While management reported an 85% increase in the number of its Tuzistra XR, cough-cold medication prescriptions year-on-year, it noted that there needs to be “an acceleration in prescription growth” to meet the targeted 105,000 to 115,000 prescriptions for the year. 

With 70% of the 2017/18 cough-cold season remaining, this target is still achievable, but it looks as if the market believes the group will miss its own goal of increasing prescriptions by 200% year-on-year. 

Commenting on the firm’s performance, CEO Ian Garland said: “Whilst we need to see acceleration in prescription growth to achieve our total prescription market guidance of a threefold increase in prescription volume, we are early in the cough-cold season and the US commercial team is executing a disciplined plan to accelerate growth over the coming months.“

Rising losses 

The last time I covered Vernalis, I reported on the half-year profits for the six months to last December. For the period, a substantial loss of £11m was reported as marketing costs rose by nearly 30%. 

At the beginning of 2017, City analysts were expecting the company to report revenue of £16m for the year ending 30 June, before rising to £40m for the year after. As my Foolish colleague Ian Pierce reported in September, Vernalis managed to beat this revenue target, reporting sales of £21m for the year, but pre-tax losses ballooned from £15m to £21.6m. 

Vernalis’ struggles have led City analysts to downgrade their forecasts for growth for the company as well. Analysts are now expecting revenues of just £15.2m for the year ending 30 June 2018 and a pre-tax loss of £36m. If the firm fails to meet its targeted distribution rate for the 2017/18 cough-cold season, then these forecasts will more than likely be downgraded further. 

Burning through cash 

Previously, Vernalis’ one redeeming feature has been its cash balance. At the beginning of 2017, it had cash on the balance sheet of £74m. This balance had fallen to £61.3m by mid-year and according to today’s update, is now £48.9m. 

With losses set to grow for fiscal 2018, I’m worried that it might find itself running out of money within the next two years. Of course, if the sales target for Tuzistra is met, the cash picture could be different by the beginning of next year. 

Still, it’s clear that the firm is running out of headroom. 

The bottom line

Overall, I don’t think it’s wise to buy it after today’s 35% decline.  The company’s trading performance needs to improve dramatically over the next six months, and if it doesn’t, management might have to ask shareholders for extra cash. 

It might be better to wait for concrete proof of success before buying into the growth story. 

The post Should you try to catch this falling knife after today’s 35% slump? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

This is exactly why GlaxoSmithKline (LSE: GSK) is the only pharma stock I’d ever own. Unlike peers such as Shire or AstraZeneca, which are pureplay pharma companies with all the upside and downside that entails, GSK offers exposure to the benefits of the sector, while cushioning the drawbacks with profitable, steady-as-she-goes divisions selling vaccines and consumer healthcare staples such as toothpaste and pain relief tablets.

In H1 2017, these non-pharma products accounted for 42% of group revenue and were actually growing quite nicely. Vaccines revenue was up 23% year-on-year (y/y) and consumer healthcare sales up 13% y/y at actual exchange rates, which were helped considerably by the weak pound.

On top of the steady growth from these divisions, GSK investors also gain access to the company’s array of top-notch pharma products. The company’s respiratory treatments brought in £3.4bn in sales in H1 and are growing nicely, while new HIV treatments were going gangbusters with sales up 32% y/y to £2.1bn.

The combination of steady growth from the non-pharma products with the potential of new pharma blockbusters has proven to be a winning combination, with group sales up 14% y/y in H1 at actual exchange rates and 4% on a constant currency basis. The company’s management team is also putting an increased emphasis on increasing profitability, which is paying off already with adjusted operating margins rising to 27.6% in H1.

Furthermore, with its shares trading at a sedate 13.5 times forward earnings while kicking off a safely-covered 5.3% dividend yield, GSK is priced as a value stock while offering considerable long-term growth potential that only adds to my interest in this relatively safe pharma pick.

A high-risk, high-reward option?

One pureplay pharma stock that exemplifies the roller coaster ride investors can be in for is Vernalis (LSE: VER). The company has spent heavily in recent quarters in preparation for launching its first cough and cold treatments in the massive US market. In the year to June, investments in a large sales staff were beginning to bear fruit with American revenue rising from £1.1m to £2.1m y/y.

Unfortunately, even though the volume of prescriptions for its drugs in the US is rising rapidly, the revenue has yet to translate into bumper profits. Indeed, during the year, pre-tax losses rose to £21.6m from £17.1m in 2016, reflecting both operating expansion into the States and pressure from generics on a European partner’s product sales. For the time being this isn’t a huge worry as the £61.3m of cash on hand at the end of June will cover several years of expansion.

However, while the growth prospects for its American sales are high, investing in a £100m market cap, heavily lossmaking pharmaceutical company is not for risk-averse investor or those like me who don’t know the ins and outs of the drugs and their market like the back of their hand.

The post Why GlaxoSmithKline plc is the only pharma stock I’d ever own appeared first on The Twelfth Magpie.

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Ian Pierce 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 and Shire. 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.

Master investor Neil Woodford owns 28% of the business. It represents a relatively small 0.45% of his flagship equity income fund, but is a top 15 holding in his growth-orientated Woodford Patient Capital Trust with a weighting of 2.25%.

Exciting prospect

Vernalis reported revenue of £12m, but an operating loss of £24m. The was largely down to substantial investment to support the launch of the first product from the company’s cough-cold franchise, Tuzistra, into the US market. In particular, sales and marketing costs were £20m, having been zero in the previous period.

The investment will also support the upcoming launch of the company’s once-a-day antibiotic Moxatagin and there are two further products on track for potential approvals in 2017.

Back in April, Vernalis added to its cash resources by raising £40m at 50p a share through a placing in which Woodford participated. At 30 June, cash stood at £84m. This should be sufficient to see Vernalis through to sustainable profitability — by 2020, if the business delivers the growth potential about which management is “very excited”.

Woodford and his team are also excited, saying in advance of today’s results: “We remain very confident that the company offers significant upside potential as it successfully executes the US cough-cold opportunity”.

Significant upside potential

On the only concrete valuation metric we can apply, Vernalis looks expensive on 19 times trailing 12-month sales. But it’s all about the future.

As a major shareholder with access to the company, Woodford is better placed than humble private investors to take an informed view on the prospects for the business. However, despite his confidence in the “significant upside potential” of the stock, he holds a host of other companies at a similar stage of development, and accepts there’ll be some failures among them.

Thus, Vernalis represents an opportunity at the high risk/high reward end of the investing spectrum. It’s not a stock to put a lot of money into and, like Woodford, spreading your bets across a basket of such prospects would be a sensible approach.

Core buy

Imperial Brands (LSE: IMB) is a very different proposition. This FTSE 100 tobacco giant, which released a trading update this morning, is a core holding of Woodford’s equity income fund, ranked at number three in the portfolio with a weighting of 7.6%. It’s also more amenable than Vernalis to conventional valuation metrics.

Imperial said today it’s “on track to meet full-year expectations” for its financial year ending 30 September. Those expectations include a 15% rise in earnings and a 10% increase in the dividend — the latter being in line with management’s commitment to lift the payout by at least 10% a year over the medium term.

At a share price of 3,970p, Imperial is trading on 16.3 times this year’s expected earnings, and with forecasts of further double-digit growth next year, the multiple falls to 14.6. The valuation is attractive for such a dependable business, and with a 3.9% dividend yield, rising to 4.3% next year, I rate the stock a buy as a core holding for a portfolio.

The post Which of these Neil Woodford favourites is the better buy? appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. 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.

Quarto is an illustrated book publisher and distributor, with a market cap of around £50m, and it’s just released full-year results that beat expectations. With adjusted pre-tax profit up 18%, adjusted earnings per share rose 13%, and the total dividend of 9.5p per share is 6% ahead of last year and yields 3.8% — and it’s covered 3.4 times by earnings. Net debt was cut by 10% too, which is a good sign, with chief executive Marcus Leaver telling us that the firm intends to “steadily reduce net debt further“.

Forecasts suggest two years of EPS growth at 11-12% per year, which would put the shares on a P/E multiple of under seven for 2016, dropping to just six on 2017 forecasts, and would provide PEG ratios of around 0.6. That suggests good growth value to me, and on these fundamentals I’d say Quarto is looking attractive.

Solar power

Shares in PV Crystalox Solar (LSE: PVCS) perked up 4% in early trading to 9.7p, after full-year results revealed an increase in revenues from €53.3m to €64.5m. The company makes photovoltaic silicon wafers, used for capturing solar energy, and it’s been suffering from weak pricing. But chief executive Iain Dorrity told us that the price of wafers “has shown some modest recovery during recent months while the price of polysilicon, the key raw material, has fallen to historic lows“, and that wafers can now be sold at more than their cash cost of production.

The company still widened its loss for the year and is extending a strategic review of its business in what are still difficult trading times. Vernalis had net cash of €12.7m on its books at the end of December, albeit down from €24.6m a year previously and possibly close to the limit if it suffers a further loss in 2016. But analysts are expecting just about break-even. It sounds like 2016 could be a pivotal year — and if demand for solar energy is on the rise, we could be at a good (if risky) buying point.

Medical recovery

My third candidate today is pharmaceuticals firm Vernalis (LSE: VER), whose first-half results led to a 12% drop in the share price to 52p. The shares soared to 87p back in September 2015 on the back of hopes for the firm’s Tuzistra XR cold treatment, but since then shareholders have been hit with a 40% fall.

Interim results showed a revenue increase to £6.1m from £5.7m, with Tuzistra XR contributing £0.6m to that — and it represents the direction the firm is going in the “major transformation in our business” described by chief executive Ian Garland, to specialize in cough and cold treatments.

