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2 no-brainer stocks I’d buy in pharma

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There is no shortage of great pharmaceutical stocks that share pickers can tap into. Blue-chips GlaxoSmithKline and AstraZeneca may grab the lion’s share of investor attention, but a quick glance of the FTSE 250 reveals a number of other great drugs stocks I reckon could make you a fortune. Two of these are Dechra Pharmaceuticals (LSE: DPH) and Indivior (LSE: INDV).

The cat’s whiskers

Unlike the Footsie giants mentioned, Dechra has no patent-related problems that could create bottom-line turbulence in the near term and beyond.

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City analysts are expecting the giant in the realm of animalcare to keep earnings swelling by double-digit percentages for some time to come. A 10% rise is forecast for the year ending June 2018, with an extra 12% advance estimated for the following period.

Dechra has spent a fortune through shrewd M&A activity in a bid to build its pipeline and bolster its global footprint, and the business has no plans to slow down yet, a promising signal for future earnings.

Just this week it agreed to pay €340m for veterinary care specialists AST Farma and Le Vet to enhance its position in the Netherlands and across Europe, as well as give it a wide generics product portfolio and an enlarged drugs pipeline. Dechra raised £105m via a share placing to help finance the deal, and it followed hot on the heels of the purchase of New Zealand-based distributor RxVet in December.

The drugs market for agricultural and so-called companion animals is increasingly big business. Dechra saw revenues at constant currencies leap 10.5% between July and December and it is easy to see the top line continue to swell as its new products steadily hit the shelves.

The business deals on a forward P/E ratio of 32.5 times but I consider this to be a fitting premium given its dominant position in a fast-growing marketplace.

Brilliant sales prospects

Indivior will have to wait a little longer to generate meaty profits expansion, although this does not diminish my positive take on the addiction specialist.

The business is expected to follow a predicted 20% earnings slide in 2017 with a 23% fall in the current year. But the bottom line is expected to swing into action from next year, starting with a 3% rise in 2018.

The share price plummeted in September as fears over the impact of generic competition on its heroin addiction-battler Suboxone reached fever pitch. But investors have been piling back in with gusto amid the realisation that these concerns looked significantly overcooked.

The market to help those with opioid addiction is of course a huge one, offering the FTSE 250 share plenty of revenue opportunities in the long run. But Indivior has its eye on other prizes too and this month entered into a strategic agreement with Switzerland’s Addex Pharma to develop treatments for alcohol and cocaine addicts.

The British firm, which paid £5m upfront and will invest in research over the next two years, said that its partner has the “most advanced science” in the realm of GABAB positive allosteric modulators to combat addiction in these areas. The deal could possibly open the door to spectacular sales growth further down the line.

Indivior may change hands on a slightly-lofty prospective P/E rating of 19.1 times, but I believe its strong position in the field of anti-addiction treatments warrants an expensive rating.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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