Source: GlaxoSmithKline via Flickr.
When it comes to overseas pharmaceutical giants, few find their way into more investors' portfolios than GlaxoSmithKline (GSK 1.14%).
For GlaxoSmithKline, it's been a transformative year with the company selling its oncology business to Novartis for what could ultimately amount to $16 billion, while also purchasing Novartis' vaccine operations for up to $7.1 billion. Moving forward, this deal means Glaxo's primary focus will remain its respiratory portfolio as well as vaccines.
Though an exciting move, and one that clearly generated a lot of cash for GlaxoSmithKline, it's not exactly been a banner year for the U.K.-based pharma giant. Inclusive of dividends, GlaxoSmithKline dipped 14% this year, while the broad-based S&P 500 has returned closer to 10%. Perhaps even more maddening for Glaxo shareholders is that the SPDR S&P Biotech ETF has risen by 47% this year, demonstrating what a strong year it's been for health care and how comparatively weak GlaxoSmithKline truly performed.
"What attracts investors to GlaxoSmithKline?" you wonder? Part of it has to do with the company's strong respiratory portfolio comprised of newly approved long-term COPD maintenance therapies Breo Ellipta and Anoro Ellipta, as well as blockbuster asthma and COPD drug Advair/Seretide which is off patent but won't have generic competitors on the market for a few more years.
The other major factor responsible for enticing investors is GlaxoSmithKline's 5.6% yield, which doubles what you'd get right now by purchasing a 30-year U.S. Treasury note.
But, I have good news for health care investors: you can get superior growth to GlaxoSmithKline, which is actually expected to see its profitability regress through 2017, and you don't have to look very far. Here are three big pharma giants that are handily outgrowing GlaxoSmithKline.
1. Amgen (AMGN 1.08%)
Want incredible growth with rapid dividend growth to boot? Then Amgen just might be the pharmaceutical stock you've been looking for.
Between 2000 and 2011 Amgen wasn't a particularly exciting stock to own. The company failed to substantially grow its sales for the better part of a decade and was only boosting profitability by regularly buying back its own shares. However, many years of hard work in the research and development department are finally paying off.
Source: Amgen.
Beginning in 2014 and running through 2016, Amgen is expected to report late-stage data or file a new drug application for 10 new drugs. Many of these experimental drugs are targeting wide audiences or chronic diseases, meaning the patient pool for Amgen is going to be sizable. Evolocumab, a PCSK9 inhibitor designed to remove LDL-cholesterol (the bad kind) from the bloodstream could be a game-changer for people with high triglyceride levels and could even become a standard therapy for those with moderately high triglyceride levels in the future. T-Vec, an experimental metastatic melanoma treatment is also worth closely eyeing.
These therapies, along with its existing pipeline, could double Amgen's profits between 2014 and 2020, by my estimate. According to Wall Street, Amgen's EPS growth between 2013 and 2017 should average about 12% per year.
To boot, Amgen announced earlier this month that it was raising its dividend by 30% in 2015 to $0.79 per share, the fourth time it's raised its dividend since it began paying one in 2011, and the fourth healthy double-digit hike At a projected payout of $3.16 per year, Amgen is yielding close to 2%.
2. Celgene (CELG +0.00%)
If my arm were twisted and I was required to pick out something you'd give up by choosing Celgene over GlaxoSmithKline, it'd be dividend growth. Celgene isn't going to pay its shareholders a dividend anytime soon despite healthy cash flow because it's more important for the company to reinvest its cash back into its pipeline with regard to forming collaborations and supporting in-house drug development -- and it's hard to argue against the results.
Source: Celgene.
In spite of numerous collaborations, what makes Celgene so exciting is its organic growth potential. Celgene is becoming a master of expanding the use of Food and Drug Administration-approved drugs to new indications. Cancer drug Revlimid, for instance, could be on the precipice of being approved for about a half-dozen new indications. Anti-inflammatory drug Otezla may also wind up being approved for more than a half dozen labels when all is said and done.
Based on projections divvied out in 2013 from Celgene's management team, the company could be on pace to double sales and triple profits in just the span of five years. Wall Street's estimates nearly agree, with analysts calling for 28% average EPS growth through 2017. With a forward P/E in 2017 of just 14, this means Celgene's forward-looking PEG ratio is a microscopic 0.5. That's incredibly cheap relative to GlaxoSmithKline!
3. Johnson & Johnson (JNJ 0.37%)
Lastly -- and no this isn't a joke -- Johnson & Johnson is poised to significantly outgrow GlaxoSmithKline over the coming five-year period.
On one hand, Johnson & Johnson has some fairly slow-growing businesses. Its consumer products business will ebb and flow with the U.S. economy in spite of strong pricing power, and its medical device and diagnostic segment is growing more commoditized and is only likely to see improving growth after we get more certainty regarding the Affordable Care Act.
Source: Novartis.
Nearly all of Johnson & Johnson's growth lies within its pharmaceutical business, which is providing juicy margins and pushing profits higher. J&J has a particularly exciting lineup of cancer products and hepatitis C drug hopefuls that should sustain its growth for the immediate future. Selecting just one drug from its product pipeline, I'd go with Imbruvica, a blood cancer drug it helped co-develop with Pharmacyclics. Imbruvica demonstrated incredible efficacy in chronic lymphocytic leukemia and mantle cell lymphoma studies and looks poised to eventually gain additional indications, such as multiple myeloma and follicular lymphoma. When all is said and done, we could be talking about a drug capable of $9 billion in annual sales.
As an added bonus, Johnson & Johnson would replace what GlaxoSmithKline shareholders covet most: a solid dividend. J&J has raised its payout in an astounding 52 straight years and is yielding a healthy 2.6% for shareholders.
Even if you still prefer GlaxoSmithKline over these three faster-growing big pharma companies, you'd be (small-f) foolish if you chose not to add them to your watchlist.
