2 'secret' pharma stocks I'm considering buying right now

The AIM market isn't the obvious place to look for a low-risk pharmaceuticals stock, but Alliance Pharma(LSE: APH) is an exception to the rule. Its market capitalisation at a share price of 67p is over £300m and I see it as a very attractive business to invest in.

Highly effective and productive

Alliance was founded in 1996 and entered into a fostering arrangement with Novartis, under which it took over the marketing and distribution of 16 of the Swiss giant's speciality prescription brands. It's gone on to acquire or license the rights to 90 established pharmaceutical and consumer healthcare products from various companies.

Alliance's low-risk business model has been highly effective and productive. Management advised in a recent pre-close trading update that annual revenue broke through £100m for the first time in 2017.

Robust growth

The company continues to expand its portfolio under founder and chief executive John Dawson and a board of fellow industry veterans. Two recent product acquisitions -- Vamousse (head lice) from TyraTech and Ametop (local anaesthetic gel) from Smith & Nephew -- will be immediately earnings enhancing.

Revenue for 2018 is forecast to increase 14% to £118m, with earnings and dividends similarly increasing to 4.8p and 1.5p. The forward price-to-earnings ratio of 14 and dividend yield of 2.2% represent great value to me for a well-managed business with a history and outlook of robust growth. As such, I rate the stock a 'buy'.

Seductive stories

Optibiotix(LSE: OPTI) is a rather different investment proposition to Alliance and also a more speculative one. Generally, I steer well clear of companies that are at the pre-revenue (or negligible revenue) stage, as a large proportion of them disappoint. But occasionally one pops up where I see genuine potential for high rewards.

Of course, all such stocks have a seductive 'story' -- Optibiotix's is products that modulate the human microbiome to tackle such things as obesity, high cholesterol and diabetes -- but it takes more than a seductive story for me to consider it a potential investment.

Crucial questions

There are a number of crucial questions to which I must feel able to give an affirmative answer. These include: Are the directors of the company experienced and credible? Is its technology credible, patent protected and so on? Does it have a sound commercial strategy for bringing its products to market?

For me, Optibiotix ticks all the boxes for these sorts of question. Of course, there's then another crucial question: How much would I be willing to pay for the shares?

Multibagger potential

When I wrote about the company last year, the shares were trading at 68.5p and the market capitalisation was £54m. This is the sort of level from which it's possible to envisage a serious multi-bagger, if the company were to deliver on its potential. And it looks more attractive today, because the shares have slipped below 60p in the recent market wobble taking the market cap to £46m.

Optibiotix is the sort of stock I'd only take a very small position in as part of a diversified portfolio -- sized to have a good impact on returns if hugely successful and a tolerable level of negative impact if a total write-off. In short, I rate the stock a 'buy' at the high-risk end of the spectrum.

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G A Chester has no position in any of the shares 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.

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