five largest U.S. pure-play biotech firms each had revenues in excess of $2.5 billion in 2008 (one has since been acquired and will be highlighted later in this article). Here are three that could pique your interest.
Amgen (NASDAQ: ) – Amgen is the first and largest of the biotech companies in the U.S. The Company came to prominence with the release of its drug Epogen, a synthetic version of the protein Erythropoietin (better known to cycling enthusiasts as EPO). Amgen essentially dominates the market for treating anemia in dialysis patients and has used the proceeds from this blockbuster to turn itself into one of the largest pharmaceutical companies in the industry with nearly $15 billion in revenue last year and more importantly a healthy EBITDA of $6.7 billion (40% margin!). Amgen is slightly different from other biotechs in that its therapies have typically resulted from biotechnological research, but are not necessarily genetic or biological agents themselves.
