This Under-the-Radar Stock Powers the Pharma Industry -- and It Just Raised 2016 Guidance

By Markets Fool.com

Image source: Chris Potter/Flickr.

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Investorseyeingthe pharmaceutical and biotech industries usually have to take the potential for amazing growth with the potential for spectacular failures when drug candidatesstall in the clinic or doctor's office. But it doesn't have to be that way. There are several opportunities to tap into the growth of these industries without being subjected to devastating failures. It may sound too good to be true, but Cambrex Corporation (NYSE: CBM) offers one such opportunity. After recently announcing earnings and raising full-year 2016 guidance, now may be a great time to begin paying attention.

The business

It doesn't get much simpler. Cambrex Corporation works with the leading names in the pharmaceutical industry to scale-up and manufacture active pharmaceutical ingredients, or APIs, for innovator and generic therapeutics. While the company only generates long-term revenue if therapeutics gain approval and enjoy market success, it isn't beholden to any single market or portfolio. In fact, Cambrex Corporation manufactures over 100 APIs in a world-class manufacturing facility boasting regulatory approvals from the U.S. Food and Drug Administration, the European Medicines Agency, and the Drug Enforcement Administration of the United States (needed to safely import and produce certain opioid compounds).

The APIs produced power everything from antibiotics to pain medications to inhalers for the top names in the industry. Take, for example, rivastigmine, which is owned by Novartis (NYSE: NVS) and approved to treat symptoms of dementia associated with Parkinson's disease and Alzheimer's disease. Sold under the brand name Exelon, the treatment netted sales of $728 million in 2015 for Novartis. However, as an older compound, rivastigmine didn't enjoy market exclusivity for long. Late last year, Novartis' generic unit, Sandoz, introduced a generic version of the Exelon Patch in the United States in order to redirect attention from another company's generic competitor. While Novartis may have staved off some generic competition from peers, the point is thatCambrex Corporation remains relatively unaffected and could even gain customers when generic APIs hit the market by leveraging its expertise and manufacturing regulatory approvals for specific APIs. It's a great example of the stability offered to investors.

That stability certainly hasn't hurt growth. The company increased revenue from $276 million in 2012 to over $433 million in 2015 -- growth of over 56% -- while operating income grew 155% in the same time period. Execution and value creation have led to great results for investors: Cambrex Corporation stock has returned over 1,000% in the last five years.

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CBM data by YCharts

While the stock is currently trading close to all-time highs, the recent earnings announcement promised that the growth won't be ending anytime soon.

By the numbers

You can check the press release (link opens PDF) for the full financial results, but here are the important metrics from the latest quarter compared to the year-ago period:

Metric

Q2 2016

Q2 2015

% Change

Net revenue

$118.6 million

$106.6 million

11.3%

Operating profit

$30.8 million

$29.2 million

5.7%

Diluted EPS

$0.62

$0.61

1.6%

Cash and cash equivalents

$52.5 million

$44.0 million

19.2%

Shareholders' equity

$353.1 million

$310.8 million

10.7%

Source: Cambrex Corporation press release.

These results come on the heels of an expansion of the company's state-of-the-art manufacturing facility and storage warehouse in Charles City, Iowa, completed early in the third quarter. The $50 million investment added 7,500 square feet of manufacturing space, 70,000 liters of high-value production capacity, 36,000 square feet of warehousing space, and an additional 7,500 square feet of manufacturing space that can be customized to customers' needs.

The expansion will help Cambrex Corporation more fully respond to growing industry demand, customer needs, and product launches in both the near- and long-term. And while the expansion was already penciled into 2016 results, strong demand in the second half of the year forced management to raise full-year financial guidance. Here's how the new guidance stacks up to previous expectations:

Metric

Current Expectations

Previous Expectations

Gross sales growth

10%-13%

8%-12%

Adjusted EPS

$2.49-$2.61

$2.46-$2.58

Source: Cambrex Corporation press release.

If Cambrex Corporation can continue to grow the top line by at least 10% every year, then it could top $1 billion in revenue -- and more than double EPS -- by 2024. Given the more than 3,000 APIs on the market and in late stage clinical trials and the pressing need for pharmaceutical companies to reign in costs, there are plenty of opportunities available for the company to continue growing for years to come. It may be flying under the radar, but this stock powers the pharmaceutical industry.Now may be a great time to begin paying attention.

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Maxx Chatsko has no position in any stocks mentioned. Follow him on Twitterto keep up with developments in the engineered biology field.

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