3 Reasons to Like This Critical Care Company

The Medicines Company (NASDAQ: MDCO  ) is a mid-cap value stock that jumped by 21% in the last 12 months, trading at a 52-week price range of $20.04-$37.40. This is backed by strong performance and significant sales growth in marketed products such as anticoagulants. Essentially, the company provides medical solutions for the treatment of critical care patients in hospitals. I consider this an investment-grade company based on the following factors:

  • Solid portfolio with wide range of products and product candidates
  • Opportunity in highly competitive critical care and anticoagulant markets
  • Sales growth driving positive performance

Diversified portfolio
The company has three marketed products and five in different development stages. Importantly, all of them are focused on critical care therapeutics, which creates technology depth for the company. The marketed products in the U.S. include Angiomax, Cleviprex, and Argatroban.

  • Angiomax: Angiomax injection, an anticoagulant agent, is used to prevent the formation of blood clots that lead to heart attack or stroke.
  • Argatroban: Used as an anticoagulant in adult patients.
  • Cleviprex: Indicated for the reduction of blood pressure when oral therapy is not feasible.

Moreover, the pipeline includes a variety of product candidates. Of them, three products -- cangrelor, oritavancin and MDCO-157 -- are in advanced stages, and two -- MDCO-2010 and MDCO-216 -- are in early stages of development. The company also has a portfolio of generic products used for acute care. In addition, it co-partners with AstraZeneca to market the oral antiplatelet drug Brilinta in the U.S. and with Bristol-Myers Squibb for Recothrom in the global market. Recothrom is a surgical hemostat that is applied topically during surgery to stop bleeding.

Opportunity in anticoagulant and critical care therapeutics markets
More than 5 million patients are admitted to American intensive care units annually, primarily for critical medical conditions including respiratory failure, postoperative management, stroke and heart failure. Increasingly, infants and the older population are getting admitted. According to GBI Research estimates, the overall critical care therapeutics market value is expected to grow at a compounded annual growth rate of 5% to reach $3.2 billion in 2019. The growth is largely driven by increasing demand of existing products, and approval and launches of new products.

The anticoagulant therapies market is large, and competition is very intense due to the incidence and severity of cardiovascular diseases. There are a number of anticoagulant therapies currently available in the market. New products such as oral anticoagulants are also in many pipelines. MarketResearch also estimates that the U.S. anticoagulants market will grow from $7.06 billion in 2012 to $15.32 billion in 2019. MDCO focuses mostly on the U.S. market and generates more than 90% of revenues from the U.S. Assuming even a 2% market share for its candidate product Angiomax, market opportunity for the company in the anticoagulant market will be around $170-$200 million by 2015.

Position among peers
Angiomax competes primarily with Eli Lilly's ReoPro and Integrilin from Merck (NYSE: MRK  ) . Integrilin is a platelet aggregation inhibitor indicated for the treatment of acute coronary syndrome and percutaneous coronary intervention. The product is losing its sales quarterly, possibly due to advent of new drugs and generic products. It is expected to decrease further in coming quarters. In the second quarter of 2013, Merck's sales were down by 7% to $11 billion, and adjusted net income also decreased by 24% to $2.5 billion, or $0.84 per share, compared to same period last year. I suspect that this trend will continue for the next quarter.

Recothrom competes with the FDA-approved Gelfoam Plus hemostasis kit from Baxter  (NYSE: BAX  ) . The kit comprising of Pfizer's Gelfoam and human thrombin from Baxter is used to control bleeding during surgical procedures. Both companies have signed an agreement to market and manufacture the kit, and strong collaboration and positioning should boost sales growth. Baxter had stable performance during the second quarter of 2013: Sales were up by 4%, and both adjusted net income and earnings were up as well.

Positive performance
The Medicines Company has been showing outstanding performance for a small company. In the second quarter ended June 30, its net revenues were $172.8 million, an increase of 27% over the same period last year. The growth was due to increase in sales of its three marketed products.

Angiomax U.S. sales were up by 14% to $137.9 million, Recothrom U.S. sales were up $17.9 million, and Angiomax/Angiox sales outside of the U.S. were up by 11% to $13.2 million.

In every indicator of fundamental strength, the company excelled. Adjusted net income in the recent quarter was $29.2 million, up by 62% compared to $18 million last year, and adjusted EPS was $0.50, an increase of 56% from $0.32 in the same period in 2012.

The company also has a strong cash balance. As of June 30, cash balance was $292.9 million, compared to $519.4 million as of Dec. 30, 2012. This sort of free cash gives the company the flexibility to engage in growth activities.

Conclusion
The Medicines Company has a comprehensive business plan to capture some of the anticoagulant and critical care markets. It has a slew of marketed products, its pipeline is well-differentiated, and it even has a collaborative agreement with larger players for developing and selling major products in areas like oral anticoagulants where it doesn't yet have an exclusive product. The company has positioned itself well in the market as an anticoagulant product developer, and it has a strong cash position to back its activities up. Overall, I am convinced this is an important investment grade stock for a health care portfolio, with not too much long-term risk.

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