I believe that the sector will continue to outperform the market and investors should consider investing in a mix of small and large cap biotechnology companies. Galena Biopharma Inc (NASDAQ:GALE) and Gilead Sciences, Inc. (NASDAQ:GILD) have both outperformed the S&P 500 index in the last one year, and I believe these stocks have the potential to rise further.
A small cap to watch
Galena Biopharma Inc (NASDAQ:GALE) is a biopharmaceutical company involved in the development of oncology treatments. The company’s leading candidate is NeuVax, which is currently in Phase III trials for treating the recurrence of breast cancer. Right now, there’s a high demand for small biotechnology companies with promising drug candidates. This is because a number of major patents are expiring, such as Lipitor and Seroquel IR, which means that manufacturers of these drugs are being forced to invest in new drugs to fill this major void.
Galena Biopharma Inc (NASDAQ:GALE) has a very strong recommendation from sell side analysts which have a unanimous buy rating on the stock. The mean sell side target price on the stock is $4.8, which is 50% above the current stock price. There are number of potential buyers of Galena, which include some leading players like AstraZeneca plc (NYSE:AZN) and Pfizer Inc. (NYSE:PFE).
AstraZeneca recently decided to focus on three key areas, including Oncology. Galena Biopharma Inc (NASDAQ:GALE) would be a perfect fit for a company suffering from a weak pipeline and falling revenue such as AstraZeneca. The company currently has more than $8.5 billion in cash and can easily afford Galena worth around $200 million. AstraZeneca has already announced that it plans to make focused acquisitions and Galena will make a lot of sense for the struggling giant.
A large cap idea
Gilead Sciences, Inc. (NASDAQ:GILD) is probably the best placed biotechnology company on the stock market. It is not only relying on its pipeline for its valuations, but has a steady stream of cash flows from its drugs already available in the market. Gilead currently dominates the Aids and Hepatitis market space with Truvada and Quad. The company has also received the FDA approval for the use of Truvada for the prevention of HIV for people in high HIV risk profession.
In the last one year, the stock has appreciated a mammoth 110%. This appreciation has been a result of positive FDA action regarding Gilead Sciences, Inc. (NASDAQ:GILD)’s candidates and high earnings visibility from the antiviral segment. In the last six months, insiders have sold approximately 12.1 million shares of the company, which reduces total insider ownership by 17%.
During the same interval, institutions have also sold approximately 42 million shares of Gilead Sciences, Inc. (NASDAQ:GILD), which reduces institutional ownership by 3%. These sales are more due to investors taking profit after a super run rather than any negative catalysts.
Gilead is currently trading at a P/E of 18.9x and pretty close to the mean sell side target price of $55. 25. Analysts have a ‘buy’ or ‘strong buy’ recommendation on the company and only four have a hold recommendation.
Conclusion
Galena Biopharma Inc (NASDAQ:GALE) and Gilead Sciences, Inc. (NASDAQ:GILD) are both strong buys at these levels. Galena has more upside potential because it is an attractive takeover target at these levels. The company will be an ideal fit for AstraZeneca because it is available at pretty cheap valuations, and also because it falls into one the three focus areas, Oncology.
The article 2 Biopharmaceutical Companies Worth Buying originally appeared on Fool.com.
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