Sarepta Therapeutics Inc (SRPT), Pharmacyclics, Inc. (PCYC): Are These Billion-Dollar Biotechs Overvalued?

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is another biotech with only a couple of drugs currently on the market: Incivek and Kalydeco. Initial peak sales for Incivek were estimated at around $2.9 billion, but those levels seem unlikely to be reached with sales already falling in the face of competition.

RBC Capital estimates that Vertex’s portfolio of drugs for cystic fibrosis, including Kalydeco, could reach $3 billion in peak annual sales. If we add in estimated peak sales of $1.5 billion for other drugs that Vertex has in development, that gives us an optimistic total of $7.4 billion.

The market cap for Vertex now stands at $18.3 billion. This level equates to nearly 2.5 times peak annual sales for the company’s drugs using very optimistic projections. That multiple could easily double if we used more realistic estimates for Incivek. Pharmacyclics, Inc. (NASDAQ:PCYC) and Sarepta Therapeutics Inc (NASDAQ:SRPT) again look attractive by comparison.

Overvalued?
The future carries much more weight than the past in valuing any stock, but especially biotechs. In light of the numbers, I don’t think these billion-dollar biotechs are overvalued at all. In fact, I think they’re both still undervalued considering their potential.

Since Pharmacyclics and Sarepta have yet to receive approval for their lead drugs, we do need to consider the possibility that bumps along the road could occur. However, both companies seem to have the odds in their favor at this point.

The article Are These Billion-Dollar Biotechs Overvalued? originally appeared on Fool.com.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and Vertex Pharmaceuticals. The Motley Fool owns shares of Johnson & Johnson.

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