2014 has been a great year for investors in Vernalis (LSE: VER), with shares in the pharmaceutical stock being up 25% year to date. This easily beats the performance of the FTSE 100, which is up 1% over the same time period. Of course, Vernalis remains unprofitable but, as today’s hugely positive news flow shows, it could prove to be a strong performer moving forward. It could also be the perfect complement to GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) in your portfolio. Here’s why.
Upbeat News Flow
This week saw yet more positive news flow for Vernalis, with the company having its cold prescription treatment, Tuzistra, approved for full review by the FDA. The drug, which is being developed in partnership with Tris, is the first of up to six unique extended release equivalents to existing immediate release prescription cough cold treatments. Although it triggers a milestone payment from Vernalis to Tris, it’s great news for the company and Vernalis remains hopeful that it will be on sale in late 2015.
Clearly, it’s great news for Vernalis and shares in the company reacted positively. Further strong news flow could also have a big impact on the company’s share price but, for now at least, Vernalis remains a relatively high-risk pharmaceutical play. That’s why it could prove to be the perfect complement to sector peer, GlaxoSmithKline.
Certainly, GlaxoSmithKline is not without risk. Its bribery allegations have depressed sentiment heavily in recent months and have sent shares falling by 11% since the start of the year. However, GlaxoSmithKline remains vastly profitable and has a hugely diversified pipeline that could help to grow the top and bottom lines at a brisk pace moving forward.
Similarly, a mixture of the two stocks could prove to be worthwhile from an income perspective. While Vernalis currently does not pay a dividend (and is not expected to for the next couple of years, as it invests heavily in drug development), GlaxoSmithKline’s yield stands at 5.7%. This means that the two companies’ combined yield remains close to the FTSE 100’s 3.2% and, furthermore, the long-term growth potential (and possible reward) remains very lucrative.
The Best Of Both
Indeed, Vernalis and GlaxoSmithKline seem to offer the best of both. Vernalis has considerable capital growth potential (as shown thus far in 2014) and further positive news flow regarding its pipeline could boost its share price further, while GlaxoSmithKline offers a pipeline diversity and income potential that could also prove to be highly lucrative moving forward.
As a result, the two pharmaceutical plays could prove to be sound investments, together, in the long run. Of course, they’re not the only ones and that’s why we’ve written a free and without obligation guide to Where We Think The Smart Money Is Headed.
The guide could help you to find the next big pharmaceutical play and, as a result, has the potential to make 2014 and beyond an even more prosperous period for your portfolio.
Click here to access your copy of the guide – it’s completely free and comes without any further obligation.
Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.