Image Source: Celgene
In case you haven't noticed, biotech stocks are finally on a roll again. After months of sliding downward, many are now mounting comebacks. While not every biotech stock is a winner, there are plenty of great picks. Here are three that I'd be happy to buy right now.
1. Celgene
There's not much to dislike about Celgene (CELG). It's one of the biggest biotechs on the planet. Revenue and earnings have soared over the last several years. And Celgene's current lineup and pipeline should keep the good times going.
The company's top moneymaker, blood cancer drug Revlimid, continues to impress. Revlimid generated sales of $5.8 billion in 2015 -- 16% higher than the prior year. Celgene expects the drug to bring in between $6.6 billion and $6.7 billion in 2016.
Celgene's positives don't stop with Revlimid. Two other drugs, Abraxane and Pomalyst/Imnovid, nearly hit the $1 billion sales mark in 2015. Both drugs should experience strong growth this year. Plaque psoriasis treatment Otezla racked up sales of nearly $472 million in its first full year on the market and could eventually reach $2 billion in annual sales.
What about Celgene's pipeline? It's solid as a rock. The biotech expects to report data from 18 different late-stage studies by mid-2018. Results from four of those studies should come in 2016, including a couple for Revlimid, one for Abraxane, and another for Otezla.
Celgene projects that earnings for 2016 will grow 19% year-over-year. Wall Street thinks that outlook might even be a little pessimistic. As an added plus, Celgene also has $6.5 billion in cash, cash equivalents, and marketable securities. Expect the big biotech to use that money in ways that benefit shareholders, including more share buybacks and smart investments in new drugs.
2. Juno Therapeutics
Speaking of Celgene's smart investments, one notable example was in Juno Therapeutics' (JUNO) CD19 program. Celgene recently exercised its option to market Juno's CD19 cancer drugs outside of the U.S. and China, a decision which meant a cool $50 million payment for Juno.
Juno's CD19 program includes three clinical studies in either phase 1 or phase 2. The phase 2 trial focusing on JCAR015 as a potential treatment for relapsed/refractory adult acute lymphocytic leukemia (ALL) is the one most interesting right now. Juno hopes to win regulatory approval as soon as 2017 for this indication.
For a biotech with no products on the market yet, Juno sits in a reassuring financial position. The company reported $1.22 billion in cash at the end of 2015, and it expects to burn through no more than $250 million in 2016, leaving plenty to fund operations through 2017 and beyond.
How high could Juno go? The biotech's management team thinks the CD19 program could ultimately pull in peak annual sales of $5 billion or more. Its current market cap is less than that amount -- and biotechs generally trade for around three times peak sales of their major drug. Even if the peak sales estimate is too optimistic, the biotech's stock should have plenty of upward mobility.
3. Dynavax Technologies
I'm also bullish on Dynavax Technologies (DVAX 0.97%). Like Juno, this biotech doesn't have a product on the market yet -- but it looks tantalizingly close to getting there.
Hepatitis B vaccine Heplisav-B should get a thumbs up or down from the FDA within the next five months. I'd bet on that thumb pointing to the sky. Efficacy shouldn't be an issue. Dynavax just announced results that show the vaccine easily beats the current market leader, Engerix-B, in protecting patients against the virus.
The vaccine's safety has been the worry in the past, butDynavax should be able to address those concerns based on its additional clinical studies. There's always the possibility of snags when it comes to winning FDA approval, but my hunch is that Heplisav-B will sail through this time around.
Heplisav-B could reach peak annual sales of around $775 million. Considering that Dynavax's current market cap is less than $900 million, the biotech's stock appears to have significant potential for gains.
Reality checks
Are there any possible storm clouds that could rain on this sunny parade of biotechs? Sure -- these are biotech stocks we're talking about.
Celgene has the least risk, in my view. However, it's possible that political pressures over drug pricing could hurt the big biotech's stock. Juno faces the risk of poor clinical results for its pipeline candidates. The most dangerous threat to Dynavax would be another FDA rejection of Heplisav-B.
All things considered, though, I like the prospects for all three of these biotechs. Celgene, Juno, and Dynavax look like smart picks for the long run.
