Which Offers The Most Potential Profit For Investors: AstraZeneca plc, SkyePharma PLC, Hikma Pharmaceuticals Plc Or Shire PLC?

Which biotech belongs in your portfolio: AstraZeneca plc (LON: AZN), SkyePharma PLC (LON: SKP), Hikma Pharmaceuticals Plc (LON: HIK) or Shire PLC (LON: SHP)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Hikma Pharmaceuticals (LSE: HIK), Shire (LSE: SHP) and SkyePharma (LSE: SKP) are three of the most exciting biotechs trading on the London market today.

All three companies have achieved astounding returns for shareholders during the past few years, and all three have rosy outlooks, as they go from strength to strength. 

However, the shares of Hikma, Shire and SkyePharma aren’t cheap. As these companies have gone from strength to strength, investors have been willing to pay a premium to get in on the action. 

Shire is the cheapest of the three. The company trades at a forward P/E of 18.5. SkyePharma trades at a forward P/E of 24 and Hikma trades at a forward P/E of 28.4.

But the big question is, should investors be paying such a hefty? Would long-term investors be better off buying AstraZeneca (LSE: AZN), which currently trades at a forward P/E of 15.2, but is struggling with falling sales. 

Trouble brewing 

Over the past two years, Hikma and Shire have drastically outperformed the FTSE 100 by 125% and 90% respectively but this outperformance is unlikely to continue. Indeed, investors as a group are now becoming more cautious about where they invest in the biotech sector, and many are shying away from the companies trading at a premium to the sector as a whole. 

What’s more, these a growing chorus of lawmakers who are calling for price caps on specialist drugs produced by the likes of Shire, and to a lesser extent, Hikma. It’s unclear how regulation of drug prices would affect these companies directly, although it’s clear that price caps would make investors think twice about paying a premium price for the shares of the companies affected.

Put simply, as the threat of regulation grows, Shire and Hikma’s upside could be limited. 

Waiting for growth

Astra’s shares have fallen 3.2% year to date and investors are clearly apprehensive about the company’s prospects. Astra’s earnings are set to shrink 2% this year, and around 30% of group sales come from three drugs, which Astra is set to lose the exclusive manufacturing rights for by 2017 at the latest.

However, for investors with a long-term outlook Astra could be one of the best bets in the pharma sector. The company is expected to return to growth by 2017, and the group has 119 projects in its clinical development pipeline. And while investors are waiting for Astra to return to growth, the company’s forward dividend yield of 4.4% provides an attractive level of income for investors.

Set for rapid growth

SkyePharma’s growth is only just starting. The company is ploughing cash into R&D, and it already has several new products set to hit the market during the next few years. These include SKP-2075, for chronic obstructive pulmonary disease and Soctec™, a concept for a novel, proprietary gastro-retentive drug delivery platform. R&D spending totaled £0.5m during 2013 but has risen twenty-fold. R&D spending is expected to hit £10m during 2015.

According to City forecasts, SkyePharma’s earnings per share are expected to increase 43% next year. Based on this projection the company trades at a 2016 P/E of 15.6.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares of AstraZeneca. The Motley Fool UK has recommended Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »