Investment Insider: Pharmaceutical industry's best years lie ahead

I have heard many experts say that the best days of the pharmaceutical sector are behind it.

Drug developers are finding it harder to come up with new medicines – it is not easy to find a new statin or cholesterol-buster to compete with existing medications. Consequently, companies are forced to go to greater lengths to find new treatments as patents expire and me-too drugs appear.

That said, big pharmas such as GlaxoSmithKline boast a bulging pipeline of drugs in late-stage development. Many of these show promise and GSK expects a slew of drugs to gain regulatory approval in the next two years.

But for now, it has been a case of managing costs and generating cash from existing products. It is also keeping shareholders sweet by hiking its dividends. A prospective dividend yield of 5 per cent is welcome when stock markets are volatile. At 1,435p the shares are valued at around 11 times earnings, which is not too demanding.

AstraZeneca is going through similar patent-expiry pains. In the first quarter, revenues fell 11 per cent after it lost exclusivity on key brands. In fact, the fall for the year is likely to be in the mid-teens and the chief executive is to retire early. The shares are valued at eight times earnings which reflects the pessimism over future profits. But, there are no indications it intends to cut its dividend.

For investors with an eye on growth, Shire's business is founded on a strategy of buying young drugs from small biotechnology outfits and developing them. This has worked well with profits more than trebling in four years. The company does pay a small dividend, but rather than ratchet up its payout, Shire prefers to plough most of its earnings back into the business.

Hikma is another highly-rated growth company. It began as a one-product outfit with a bacterial infection-fighting drug. Today, it is a £1.3bn business that has doubled its sales and profits in four years . It is a good example of a Garp – Growth At a Reasonable Price – share, with a price/earnings to growth (PEG) ratio of 0.5. Ideally, you want a PEG ratio of less than one.

David Kuo is director financial website fool.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
peoplePaper attempts to defend itself
Voices
voicesWe desperately need men to be feminists too
Life and Style
food + drink
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
PROMOTED VIDEO
Life and Style
tech
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
John Terry, Frank Lampard
footballChelsea captain sends signed shirt to fan whose mum had died
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
tv
News
i100
Life and Style
tech
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
life
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    IT Project manager - Web E-commerce

    £65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Day In a Page

    Secret politics of the weekly shop

    The politics of the weekly shop

    New app reveals political leanings of food companies
    Beam me up, Scottie!

    Beam me up, Scottie!

    Celebrity Trekkies from Alex Salmond to Barack Obama
    Beware Wet Paint: The ICA's latest ambitious exhibition

    Beware Wet Paint

    The ICA's latest ambitious exhibition
    Pink Floyd have produced some of rock's greatest ever album covers

    Pink Floyd have produced some of rock's greatest ever album covers

    Can 'The Endless River' carry on the tradition?
    Sanctuary for the suicidal

    Sanctuary for the suicidal

    One mother's story of how London charity Maytree helped her son with his depression
    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits