Can Celgene Deliver in 2014?

Celgene (NASDAQ: CELG) had a strong 2013, but 2014 is not quite going to plan. Can it turn things around?

Feb 23, 2014 at 4:30PM

Shareholders in Celgene (NASDAQ:CELG) have experienced a profitable year, with shares in the cancer and immune-inflammatory-related focused company comfortably outperforming the Nasdaq index. Shares have posted gains of 64% in the past year, while the Nasdaq has lagged behind with a 37% gain.

However, the vast majority of this outperformance came in 2013, since then the Nasdaq has turned the tables and is beating Celgene in 2014 year to date. While the Nasdaq is currently up 2.5%, shares in Celgene have fallen by 3.5% already this calendar year. Can the company narrow the Nasdaq's lead and give shareholders something to cheer about in 2014?

Strong growth prospects
Certainly, Celgene's future prospects appear to be very bright. Although it missed fourth-quarter 2013 earnings expectations, delivering adjusted earnings per share of $1.51 versus consensus estimates of $1.54, the forecasts for 2014 and 2015 are highly encouraging.

Celgene is set to deliver adjusted EPS of $7.31 in 2014 and $9.54 in 2015, which is considerably higher than the $3.37 it posted in 2013. If it hits these two estimates, it would equate to EPS growth of 117% in 2014 and just over 30% in 2015, which is obviously above and beyond the market average.

Attractive valuation
However, the market may not yet be pricing in such gains, since the forward price-to-earnings ratio for Celgene is currently 22.3. While this is higher than the 18.7 forward P/E ratio of the Nasdaq 100, it isn't all that much higher -- particularly when the extremely impressive growth forecasts are taken into account. Therefore, shares in Celgene may not yet be pricing in the full extent of its EPS growth over the next two years (2014 and 2015), which could indicate further upside.

Potential catalysts
The key reason for such sky-high growth rates includes continued strong sales growth of existing products. For instance, Celgene's biggest drug by sales, Revlimid, increased sales by 13% in the fourth quarter of 2013 alone, while Abraxane increased sales by 90% in the fourth quarter (although Abraxane still only accounts for less than one-fifth of Revlimid's sales).

Furthermore, Celgene is continuing to conduct further trials involving Revlimid throughout 2014, with the company seeking to gain additional marketing approvals for the drug as well as trialling it with combinations of other drugs. This, along with data from the phase 3 trials of Vidaza and Otezla (separate trials), means that Celgene's pipeline looks relatively strong and encouraging.

Other biotechs with strong prospects
Celgene isn't the only biotech stock with encouraging EPS growth prospects. Sector peer Biogen Idec (NASDAQ:BIIB), for instance, is forecast to deliver EPS growth of 45% in 2014 and 25% in 2015. A key reason for these above-average growth rates is encouraging recent updates, which include an approval by The European Commission of Tecfidera as a first-line oral treatment for people with relapsing-remitting multiple sclerosis. Tecfidera was approved in the USA last March and is the country's No. 1 prescribed oral therapy for relapsing forms of MS.

Meanwhile, sector peer Gilead Sciences (NASDAQ:GILD) also has encouraging EPS growth forecast for 2014 and 2015, with consensus forecasts being a 107% gain for 2014 and 54% for 2015. A key factor in Gilead's growth looks set to be sales of its hepatitis C drug, Sovaldi, which totalled $140 million in 2013 despite its only having been approved in December. Sales figures for the drug in 2014 and 2015 are expected to be far higher and contribute to the triple-digit EPS growth forecast for this year.

As with Celgene, the exceptional EPS growth rates of Gilead and Biogen Idec do not appear to be priced in by the market, with Gilead trading at a forward P/E of 22.1 and Biogen Idec having a forward P/E of 30.7. Certainly, Biogen's P/E is the highest of the three (and it has the lowest growth rate) but still does not look expensive relative to the wider market.

Looking ahead
Therefore, all three stocks appear to offer significant upside potential for 2014, with Celgene seeming to offer the greatest relative potential as a result of its shares underperforming the Nasdaq so far this year (Gilead and Biogen have beaten the Nasdaq by 8% and 22%, respectively, in 2014). As a result, shareholders in Celgene could have as much to cheer about in 2014 as they did in 2013, if not more so, with the company all set to deliver strong performance during the rest of the year.

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Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends Celgene and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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