With the iShares Nasdaq Biotechnology Index (ETF) (IBB) down almost 30% in the last year, it would seem that all large biotech stocks are presenting investment value, but that’s not the case, since many of the losses are appropriate in this particular industry. However, Celgene Corporation (CELG) is the exception, with Celgene stock down 16% this year alone.
Let’s look at five reasons why CELG is a must buy.
Revlimid treats a wide array of blood cancers, and just so happens to be one of the best selling drugs in the world. This year, Revlimid will account for roughly $6.7 billion of Celgene’s $11 billion in annual revenue, about 60%.
That said, Revlimid is clearly responsible for a big chunk of CELG’s value. And given that CELG has patent protection on Revlimid out until 2027, investors can be assured that Celgene stock will be safe for many years to come.
Furthermore, patent expiration dates are the biggest risk for big biotech and big pharma. The fact that this risk does not apply anytime soon is a good reason to be long Celgene stock. Here are four other reasons why CELG is a solid pick.
Celgene Stock Has a Strong Backbone
CAR-T is a ways from coming to market, but is the hottest space for developing novel cancer therapeutics in the world. Celgene owns 10% of Juno Therapeutics Inc (JUNO), who is the biggest and baddest CAR-T developer.
In addition, CELG has marketing rights to Juno’s CAR-T products. This means that CELG gets to cherry pick Juno’s pipeline to joint develop its best products. Given how Juno is expected to create many billions in annual revenue from the sale of its CAR-T drugs, this bodes well for Celgene stock long-term.
CELG Has a Promising Pipeline
Like most big biotech companies, Celgene has built its pipeline and product line both in-house and through acquisitions. One of its most promising was the acquisition of Receptos. With this acquisition, CELG gained the Phase 3 product Ozanimod, which has proven highly successful at treating MS, and could be a treatment option for Ulcerative Colitis and Chron’s disease.
While Celgene paid a pretty penny for Receptos, over $7 billion, many think the acquisition could be as transformative as Gilead Sciences, Inc.‘s (GILD) purchase of Pharmasset several years back. Yes, investors have to wait for Ozanimod to come to market, but when it does, analysts expect peak sales between $4 and $6 billion. Furthermore, that could be conservative if successful at treating Chron’s.
Celgene Is Just Getting Warmed Up
CELG is a large, $78 billion company that expects $11 billion in product sales this year. While large, Celgene’s patent protection with Revlimid, its partnership with Juno, and the acquisition of Receptos are all things that will drive it to become a far larger company.
Specifically, CELG is guiding for full-year sales of $21 billion by 2020. What’s really interesting is that Celgene was forecasting $20 billion in sales by 2020 before its acquisition of Receptos, as Revlimid and its three other blockbusters Abraxane, Pomalyst/Imnovid and the newly launched Otezla drive growth in the foreseeable future.
What this means is that CELG won’t stop at $21 billion, because the majority of sales from both Juno and Receptos will come in the years that follow. Collectively, that paints a very bullish long-term growth picture for Celgene.
Celgene Stock Is Cheap
To put the icing on the cake, CELG stock trades at less than 15x next year’s expected earnings per share. As you might imagine, Celgene’s EPS is only going to increase as it grows from an $11 billion company to a $25 billion plus company. In retrospect, if we think of what this company will look like by 2023, it might very well be earning $20 per share in profit. If so, that would mean that CELG trades at just 5x peak EPS — far cheaper than any other big biotech in the market.
As a result, there are many reasons to be bullish Celgene long-term, and to believe that it will be a great buy-and-hold investment.
For investors who seek long-term value, it does not get much better than CELG in the big biotech space, or anywhere else in the market for that matter.
As of this writing, Brian Nichols was long CELG.