There's a screaming buy opportunity coming from a certain group of pharmaceutical stocks right now.
These pharma companies offer a certain kind of specialty drug. Research firm IMS reports more than 25% of the money spent on pharmaceuticals in 2012 was on specialty drugs.
And this specific type of specialty drug market is expected to quadruple over the next five years. Consumer spending on these drugs hit $87.1 billion in 2012, according to PricewaterhouseCoopers. In five years that number will soar to $401.7 billion.
That's more than the total $325.7 billion spent on U.S. prescription drugs in 2012, according to The Wall Street Journal.
"Specialty pharmacy, which once occupied only a small niche in the marketplace, has now become the largest growth area in the pharmacy industry," a report from IMS Health said.
That's huge news for these pharmaceutical stocks...
Specialty Drugs Make These Pharmaceutical Stocks a "Buy"
This growing sector is known as "high-margin specialty drugs." They are prescription medications that treat complex, chronic, and debilitating illnesses. They're also very expensive, as much as hundreds of thousands of dollars.
Some of the more common diseases that require high-margin specialty drugs are multiple sclerosis, rheumatoid arthritis, and hemophilia.
Here are three of the priciest on the market:
- Soliris: Developed by Alexion Pharmaceuticals Inc. (Nasdaq: ALXN), Soliris treats the rare blood disorder paroxysmal nocturnal hemoglobinuria. There are only about 8,000 patients in the U.S. with the disorder, but Soliris costs patients roughly $410,000 per year.
- Elaprase: Shire Plc. (Nasdaq: SHPG) developed Elaprase to treat Hunter Syndrome. Patients with the disease are unable to break down complex molecules due to non-functioning enzymes. The drug costs more than $375,000 per year.
- Naglazyme: This drug treats Maroteaux-Lamy syndrome, which can cause dwarfism, heart conditions, and nerve problems. BioMarin Pharmaceutical Inc. (Nasdaq: BMRN) charges roughly $350,000 for the drug.
Not surprisingly, those specialty drugs have also fueled incredible runs in pharmaceutical stocks. ALXN stock has soared more than 625% since 2010. SHPG is up nearly 275% in that time. BMRM has gained 415%.
But there's one section of the specialty drug market that stands out today as the best profit opportunity...
Pharmaceutical Stocks Profiting from 200% Annual Sales Growth
The biggest profit play in high-margin specialty drugs comes from pharmaceutical companies with Hepatitis C treatments.
An April 2014 report from Express Scripts found that spending on Hepatitis C drugs is expected to increase by more than 200% in both 2015 and 2016. Newer and more convenient treatments in the coming years will drive sales.
The best play on that growing Hepatitis C market: Gilead Sciences Inc. (Nasdaq: GILD).
The biggest catalyst for GILD stock has long been its signature drug, Sovaldi.
"Sovaldi is almost certainly going down in history as one of the more successful drugs ever launched," Money Morning's Defense and Tech Specialist Michael Robinson said in December. "In roughly 10 months, it racked up sales of nearly $8.7 billion treating 117,000 patients."
Sovaldi has been on the market since 2013. The drug is 90% effective, and has very few side effects compared to competing drugs. But it's also very expensive. Full treatments cost $84,000 per patient.
Now Gilead has a new drug that will boost sales even higher, and makes it one of the best pharmaceutical stocks to buy today.
It's called Harvoni, and it's more convenient than Sovaldi. It combines compounds from numerous pills, including Sovaldi, meaning patients only take one drug over 12 weeks of therapy.
In 2014, the two drugs totaled $12.4 billion in sales. The company had a total revenue of $24.9 billion in 2014. That was more than twice its 2013 revenue.
Harvoni is even more expensive than Sovaldi, at $94,500 for a 12-week course. In early February, the company announced it will double the discounts it provides patients from an average of 22% to 46% in 2015. Investors didn't like the news. GILD stock fell as much as 10% the next day. But Gilead management said this would make Harvoni affordable to a wider group of patients.
GILD stock has already recouped those early February losses. It's up 11% in 2015, and 25.3% in the last 12 months.
In the current quarter, GILD is expected to grow earnings by 52.7% from last year. Revenue is expected to jump 35% in the quarter. The company also boasts an operating margin of 61.8%.
"Trading at $104 a share, GILD still offers plenty of upside," Robinson said. "I often use the price/earnings to growth (PEG) ratio to value a company. A stock has a 'fair value' price if it has PEG ratio of 1. Gilead's ratio is nearly half that at 0.44."
Related Articles:
- Wall Street Journal: Gilead Sciences Down on Discounting News
- New York Times: U.S. Drug Costs Dropped in 2012, but Rises Loom
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