Why I'd buy this biotechnology star alongside GlaxoSmithKline plc
There's still a youthful growth-investor hidden within me, and I do get tempted by potential future stars from time to time.
Right now, I'm looking at the prospects for MaxCyte(LSE: MXCT), which released first-half results Tuesday. MaxCyte is a US-based biotechnology company with a listing in London, and it's in the pioneering field of cell-based medical treatments -- an area with terrific potential.
The company saw revenues rise by 13.6% to $6.2m in the period, though with operating expenses of $9.5m we're not expecting to see profits for a few more years. Things look financially secure, though, with £20m ($27m) raised on AIM in April -- the firm's cash balance stood at $30.2m at 30 June.
MaxCyte's CARMA technology is a big hope, and it has Johns Hopkins Kimmel Cancer Center and the Washington University in St Louis on board with ongoing collaborations. Research indicates the potential of the CARMA platform for developing immunotherapies for the treatment of solid tumours, and any potentially significant advance in cancer therapy has to be exciting.
A commercial agreement with CRISPR Therapeutics and Casebia Therapeutics in March to develop therapies for haemoglobin-related diseases and severe combined immunodeficiency sounds promising too, especially as MaxCyte has already received some up-front payments. Immunodeficiency is another growing health bugbear of the 21st century.
With the shares at 247.5p, it's hard to put any fundamental valuation on them -- further losses are forecast for the full year and for 2018. With these blue-sky prospects, all we have to go on is our subjective take on the new technology, and that's risky -- but I'm seeing a risk that I think is worth taking here.
Slow and steady
One way to offset a risk like MaxCyte is to combine an investment with a safer mature company, and I reckon adding some GlaxoSmithKline(LSE: GSK) shares to the mix could be an ideal route to a balanced investment in the pharmaceuticals and biotechnology sector.
Glaxo has been generating cash and rewarding shareholders with progressive dividends for decades, and I'm seeing late 2017 as a very good time to get hold of some shares. Last year brought an end to years of earnings falls due to the loss of some key patents, and a 35% EPS rise looked impressive. Growth is expected to continue this year and next, though at a slower rate -- but even the modest growth rates on the cards for 2017 and 2018 put the 1,453p shares on a forward P/E of only around 13.
Dividends looking stronger
I was concerned that dividends could come under pressure during the downturn, and 2015's payment wasn't even covered by earnings. But with cover getting back up to around 1.4 times, I'm seeing the mooted 5.5% yields as pretty safe now. In fact, at the interim stage the company said it expects to maintain its payout at 80p both this year and next, while stressing the payment of dividends as one of its key priorities in its use of cash.
Interim sales were up 14% at actual exchange rates (AER) and 3% at constant rates (CER), which seems assuring. But more excitingly, new product sales of £1.7bn represented a 62% rise at AER (47% CER).
Coupled with the steady stream of upbeat drug trial news coming from the pharmaceuticals behemoth, Glaxo is firmly a buy in my books, especially at today's bargain price level.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.