Investors looking to put some money into the pharmaceutical sector are often daunted by the risk of choosing a company that might have all its eggs in the wrong basket.
A way to reduce the danger? Pick a stock diversified enough to spread the risk among a variety of products.
One of the few publicly traded companies in Canada that fits that mould is Paladin Labs Inc. The Montreal firm focuses on acquiring the Canadian rights to specialty brand-name drug products that are ready for the market or already mature. It guides them through the regulatory process, then commercializes them. Because it doesn't create new products on its own, the company faces no drug development risks.
Paladin, founded by Montreal entrepreneur Jonathan Goodman in 1996, now distributes dozens of products in Canada, ranging from prostate cancer treatments to birth control pills to wart medications. Unlike most Canadian biotech companies, he said, his firm's fortunes are not governed by "binary events" such as the success of a clinical trial or the regulatory approval of a specific drug.
The solid growth of the company - it recently reported its 15th consecutive year of record revenues - has resulted in a matching stock performance. Paladin's shares have more than tripled in the past two and half years, and the stock market plunge of 2008 and 2009 is absent from the company's stock chart.
Selective Asset Management CEO Bob McWhirter, who holds Paladin shares in the NorthWest Specialty Innovations fund he runs, said he thinks the stock can maintain its long-term gains going forward.
"We think it is one of the few stocks in the biotech space, where you can buy it, throw it in a box, and wake up happy three years from now."
Paladin is far less volatile than many other biotech stocks, because of its wide portfolio of niche drugs that don't individually show huge growth, but overall generate solid cash flow, he said.
The company has a market cap of just over $600-million, and has produced free cash flow of about $60-million in the past year, Mr. McWhirter noted. "That's pretty good compared to all of corporate Canada, and amazing compared to other drug and bio companies."
The company's strong cash position, along with the $40-million it just raised from a bought deal equity financing, puts it in a position to continue to push new products onto the market. Recently, it bought the Canadian rights to the Tempra line of children's pain relief products from Bristol-Myers Squibb Co., and got approval to sell Abstral, a pain relief product for cancer patients.
Its hefty stash of cash also gives Paladin the resources for more international expansion - an increasing focus for the company in recent years.
Already, the company has a minority interest in South African drug distributor Pharmaplan, and the rights to sell certain drugs in Latin America, Israel and Southern Africa.
It is now on the prowl for partners in other emerging markets. "We're looking for markets that are not as competitive as the U.S. or Western Europe," Mr. Goodman said. He would like to link with an owner-operator business "where the operator is ready to hang around and teach us how to commercialize pharmaceuticals in that market."
While Paladin's foreign expansion has been modest so far, Mr. McWhirter said the company's debt free condition, and strong cash flow, means it has the leverage to make a very large acquisition if it saw fit. "Historically, they haven't done the Hail Mary pass," he said, but they have the potential to do one if they want."
Four of the seven analysts who cover Paladin regularly have it rated "buy" or "outperform" while the rest have it as a "hold." Targets range from $35 to $39.
Analyst Pooya Hemami of Desjardins Securities is one of those with a "hold" on Paladin, since the stock is "fairly priced right now," he said. Still, he says the stock has long-term appeal for retail investors because of its record of profitability, diversified product line, and its minimal drug development risk. Paladin "will continue to grow, it's just a question of whether the current price is suitable [given]those growth prospects," he said.