There’s no annual profit forecast yet, but predicted losses per share are tumbling and the four brokers offering an opinion have Vernalis as a ‘strong buy’. It’s another risky one, but if profitability can be achieved by 2018 then we might be on to a winner.

The post 3 Small Caps Set To Soar: Quarto Group Inc, PV Crystalox Solar PLC, Vernalis plc? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any shares mentioned. 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.

Most of the money goes into the biggies, like GlaxoSmithKline and AstraZeneca, but there’s a whole host of smaller companies out there with great prospects. And some of their shares have been flying:

Wound care

Look at Advanced Medical Solutions (LSE: AMS), for example. It’s a company with a market capitalisation of around £300m, and it’s in the unglamorous-sounding field of wound care technology. But it’s serious business, and Advanced Medical shares are up 16.5% over the past 12 months to 143p, having put on nearly 250% over five years.

Five years of strong earnings growth lie behind that, though the shares are now on a P/E of over 20 with forecast growth slowing a little. But at results time in March, CEO Chris Meredith told us he was “confident that AMS is well placed to drive growth“.

Not a screamingly cheap share, but it looks like a quality company with some key product strengths.

Boring is good

Then there’s UDG Healthcare (LSE: UDG), a bigger company at around the £1.3m market cap level, which on the face of it appears even less glamorous. Based in Dublin, the firm provides services to the medical industry — sales and marketing, wholesaling, packaging and so on.

And it’s shares have done even better over the past year — at 540p, they’re up 54%.

With double-digit EPS rises forecast for this year and next, we’re still looking at growth pricing and a forward P/E of 23 this year. But it looks like a business that will remain in demand, and its first quarter this year has seen it off to a strong start with trading “well ahead” of last year.

The biggest winner

I’ve saved the highest one-year flyer for last. It’s Vernalis (LSE: VER), the smallest of the three with a market cap of a bit under £270m. Vernalis shares have more than doubled in 12 months to 61p, having been sent soaring by approval on 1 May for its Tuzistra branded extended-release cough treatment, developed in conjunction with Tris Pharma Inc.

CEO Ian Garland called it a “very significant moment in the evolution of Vernalis to a commercial stage speciality pharmaceutical company“, and all eyes are now on getting the new product to market for the coming 2015-16 cough-cold season in the US.

What about valuation? Vernalis is not yet profitable, so there aren’t any meaningful traditional ratios available yet — but it could easily be the most exciting of the three, and is definitely one to watch.

The post 3 Soaring Healthcare Opportunities: Advanced Medical Solutions Group plc, UDG Healthcare PLC And Vernalis plc appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

Commenting on the approval, Vernalis’ CEO, Ian Garland, said it is a ‘very significant moment in the evolution of Vernalis to a commercial stage speciality pharmaceutical company’. Investors in the company certainly agree, as evidenced by today’s share price rise. And, with Vernalis having delivered capital gains of 80% in the last year, is it the perfect partner for larger sector peer, BTG (LSE: BTG), in your portfolio?

Track Record

Looking back at the two companies’ track records of profitability, BTG offers much more stability than its smaller peer. That is, of course, to be expected, since BTG is a more mature company, while Vernalis is still transitioning towards being a commercial stage pharmaceutical company. As such, for investors looking for greater stability, BTG appears to be a sound play, since it has delivered growing profitability over the last two years, while Vernalis remains a loss-making company.

Looking Ahead

For investors in BTG, the future appears to be very bright. That’s because it is forecast to deliver a rapid growth in its bottom line, with an increase of 22% pencilled in for next year, followed by growth of 48% in the year after. And, despite this, investor sentiment in BTG has remained relatively weak, with shares in the company being down 9% since the turn of the year. This has helped to push them, however, to a valuation that indicates the company’s share price could be set to move considerably higher. For example, BTG has a price to earnings growth (PEG) ratio of just 0.5, which equates to growth at a very reasonable price.

Meanwhile, Vernalis is set to see its losses widen over the next two years as it continues to seek approval for its appealing pipeline. However, the company has a relatively strong cash position and so is likely to be able to cope with anticipated pretax losses of around £36m over the next two years. Furthermore, with investor sentiment in the company being so strong, further rounds of financing are likely to be well-supported and mean that Vernalis can continue to progress with new drugs and additional approvals moving forward.

Risk

Clearly, all pharmaceutical companies carry a degree of risk, since the outcome of regulatory approvals is a known unknown. However, larger firms such as BTG offer more stability than smaller peers such as Vernalis, since (as mentioned) it is a highly profitable company with strong growth potential. And, looking ahead, this could prove to be a catalyst that pushes its share price higher.

Meanwhile, Vernalis remains a company with considerable future potential in the form of an improving pipeline and adequate financing. So, while it is a relatively risky stock, it could be worth buying alongside BTG – especially if you have a long term timeframe.

The post Is Vernalis plc The Perfect Partner For BTG plc In Your Portfolio? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended 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.