2 pharmaceutical stocks growing sales in the giant US drug market – should you buy?

Australia has a number of biotechnology and pharmaceutical companies operating on an international level. Their names and products may not be familiar in everyday life, but they are successful nonetheless.

Developing drugs can be quite lucrative with patented brand name drugs reaping premium prices while being protected against generic drug manufacturers. Here are two companies that are turning good profits in this high tech business.

Mayne Pharma Group Ltd (ASX: MYX), the developer and manufacturer of generic and branded pharmaceuticals, has more than doubled revenue and significantly raised underlying net profit in the last three years. In the first half of FY2014, reported net profit after tax was $8.4 million, well up from the previous corresponding period.

It doubled the number of its generic products from ten to twenty over the past year. In addition, it has ten products pending approval with the US Food and Drug Administration (FDA) and another twelve with the Therapeutic Goods Administration (TGA).

Strong growth is expected over the near term and its PE is now 35. It doesn’t pay a dividend, yet it is putting a lot of its money into R&D projects to create new products.

Its share price has risen from about $0.45 to $0.97 in the past twelve months.

Acrux Limited (ASX: ACR) develops and commercialises drug delivery systems that administer pharmaceuticals through the skin. Its main product is Axiron, which aids in the treatment of low testosterone in men.

It has turned a profit for the past four years. Its interim net profit shot up to $24.9 million over the $1.8 million in 1H 2013. It achieved the sales threshold set in its agreement with US pharmaceutical giant Eli Lilly, triggering the right to receive $25 million in March.

It gets royalties based on percentages of worldwide net sales. In the 2014/2015 period, it forecasts a $50 million milestone payment and more in the years after that.

The stock has a 9.8 PE, whereas the sector average is 24. Its share price has trailed down since July last year, falling over 50% in the last 12 months.

Foolish takeaway

The growth of pharmaceutical companies comes from research and development investments and having as many products in the development pipeline as possible. Both companies are selling products in the US market, one of the largest drug and treatment markets in the world.

Acrux is developing other cancer related drugs as well as antifungal therapeutics, yet for now the one product, Axiron, is driving revenue.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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