Further progress

Updating the market on Wednesday was ribonucleic acid (RNA) technology company Silence Therapeutics (LSE: SLN). The company reported that it has been granted patents in the US. They will provide the business with further protection for its chemical modification technology there. The company believes that the newly granted claims are relevant to third-party RBAi medicines. It takes the total number of its US patents to 10.

While the company is currently lossmaking, according to its most recent interim results it is making good progress with its strategy. Its core business of drug discovery and development is now fully operational. It has also made changes to its management and controls functions which could lead to improved performance in the long run.

With Silence Therapeutics believing that at least one company may require a licence under its chemical modification patent portfolio, its financial future could improve in future years. Therefore, while it may be a relatively risky stock to own due to its small size and lack of profitability, its share price could continue to rise after its 97% gain in the last year.

Declining sentiment

While Silence Therapeutics may have risen sharply, fellow healthcare industry incumbent Hikma Pharmaceuticals (LSE: HIK) has had a tough period. The company has recorded a share price decline of 41% in the last year as a profit warning has hurt investor sentiment in the stock. That was caused by pricing pressures which it expects to last into 2018. This means that a quick recovery in its share price may not be on the cards.

However, after a forecast fall in earnings of 20% in the current year, Hikma is expected to record a rise in its bottom line of 10% next year. This could help to boost investor sentiment – especially since it now trades on a relatively low valuation. For example, the stock has a price-to-earnings growth (PEG) ratio of just 1.5 and this suggests that a wide margin of safety could be on offer.

Certainly, the company’s near term outlook is challenging. And there is a risk that the pricing pressures it is experiencing could last over the medium term. However, with a low valuation and a fundamentally sound business model, it could deliver improving share price performance in the long run. Therefore, now could be the perfect time to buy a slice of it.

The post 2 growth stocks for the long run appeared first on The Motley Fool UK.

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Peter Stephens owns shares in Hikma Pharmaceuticals. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

Astra versus BTG

AstraZeneca has seen annual earnings declines that have totted up to the extent that 2015 earnings came in some 40% lower than in 2011. And earnings are set for further falls in both the current year and 2017, according to City consensus forecasts.

In contrast, BTG’s earnings have been on the rise, and the consensus forecast yesterday was for an 18% increase for the company’s financial year ending 31 March. That may be revised upwards somewhat, after the company said in a pre-close trading update today that revenue for the year is now expected to be at the upper end of its guidance range, albeit boosted by currency tailwinds.

With BTG reinvesting cash generated from its specialty pharmaceuticals and licensing businesses into its interventional medicine portfolio, analysts expect earnings to accelerate higher in the next two years, with growth of around 20% rocketing to 40%. If the company delivers, a current price-to-earnings (P/E) ratio of well above 30 would fall to around 20.

BTG appears to have a clear routemap for producing strong long-term earnings growth, and the shares could prove to be a good buy at their current 625p level.

However, I believe Astra also offers excellent value right now. The shares are trading at below £40, and the P/E on what is expected to be the bottom of the company’s earnings declines next year is an attractive 14, with a 5% dividend yield to boot.

Despite going through a difficult period, Astra’s medium-to-long-term future is looking bright, which is perhaps recognised by the £55-a-share offer US giant Pfizer made for the company a couple of years ago.

Silence Therapeutics

Silence Therapeutics is a very different proposition to Astra and BTG in that earnings are currently negative. In fact, the company doesn’t even generate any revenue — and the situation isn’t expected to change for a few years yet.

This small biotech firm — it has a market cap of £86m at a current share price of 123p — describes itself as “a leader in the discovery, development and delivery of novel RNA therapeutics for the treatment of serious diseases “.

I always find it irritating when companies use unexplained specialist acronyms, initialisms and other abbreviations in their communications to investors and potential investors. I had to look up RNA, which would seem to be ribonucleic acid, which is apparently important in the coding, decoding, regulation, and expression of genes.

Silence has been burning less than £10m a year cash on developing its pipeline, and with net cash of £52m reported in its annual results today, the company is clearly well-funded. However, putting an appropriate valuation on the business at this stage is not easy. As such, I would be more comfortable investing in Astra and BTG.

The post Should You Dump AstraZeneca plc And Buy BTG plc & Silence Therapeutics plc? appeared first on The Motley Fool UK.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and 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.