The Best Stock To Buy When Biotech Stocks Tumble (CELG)
There’s nothing better than getting a great value — and let’s face it, when the market tumbles, often great stocks get crushed too. That could end up being particularly true in biotech. Since 2013, the industry’s return has tripled the S&P 500’s return, and that may mean that with the market slipping lately, biotech’s leading names — including Celgene — may go on sale soon.
Top-selling medicine
Celgene is my top biotech stock pick for long-term investors because it’s a proven biotech Goliath that already markets a slate of top-selling medicines.
The company’s Revlimid, the most prescribed second-line therapy for multiple myeloma, racked up nearly $5 billion in sales last year. Sales should continue growing this year given that the FDA decided in February to green-light Revlimid’s use as a first-line treatment. Celgene expects that decision will help Revlimid sales climb to between $5.6 billion and $5.7 billion in 2015, but that could just be the start. In January, Celgene issued guidance that calls for Revlimid sales eclipsing $7 billion in 2017.
In addition to Revlimid, Celgene also markets the third-line multiple myeloma drug Pomalyst. Last year, Pomalyst sales soared 124% higher to $680 million, and that has Celgene thinking that Pomalyst sales will top $1.5 billion in 2017.
Celgene also markets the pancreatic cancer drug Abraxane. Sales of Abraxane jumped 30.7% last year to $848 million, and Celgene expects that its sales will break above the billion-dollar blockbuster level this year and grow to north of $1.5 billion in 2017.
Finally, Celgene also launched its first autoimmune drug last year. Last March, Otezla won approval for psoriatic arthritis, and last September it got the nod for use for psoriasis itself. Although sales of the drug totaled just $69 million in its first year on the market, the company thinks that because Otezla is taken orally, rather than injected like other therapies, it could eventually become a blockbuster.
Rock-solid financials
Celgene’s top-shelf product lineup is kicking up plenty of cash, and that fact has made it one of biotech’s most financially secure plays.
In 2014, the company generated a whopping $2.8 billion in operating cash, up 26% from 2013, and as a result, cash and equivalents on Celgene’s balance sheet jumped from $5.7 billion exiting 2013 to $7.5 billion exiting 2014.
Thanks to its strong cash position, the company sports a current ratio of 4.6. That suggests it wouldn’t have any trouble making good on its financial obligations if creditors come knocking.
Importantly, Celgene remains a highly profitable company. Its operating margin is above 35%, and that should mean it will continue to deliver EPS growth as its sales head higher. Celgene forecasts that its EPS will climb 26% at the midpoint to between $4.60 and $4.75 this year, and analysts estimate its EPS will grow again to $6.31 in 2016.
Leading innovation
Celgene’s products and financials already make it one of my favorite stocks to buy, but it also has a thick pipeline that is flush with promising new compounds.
In addition to programs designed to maintain its leadership in treating multiple myeloma, the company is developing sotatercept and luspatercept for myelodysplastic syndromes and is also working on next-generation therapies for acute myeloid leukemia, lymphoma, anemias, solid tumors, and autoimmune disease.
Celgene has also linked up with emerging biotech companies that are developing intriguing new therapies that include epigenetic, enzyme, and gene targeting therapies. In some cases, in addition to collaborating with young biotech companies on these projects, it’s also taken equity stakes in some of them that could pay off handsomely one day.
Looking forward
No one knows where Celgene’s shares will be trading in any given year, but an increasingly larger and older population has Celgene telling investors that its revenue could grow from an estimated range of between $9 billion and $9.5 billion this year, to between $13 billion and $14 billion in 2017, to more than $20 billion in 2020. That means Celgene thinks its sales could more than double in the next five years. If it can deliver on that lofty target, then buying any dip in its shares might prove to be a very profit-friendly decision for long-term investors.
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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.
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The Best Stock To Buy When Biotech Stocks Tumble (CELG)
