Biotech stocks never fully recovered from last summer’s correction after Hillary Clinton fired shots on her Twitter Inc (NYSE:TWTR) account about drug pricing. With investors nervous about the potential impact of price controls, the sector is still nursing its wounds — down 30% from its year-ago peak.
As the largest player in biotech, Celgene Corporation (NASDAQ:CELG) was spared the worst of the drag, down only 25% at most since last August. But due to its size (8% of industry market cap), it also has the largest target painted on its back. In the absence of positive news for the industry as a whole, the stock is taking longer to rebuild what is now $27 billion in evaporated equity.
Even if some catalysts pop up to push the sector higher, they’ll lift smaller companies the fastest. CELG needs great news of its own to stop lagging.
While management isn’t very active in communicating the clinical calendar, I’m optimistic about what lies ahead for the company’s products.
CELG’s most promising near-term candidate is a drug called Ozanimod, which it acquired last year as part of its $7.2 billion acquisition of Receptos.
Ozanimod is currently being studied for potential use in relapsing multiple sclerosis (MS), Crohn’s disease and ulcerative colitis. In May, management released encouraging Phase II data for the drug in ulcerative colitis.
If approved for all three indications, it could realize annual sales of $4.5 billion, or over 40% of the $11 billion in expected sales this year.
Current State of CELG Stock
But CELG isn’t just attractive because of its lengthy pipeline — the company’s numbers are strong in the here and now, too. For the full year, management guided for revenues of $11 billion (up from previous projections of $10.75-$11 billion) and EPS of $5.70-$5.75 (up from $5.60-$5.70). This represents growth from 2015 sales and earnings of $9.26 billion and $4.71 a share, respectively.
The improvement should also carry into 2017, with earnings expected to increase to $7 a share. With the shares trading at 15X this estimate, I believe they represent good value right now, especially considering that CELG traded above $140 last July.
All in all, CELG is an attractive long-term play on the biotech recovery. The company faces no patent expirations until well into the next decade and has an interesting pipeline of further indications from its current lineup and candidates acquired last year in the buyout.
I don’t believe this kind of strong growth is reflected in the share price, especially since it should be a leader in the biotech space. The stock is still on a reasonable path toward management’s long-term growth goals.
We may not see the chart skyrocket before the election or even the end of the year, but I think there is still value in both in its long-term prospects and its short-term swings.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
