Portfolio Highlight: Healthcare (Part 1)

Here's the first part of the stocks I've decided to include in my portfolio. These posts will be coming out periodically introducing the different companies I've chosen and the reasons why I've decided to include them.

This post will be focusing on stocks from particular one market sector: Healthcare. In 2014, healthcare stocks rallied to new highs, posting steady gains, while providing security, making them prime stock picks for investors.

Novartis (NVS)

P/E Ratio: 23.19

52 Week Low/High: 81.07 - 103.50

Novartis International AG is a leading pharmaceutical company based in Basel, Switzerland. Along with doing research and development, Novartis is composed of six operating divisions: Pharmaceuticals, Alcon (eye care), Vaccinese and Diagnostics, Sandoz (generics), Consumer (Over-the-Counter and Animal Health), and Corporate.

On Friday, March 6th, Zarxio, a biosimilar drug manufactured by Novartis, was approved by the U.S. Food and Drug Administration, making it the first biosimilar to be approved in the United States. Novartis' Zarxio is a biosimilar (or copy) of Amgen Inc.'s Neupogen. However, here's the catch: Zarxio is much cheaper than it's predecessor. After a drug loses its patent exclusivity, it becomes open to other drug manufacturers to reproduce. With the introduction of biosimilars into the market, often priced 65%-85% cheaper than the originals, large pharmaceutical companies such as Novartis and Pfizer gain an advantage in the industry, able to manufacture those drugs at a lower cost.

This news also come along with Novartis' development of a new treatment for heart failure, LCZ-696, which has been granted FDA priority review status with a decision expected by August. With steady growth over the last five years, relatively low Price/Earnings and Price/Book ratios compared to the rest of the market, and a solid foundation in corporate governance, Novartis stacks up as an enticing healthcare stock to investors.

Gilead Science, Inc. (GILD)

P/E Ratio: 13.55

52 Week Low/High: 63.50 - 116.83

Gilead Sciences is an American biotechnology company focused on researching, manufacturing, and commercializing therapeutics, primarily concentrating on antiviral drugs to treat patients with HIV, hepatitis B, or influenza. The California based pharmaceutical company currently has fourteen commercially available products, with more in the process of being developed.

Gilead Science's most significant products is its two hepatitis C drugs, Sovaldi and Harvoni. Before these two drugs were introduced commercially, hepatits C was a tough-to-treat disease that often resulted in liver failure, with the standard treatment causing side effects such as peginterferon and ribavirin. Patients needed to take these drugs for 48 weeks, however, more than a quarter of patients discontinued treatment prior to completion due the adverse side effects. Gilead Science's drug Solvaldi, launched in 2013, cut treatment time to 12 weeks and brought cures rates to >90%, without the risk of the same side effects as the previous treatment. In 2014, Gilead Sciences launched its second-generation hepatits C drug, Harvoni, which cut treatment duration to as little as eight weeks, with mid-90% cure rate and no adverse side effects.

With a Price/Earnings ratio far lower than that of other companies in the market, along with solid financial statements and balance sheet, Gilead Sciences is a relatively cheap buy for a high quality company. Although earnings have reeled slightly due to competition from the development of other hepatitis C drugs, Gilead Sciences still promises a strong showing in 2015.

Part 2 of my Healthcare picks will be coming soon!