Pharmaceuticals stocks like AstraZeneca (LSE: AZN) are doing well in 2020, for obvious reasons. The AstraZeneca share price is up 9.5% this year, while the FTSE 100 is down 20%. Some biotechnology stocks are doing even better, and Silence Therapeutics (LSE: SLN) is one of them, with a share price gain of 35%.
Silence has a proprietary technology platform for drug development based on RNA interference. That provides researchers with the ability to develop treatments to selectively inhibit gene expression. I don’t have the expertise to know what’s likely to come from it. But anything that provides the ability to selectively target specific genes responsible for diseases just has to be a good thing.
The company isn’t profitable yet, and that does make it very hard to place a valuation on its shares. I’d expect volatility too, and a comparison with the AstraZeneca share price is telling. Over the past five years, the two have had a pretty similar overall result. Silence Therapeutics is up 77%, while AstraZeneca has the edge with a 92% gain. But that’s where the similarity ends.
A recent ten-bagger
AstraZeneca shares have been climbing steadily, while the Silence Therapeutics chart shows a history of boom and bust. Or perhaps bust and boom, as the price had been in a slump until the middle of 2019. But since then, Silence shares have soared more than tenfold in value, easily beating the AstraZeneca share price in the short term.
For the first half of the year, Silence Therapeutics recorded an £11m loss after tax. But it reported cash equivalents and term deposits of £50.3m at 30 June, which looks healthy. That’s an increase, and it’s driven by the firm’s collaboration with AstraZeneca. The firm received a cash payment of $60m and an equity investment of $20m, and stands to reap “up to $400 million in potential milestones for each target plus tiered royalties“.
AstraZeneca share price picking up
Speaking of AstraZeneca, the pharmaceuticals giant had just paused its late-stage Covid-19 study after a patient taking part reported a side effect. But the trial has already been resumed. The AstraZeneca share price hasn’t done much yet in response, but hopefully any renewed Covid-19 pessimism will have subsided a little.
Meanwhile, the AstraZeneca resurgence under boss Pascal Soriot continues. The company’s shares had been in the dumps due to the loss of patents and a drying up development pipeline. Big investment in research is reversing that situation, though it was always going to be a long-term project.
Not too late to buy
But with the AstraZeneca share price’s impressive performance of the past five years, have investors missed the boat? I’d say a big no to that.
Profits from the firm’s refocused research and development are really only just starting to come through. Forecasts suggest a price-to-earnings multiple for 2021 of a little over 20, and I reckon a few years of earnings growth could soon see that tumble. And that should feed through to higher dividend yields too, currently at around 2.6%.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.