Bernstein analysts, in a recent research note, identify Amgen and Gilead as accounting for over 70% of the biotech industry’s total profit.
On Friday, Vincent Chen and Geoffrey Porges analysts at Bernstein analyzed the most value driving companies in the industry of bio-tech. Gilead Sciences, Inc. and Amgen, Inc. were recognized as 2 biotech companies that account for approximately for around three fourth of the bio-tech industry’s income pool. Gilead is one step forward with an above average ROIC (return on investment capital).
Both the analysts have measured the discussed industry’s profit on the basis of available and currently operating cash flow, which consist of a combination of research & development spending and adjusted cash flow, but eliminate stock awards and asset write down.
The analysts analyzed that the large cap size biotech industries pool has improved at a ten year compounded yearly growth rate of 16.4% to reach $38.8 billion in fiscal year 2014, from previous $9.9 billion in fiscal year 2005. If Gilead is kept out of the calculations, the industry profit pool only grew by 11.5% from $8.9 billion in fiscal year 2005 to $23.8 billion in fiscal year 2014.
The note states that among large cap bio-tech companies, Amgen Inc. had generated most cash flow in fiscal year 2005. The company made $7.1 billion in cash flows during the year, contributing almost 72% to the industry’s total profit. The scenario was totally different last year, when Gilead beat Amgen as the biggest cash flow generator, mainly because of its hepatitis C treatment drug, Sovaldi.
Introduced in December 2013, the hepatitis drug helped to lessen treatment time to almost 12 weeks, from 24 to 48 weeks, and significantly lowered negative side effects. Later, Gilead introduced Harvoni, an enhanced version of Sovaldi, in October last year, which further shorten the treatment times to 8 weeks. In the meantime, Amgen lost its overseas patent for its best seller, Enbrel, as well as United States exclusiveness on another top selling, Neupogen. Sales of Nepogen reduced further in fiscal year 2013 as it witnessed competition outside the country. Meanwhile, Gilead Sciences made $15 billion in cash flows for the period, making up nearly 39% of the total profit pool of the industry.
The analysts said, “Although growing in the absolute dollar amount, Amgen’s share of the industry profit pool has been shrinking over the years.”
The analysts noted that Gilead has continuously produced above average ROIC since fiscal year 2007. They also pointed out Alexion as a biotech company generating ROIC more than its peers since fiscal year 2011, after Gilead.
Gilead's stock was down 0.72% at $107 during pre-market session today.
No comments:
Post a Comment