Small pharma is fighting an uphill battle. Fortunately, this is precisely what inspires a lot of companies to reach for the heavens. Unfortunately, the huge costs associated with taking a medicine from being a great idea to a great product on store shelves is one that can easily leave a smaller company broken and derelict. Let’s see how some of the smallest drug makers in the world are likely to do.
Taking chances
The Medicines Company (NASDAQ:MDCO) is a small company with a small profit margin, but it’s thinking big. Most small cap companies hitch their wagons to one or two ideas, but right now the Medicines Company has three solid contenders in stage III testing. If they can get even one of their two major antiplatelet measures or their broad spectrum antibiotic to market, it could be huge. Also, the company’s bet on potential cholesterol super drug ALN-PCS and licensing it from Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is a pretty big deal in itself.
Planning Ahead
United Therapeutics Corporation (NASDAQ:UTHR) is rocking impressive 31% profit margins with its focus on the booming market for cardiovascular care. But since even an aging population with chronic heart problems isn’t the perfect market, United is expanding into infectious disease control and laying the groundwork for future anti-cancer meds. As if the company’s prospects weren’t nice enough to put this on your short list, United is also trading at around 12 times earnings — which could be the start of a handsomely profitable growth story.
One concern you might have with United is that its founder and CEO Martine Rothblatt has something of a cult of personality in the company. If you have any concerns about Apple’s destiny now that Steve Jobs is gone, you might have similar concerns about what will happen when Dr. Rothblatt eventually leaves or passes.
Taking the road less traveled
Cubist Pharmaceuticals Inc (NASDAQ:CBST) is exploring the realm of antibiotics, which most larger companies have spurned lately. It appears to be working, since the company is carrying a solid 13.5% profit margin and intentionally doesn’t pay a dividend. Often the rejection of a dividend is as a direct result of believing that money can be better used in growing the company.
Of course, this isn’t cheap. The growth story on Cubist has been major news since it was one of the fastest growers in 2010. So the growth story has pushed Cubist to trade at 27 times its current and one-year projected earnings. So if you’re a deal-seeker like I am, you might have to sit out this one unless you’re patient enough to wait for a decent dip, like in November 2012.
The Foolish bottom line
There are a ton of opportunities out there in pharma. While a massive company may not be able to fill the pharmaceutical niches, a smaller company may be perfect for the job. The above companies have serious prospects for growth, and they may be solid candidates for bettering your portfolio.
Chris Hodge has no position in any stocks mentioned. The Motley Fool recommends Cubist Pharmaceuticals.
The article Is There a Future for Small Pharma? originally appeared on Fool.com.
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