Is Surging Indivior PLC A Better Buy Than Struggling AstraZeneca plc?

Specialty pharmaceutical company Indivior (LSE: INDV) is rising today after the company issued an upbeat trading statement for the first half of the year. 

The company announced that trading for the period was ahead of expectations and management raised its guidance for the full year. 

Indivior now expects full-year 2015 revenue of between $935m to $965m, compared to its previous guidance of $850m to $880m. Net income is now expected to be in the region of $185m to $210m, compared to previous guidance of $130m to $155m.

First-half pre-tax profit fell to $199m, down from $327m as reported last year. 

Lack of diversification 

Even though Indivior’s results beat expectations, the company is still a one-trick pony. Indeed, with only one key treatment on the market at present, Indivior’s success is highly dependent upon the company’s ability to monetise its drug pipeline. 

Indivior’s key product is its opioid dependence treatment Suboxone Sublingual Film, the sales of which are falling as low-cost generic competitors break Indivior’s grip over the market. 

To a certain extent, AstraZeneca (LSE: AZN) is in the same position as Indivior. As Astra’s sales from legacy drugs are falling, the company is pinning its hopes on a raft on new treatments to help return the company to growth. 

However, as all investors know, diversification is key to achieving the best returns while minimising risk. And when it comes to treatment diversification, Astra’s broad offering should win over investors every time. 

It’s estimated that only 7% of new drugs make it from the initial discovery stage to commercial sale, which means that it’s crucial for pharmaceutical companies to hedge their bets by developing a broad range of new potential treatments. 

Astra has 222 new products currently under development. On the other hand, Indivior is expecting one new product roll-out every year from 2016 to 2020 — assuming everything goes to plan. In other words, Indivior only has four new products under development. 

Premium valuation 

Indivior’s performance has eclipsed that of Astra over the past six months. While Astra’s shares have slipped by 11.4% since the end of January, Indivior’s shares have gained a staggering 53% over the same period. 

However, these gains have left Indivior looking expensive, considering the company’s earnings are set to slide by more than 40% this year and a further 20% during 2016. At present levels, Indivior is trading at a forward P/E of 14.1 and a 2016 P/E of 17.5. City analysts believe the company’s shares will support a dividend yield of 2.5% this year. 

In comparison, Astra’s earnings per share are set to fall by around 1% this year and 3% during 2016 before returning to growth during 2017. What’s more, the group currently trades at a forward P/E of 15.6 and supports a dividend yield of 4.3%. 

The bottom line

Overall, Astra is cheaper, supports a more attractive dividend yield, and has a greater number of new treatments under development than Indivior.

So, while Indivior may have outperformed its larger peer over the past six months, I'm placing my money on Astra for the long-term. But if you're not convinced about Astra's long-term prospects, then The Motley Fool's top analysts have recently identified a biotech whose potential near-term upside, they reckon, could be as high as 45%!

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