The pharmaceutical industry is all abuzz about Celgene (NASDAQ:CELG) in the wake of the biopharma firm’s boffo reviews at this week’s JPMorgan Healthcare Conference. CELG’s upbeat presentation helped earn analyst upgrades from RBC Capital Markets and Piper Jaffray, as well as $10 price target increases from Stifel Nicolaus and Jefferies.
The analysts’ optimism about CELG quickly went viral: The stock rose by more than 4% Monday on heavier-than-normal volume and currently is trading over $93 — an all-time high. Bullish bets were readily apparent on Monday as CELG’s daily call volume was nearly five times higher than normal.
Why all the excitement?
For starters, Celgene said it would sell $6 billion worth of drugs in 2013, with earnings per share potentially hitting $5.60. CELG also hopes to double sales within the next four years — if successful, that could deliver an EPS of $14.
Still, you should always look before you leap into bleeding-edge sectors like biopharma — particularly when the stock in question is up roughly 60% in the past seven months. So here are four reasons why CELG is still worth buying:
- Blockbuster Hematology Franchise: Celgene built its reputation on developing treatments like and Revlimid and Thalomid for challenging blood cancers like multiple myeloma, as well as for anemia and blood-cell abnormalities. Revlimid alone achieved $1 billion in Q4 net sales, and additional regulatory approvals are expected in 2013. At last month’s American Society of Hematology meeting, the company discussed positive trial results for Pomalyst, a treatment for resistant multiple myeloma that shows signs of prolonging survival significantly.
- Strong Growth in Solid Tumor Treatments: Last fall, the FDA approved CELG’s Abraxane for non-small-cell lung cancer; it also released positive Phase III data for the drug’s use in melanoma. The latter achievement marks the first time in three decades that a chemotherapy drug has shown an advantage over traditional therapies in fighting metastatic melanoma. Abraxane trials also showed improved survival rates in pancreatic cancer patients.
- Growing Opportunity in Immune-Inflammatory Disease Field: The company’s Inflammation & Immunology (I&I) franchise has the potential to outperform its other blockbusters, Chairman and CEO Robert Hugin said at the JPMorgan conference. The company’s apremilist has achieved positive Phase III trial results in addressing hard-to-treat inflammatory conditions such as psoriasis, psoriatic arthritis and Bechet’s disease. “Because of the size of the market, the magnitude of impact on the company may in fact be greater,” Hugin told the conference.
- Strong Fundamentals: With a market cap of nearly $40 billion, CELG is one of the largest biopharmaceutical pure-plays — something to keep in mind in a sector where size often equals stability. The stock’s forward P/E of over 16 is a hair high, but its price/earnings-to-growth ratio is a slightly undervalued 0.84. There are a number of things to like here: quarterly revenue growth of over 13%, a return on equity of more than 28%, manageable debt and improving operating margins.
Bottom line, I think CELG has further to fly. It has a deep drug pipeline, reasonable valuation and a five-year track record of delivering strong financial returns to its shareholders. Combine that with what likely will be accelerating sales growth in the next few years, and CELG looks like a stock that could keep investors happy for the long-term.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.