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Is Scancell Holdings Plc The Perfect Partner For BTG plc And Shire PLC In Your Portfolio?

Shares in pharmaceutical company, Scancell (LSE: SCLP), have fallen by as much as 10% today despite the company providing a positive update regarding a clinical trial. In fact, Scancell reported that the phase 1/2 clinical trial of its melanoma treatment called SCIB1 is yielding upbeat results, with data showing that all sixteen patients with resected disease (which means it has been surgically removed) are still alive. Furthermore, only five patients have experienced a recurrence of the disease, with the remaining patients being disease-free for between 27 and 46 months.

This has prompted Scancell to state that it believes SCIB1 has the scope to become the first non-toxic effective treatment for resected melanoma. And, with it being safe and well-tolerated, its prospects for usage appear to be more encouraging.

Share Price

As mentioned, Scancell’s shares are down heavily today and this could be a result of profit taking by investors who have seen the value of their holdings rise by 23% in the last month alone. Of course, the company is still down by 58% in the last five years and, looking ahead, it is likely to remain loss-making in each of the next two years, as it has been during the last four years.

However, this may not be such a vast problem for the business, since it had £4.3m of cash on its balance sheet as at October 2014 and it currently has no debt. As such, and while refinancing may be required over the next couple of years, the impressive progress being made in clinical trials and improving investor sentiment show that attracting fresh capital is unlikely to be a particularly difficult process.

Partnerships

Of course, it appears to be a sensible move to pair up Scancell with profitable, more stable peers that also have bright futures. Two fine examples are Shire (LSE: SHP) (NASDAQ: SHPG.US) and BTG (LSE: BTG), which may not provide quite the same capital gain potential as Scancell, but which have more financial security and more stable track records of profitability. For example, BTG has been profitable in each of the last four years and Shire has achieved the same feat in each of the last five.

Furthermore, Shire and BTG are also providing investors with something to cheer about. For example, Shire is in the midst of a period of strong sales growth, with its top line expected to rise by 11% next year and double by 2020. Meanwhile, BTG is due to post earnings growth of 84% over the next two years, which highlights that there are excellent growth opportunities even among the mid-to-large pharmaceutical companies.

Looking Ahead

Clearly, Scancell has considerable potential, but comes with great risk, too. Not only is it likely to require refinancing, but its clinical trials may not provide the results it is hoping for, and so partnering it up with larger firms such as Shire and BTG seems to be a sensible step. While all three have considerable appeal, their strengths seem to make up for each other’s’ weaknesses, thereby making the three stocks a sound combination.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended BTG. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.