After a tough week for Celgene Corporation (NASDAQ:CELG) that involved throwing in the towel on its hope to expand Revlimid’s label to a new $1 billion plus market opportunity, CELG stock is now trading higher by 3% in response to earnings. In essence, Celgene proved it does not need that billion-dollar indication to raise guidance and push Celgene stock higher.
That said, CELG stock is now trading back over $110 following a double-digit loss over the last year. Given its volatility, many are concerned buying at these levels. Fortunately, $110 will end up looking very cheap.
Celgene and Its Bullish Outlook
Historically, CELG is a stock tied completely to the performance of its blockbuster drug Revlimid. Of its $2.75 billion in Q2 revenue, Revlimid accounted for over 60%. Thankfully, Celgene has patent protection on Revlimid through 2025, and despite it being one of the bestselling cancer drugs worldwide, it is still growing at a double-digit clip.
However, the narrative surrounding CELG is changing fast. It’s still seen as a one-drug wonder, but the dependence on Revlimid is shrinking fast, and will continue to do so as the years progress.
Keep in mind that Celgene is guiding for full-year sales of $11 billion with $6.8 billion coming from Revlimid. Furthermore, Celgene expects full-year revenue of $21 billion in 2020.
While Revlimid will remain a big piece of the puzzle, it is not going to grow annual sales by $9 billion over the course of 4-years. This means that CELG will find growth in other products and lessen its dependence on Revlimid.
As recently seen with Gilead Sciences, Inc. (NASDAQ:GILD) stock, being too dependent on one drug can have unintended consequences on a security. Therefore, it is good that Celgene now has three other blockbuster drugs with more on the way.
Its drug combination Pomalyst/Imnovid produced $317.7 million in Q2 sales after growing 35.5%. And its new arthritis drug Otezla is very promising, growing 169% year-over-year to sales of $241.9 million. Therefore, Celgene’s growth over the next few years will be a balanced attack with label expansion for currently approved drugs and the potential for new drugs to enter the market; Celgene has an enormous pipeline for drugs treating Acute Myeloid Leukemia, Lymphoma and Inflammation & Immunology.
CELG Stock Is Going to $200!
With that said, Celgene has a really good shot to reach sales of $21 billion in 2020 because of its pipeline and existing products. Next year, Celgene is expected to earn $7 per share on revenue of $13.08 billion. Therefore, when Celgene is creating $21 billion in annual revenue, there’s no reason it can’t earn $11 per share, especially when you consider how Celgene buys back stock.
At $200 per share, CELG stock would be trading at 18x FY2020 earnings-per-share, an EPS number that is likely conservative given that Celgene buys back stock and will likely improve margins, as it grows even larger. That would be 82% upside over the next four years, far better than the market’s return.
$200 for Celgene Stock Is Just the Beginning
All things considered, if CELG stock can reach $200, it would represent great upside from this point forward. However, as previously explained, Celgene’s upside between 2020 and 2025 might be even greater than the next four years.
In 2020, Ozanimod will be getting FDA approvals for MS, Ulcerative Colitis and possibly Crohn’s disease. Notably, Ozanimod is the drug Celgene acquired for over $7 billion with Receptos. Analysts think it could generate peak sales between $4 and $6 billion annually.
Moreover, Celgene’s partnership with Juno will start to materialize, as all those trials testing its CAR-T technology start to produce actual drugs in the marketplace. Given the outlook surrounding CAR-T, and Juno’s lead, it could very well lead to another $5 billion or more in revenue for Celgene.
Collectively, the upside for CELG stock is tremendous, well beyond 2020. This is a stock that will maintain a large valuation multiple because of the decade-long growth it will achieve. This makes Celgene stock one of the absolute best bets in healthcare both now and long-term.
As of this writing, Brian Nichols was long CELG.
