1 Biotech Stock I Wish Would Go On Sale (CELG) – Investopedia
Everyone likes a great deal, and there’s no biotech stock I’d love to see go on sale more than Celgene (NASDAQ: CELG).
Celgene’s blockbuster drugs, industry-leading profitability, and rock-solid balance sheet put it among the elite companies in the business. As a result, the company hasn’t given investors too many chances to buy its shares at a bargain price. But if the stock does dip, here’s why investors might want pick up some shares in this biotech leader.
Building blockbusters
Celgene’s best-selling drug is Revlimid, which is widely used in treating relapsing multiple myeloma and has become a remarkable commercial success. Last year, Revlimid sales grew by 16% to $4.9 billion, and the company expects continued growth in coming years.
Thanks in part to Revlimid winning FDA approval in February as a first-line multiple myeloma therapy, Celgene expects the drug to hit sales between $5.6 billion and $5.7 billion this year and then climb to $7 billion in 2017.
Since Revlimid has patent protection in the United States through 2027, it’s certainly a big reason that investors should consider owning Celgene shares. But it’s not the only reason.
The company also markets Abraxane, a highly successful drug used to treat non-small cell lung cancer, breast cancer, and pancreatic cancer. Last year, Abraxane’s revenue grew by 31% to $848 million; with an expanding label, foreign market launches, and growing adoption among doctors, Celgene forecasts Abraxane sales will eclipse $1.5 billion in 2017.
The company also markets the fast-growing drug Pomalyst. Since winning approval in 2013, Pomalyst has become the most widely used third-line therapy for multiple myeloma. In 2014, Pomalyst sales skyrocketed by 123% to $680 million.
Celgene is also expanding into noncancer indications. Last year, it launched its first autoimmune drug, Otezla. Otezla is approved to treat psoriasis and is off to one of the fastest starts of any approved autoimmune therapy. As a result, Celgene thinks the drug’s sales, which totaled just $70 million last year, could exceed $1.5 billion over time.
Delivering earnings
Thanks to this expanding stable of top sellers, Celgene is increasingly profitable. As sales climb, they’re being leveraged against fixed costs, and that allows the company to deliver more money to the bottom line. In the past year, Celgene’s trailing 12-month operating margin has expanded from 25.5% to 32.8%.
Over the past five years, Celgene’s earnings per share have grown from less than $1 to $2.39, and that positive momentum is expected to continue.
In January, Celgene issued long-term financial guidance for earnings of at least $7.50 per share in 2017 and at least $12.50 per share in 2020.
Bulletproof balance sheet
The current ratio is one financial ratio I like to consider when evaluating stocks. It provides a quick snapshot of whether a company can pay off short-term creditors if they come knocking. A company with a high current ratio is in good shape. If its current ratio is below one, investors should be nervous. Celgene’s current ratio is an industry-leading 4.6.
Fueling that current ratio is a growing stockpile of cash and investments that offers plenty of financial flexibility for the company to invest in next-generation drug candidates and share buybacks.
As of December, the company has $4.12 billion in cash and another $3.4 billion tucked away in short-term investments — up nicely from the $2.1 billion in cash and $1.8 billion in short-term investments it had on the books at the end of 2013.
That’s a pretty impressive improvement in its financial position, but it’s even more impressive once we consider that the growing cash stockpile has come despite the company investing $1.65 billion in research and development and returning $2.9 billion to investors in the form of share repurchases.
Looking ahead
Investors are paying about 19.7 times forward earnings per share to own this stock, so Celgene isn’t as pricey as some of its peers. The company’s fast-growing products and its financial firepower could mean that’s not an unrealistic price to pay; however, it’s also not a bargain-basement price.
As a result, investors who like to get a great company at a great price likely remain on the sidelines waiting for a sell-off. Whether those investors will have an opportunity to own Celgene anytime soon is anyone’s guess. But if the past is any indication, if these investors get an opportunity to buy Celgene on sale, they ought to consider it.
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Todd Campbell is long Celgene. Todd owns E.B. Capital Markets, LLC. E.B. Capital’s clients may or may not have positions in the companies mentioned. The Motley Fool recommends Celgene.
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1 Biotech Stock I Wish Would Go On Sale (CELG) – Investopedia
