The Zacks Analyst Blog Highlights: Dr. Reddy's Laboratories, Actavis, Amgen, Biogen Idec and eBay

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Feb 27, 2014, 09:30 ET

CHICAGO, Feb. 27, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Dr. Reddy's Laboratories Ltd. (NYSE:RDY-Free Report), Actavis plc (NYSE:ACT-Free Report), Amgen Inc. (Nasdaq:AMGN-Free Report), Biogen Idec Inc. (Nasdaq:BIIB-Free Report) and eBay Inc. (Nasdaq:EBAY-Free Report).

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Here are highlights from Wednesday's Analyst Blog:

Enter Biosimilars: 3 Stock Picks

Generics dominated headlines in 1984 when Congress approved the landmark Hatch-Waxman Amendments. At the time, the idea of biologics was far away. Three decades later, the first batch of biosmilars is nearing approval in the U.S. And like generics before them, they are opening up new avenues of growth and generating new challenges at the same time.

Biosimilars vs Generics

Generics are drugs comparable to existing small molecule drugs. In other words, they are drugs which can be recreated under laboratory conditions following standardized procedures. Biosimilars are approved versions of biologics, which are far more complex drugs.

Biosimilars are proteins generated by living cells and are much larger molecules. The most common example used to illustrate the difference between a biologic and its biosimilar is a family recipe passed onto a new chef. In other words, the effects of a biosimilar may not be absolutely identical to those of the original biologic.

Regulatory and Clinical Hurdles

Since 2006, biosimilars have been available in the European Union. The U.S. defined the regulatory roadmap for biosimilars only in 2010. According to a draft guidance document released in 2012, the FDA said approval for biosimilars will be on the basis of "data derived from analytical studies, animal studies and a clinical study or studies."

This is much tougher than the requirements for approving a generic. On the user side, a large amount of clinical data must be made available to physicians to convince them to prescribe such drugs. Pharma companies must also invest significant amounts in communicating their efficacy, which add on to costs.

Bright Prospects

According to a report from Frost & Sullivan, the global biosimilars space generated $1.2 billion in 2013. This is expected to touch $24 billion in 2019. Another study forecasts that the global biosimilars market will expand at a CAGR of 27.58% over 2013-2018.

The major reason for this high level of growth is the large number of patents that are expiring. Another reason is that costs incurred in the discovery of such treatments are falling. This is because manufacturing is increasingly being outsourced to emerging markets.

Below we present three pharma companies present in the biosimilar arena or quickly increasing their presence in this space, each of which also has a good Zacks Rank.

Dr. Reddy's Laboratories Ltd.

Dr. Reddy's Laboratories Ltd. (NYSE:RDY-Free Report) operates in the generics, active ingredients and pharmaceutical services segments. It is present in the biologics space and is expected to be a key player in biosimilars. The company has already released four large molecule products.

Dr. Reddy's Laboratories Ltd. holds a Zacks Rank #2 (Buy) and has expected earnings growth of 12.60%. The forward price-to-earnings ratios (P/E) for the current financial year (F1) is 22.26.

Actavis plc

Actavis plc (NYSE:ACT-Free Report) manufactures, develops and distributes pharma products in the U.S. as well as in global markets. Its biosimilars pipeline has also made good progress. Actavis has collaborated with Amgen Inc. (Nasdaq:AMGN-Free Report) to develop biosimilar versions of Herceptin, Avastin and rFSH. All three medications are in phase III trials

Currently the company holds a Zacks Rank #2 (Buy) and has expected earnings growth of 16.90%. It has a P/E (F1) of 17.04.

Biogen Idec Inc.

Our third choice is Biogen Idec Inc. (Nasdaq:BIIB-Free Report). The company is involved in drug discovery, manufacturing and marketing in the U.S. as well as abroad. In 2012, the company and Samsung Biologics announced they were setting up a biosimilars joint venture (JV). In December 2013, Biogen announced that it would commercialize certain biosimilar products in Europe as per the terms of this JV.

Besides a Zacks Rank #1 (Strong Buy), Biogen Idec has expected earnings growth of 28.50%. It has a P/E (F1) of 29.38.

Despite regulatory hurdles and user level challenges, biosimilars are quickly emerging as products of the future. This is why each of these stocks would make good additions to your portfolio.

PayPal, Deutsche Telekom Team Up

PayPal, the digital payment arm of eBay Inc. (Nasdaq:EBAY-Free Report) announced a partnership with Deutsche Telekom related to direct carrier billing. This association will allow Deutsche Telekom customers to make payments for online digital goods by using their mobile phone numbers. The companies, however, did not disclose the financial terms of the deal.

As per the agreement, Deutsche Telekom will now join more than 250 carriers who are part of PayPal's network.

The two companies plan to expand carrier payments all over as well as beyond Europe. They look at this relationship as an opportunity to attract more customers as well as reach out to more digital goods vendors.

The collaboration will offer mobile users a safe way to purchase digital goods and apps on merchant websites and make payments through their mobile phone bills. Moreover, the service requires the customers to only remember their mobile numbers for making the payments instead of account ids and passwords.

The companies also intend to make unacquainted vendors familiar with the service so that they can include it as a payment option. Thus the collaboration will facilitate business expansion for both the carrier and the merchants.

However, there has been no announcement regarding the availability of the mobile billing option.

With the introduction of smartphones, direct carrier billing has become a popular way of making payments. It allows users to make purchases via their phones from merchants without entering credit card data. Such transactions are comparatively faster and safer.

Deutsche Telekom is an integrated telecommunications company, which provides permanent networks, mobile connection, Internet products and services for households and ICT solutions for corporates. It currently operates in 14 markets all over Europe

PayPal was acquired by eBay in 2002 for $1.5 billion. It also invested resources to develop PayPal as a strong payments platform. Its efforts clearly paid off because PayPal is now the major growth driver and one of the most important reasons for investors' confidence in the company..

Today, PayPal accounts for a large percentage of eBay's total revenue. Additionally, it along with fulfillment services, enables eBay to provide a complete solution to retailers, whether brick-and-mortar or online.

Currently, eBay holds a Zacks Rank #4 (Sell).

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