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TMFHelical (98.71)

A Look at Established Biotech Companies

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November 13, 2012 – Comments (2) | RELATED TICKERS: SHPG , BIIB , NVO

A look at the forward performance of the top Biotechnology/Pharma firms as viewed by Pharm Exec’s industry audit.

Each year Pharm Exec performs a composite analysis of the industries top (by revenue) pharmaceutical and biopharmaceutical firms.  The ranking of these firms, via an evolving series of financial metrics, is an effort to look back at the generation of value to shareholders.  For the 11th annual survey, the metrics were sales growth; enterprise value growth; enterprise value to sales; gross margins; earnings before interest, taxes, depreciation, and amortization [EBITDA] to sales (an indicator of profit margin); sales to assets (or asset turnover); EBITDA to assets (a measure of the profitability of individual assets); and sales to employees (a ratio to assess productivity).  I’d encourage reading the article for the nuances on weighting and respective group leaders, but to cut to the chase, the top 5 companies based on the 2011 data are:

Biogen Idec

Shire

Novo Nordisk

Bristol-Myers Squibb

Celgene

The performance of this group so far this year has been quite solid.  With Shire and BMS being down year to date, but the others showing nice returns.

So one would reasonably ask, how predictive is this list for looking forward from today?  Biotech and pharma investing is very difficult, and even though I read extensively in the field, I find it hard to be more than speculative in predicting success.  I very much like the composite approach to value generation that the Pharm Exec team uses to evaluate the established and emerging companies.  Still the approach is backward looking, and by the time the 2011 data was reported by the companies, compiled by Pharm Exec, and printed, most of 2012 has passed.  Strong momentum would need to be in place for such a methodology to be useful looking forward from here.

Fortunately this isn’t the magazine’s first effort for this kind of evaluation, but the 11th.  Looking back at the past 3 could be instructive.  One first notes that companies do tend to repeat in the top grouping.

The top 2 in order from the 10th annual (2010 data) were Novo Nordisk and Biogen Idec.  The 2012 year to date returns, one year removed from their 2010 ranking are +39% and +34% respectively.

The ninth annual (2009 data) top 2 were Gilead and Celgene.  Returns in 2011 for Gilead were +13% and for Celgene 14.3%

The 8th annual (2008 data) top 2 were Gilead and Genentech.  The return in 2010 for Gilead, one year removed from the 2008 ranking, was -16%.  Genentech was taken out by Roche before 2010.

So, all in all, not bad forward performance, even a year removed from the company ranking.  The Helical Port may well consider investments in Shire, Biogen, and/or Novo as a way to add some middle risk pharmaceutical exposure outside the majors.

Ralph

Helical Investor

2 Comments – Post Your Own

#1) On November 13, 2012 at 9:54 AM, TMFHelical (98.71) wrote:

Added these 'top 5' to my CAPS page for tracking purposes.

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#2) On March 24, 2013 at 8:35 PM, 82574 wrote:

I would also add as a core Biotech Amgen. Venture Capital investor in Amgen for several rounds before the Smith Barney IPO. Also bought additional public shares on the IPO pre-1977.

Kahuna, CFA

Founding Venture Capital

Limited Partnership 2012 

 

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