Would you buy a house without inspecting its foundation? No way. And for exactly the same reason, don't ever buy a biotech stock without inspecting its pipeline. A strong pipeline holds the biotech's valuation up in the long term, just as a foundation holds up a house. Which is exactly why -- given its pipeline -- Celgene Corporation (NASDAQ: CELG) is my top pick in biotech. And it's also why, at its current 12% discount from its price a year ago, it could just be the best bet in biotech.
Celgene's titanic pipeline has over 50 potential product approvals in over 100 indications pending by 2025. That kind of potential lays the groundwork for continued double-digit growth far into the future. This company's target is a 23% compound annual growth rate in earnings per share through 2020, and as the visual shows, Celgene expects its pipeline candidates to keep that earnings growth trajectory going for another decade.
Let's zero in on seven reasons Celgene is cheap at its current price, by looking at some of its next-generation treatments.
Reason 1: Ozanimod
Drum roll, please, for the superstar in Celgene's pipeline: ozanimod. The experimental med came from Celgene's $7.2 billion buyout of Receptos Inc. and is showing huge promise in late-stage trials in the multiple sclerosis (MS) market. Data from its Radiance trial in mid-September looked highly promising, and this med could well see peak annual sales of $4 billion and take on on dominant player Biogen in the huge MS market.
Investors should see additional stock-catalyzing data in early 2017 with a data release on ozanimod's phase 3 head-to-head trial against Biogen's multibillion-dollar drug Avonex. Celgene is also in late-stage trials with this drug in ulcerative colitis and Crohn's disease. If it's successful enough to win FDA approval, notch this drug's peak annual haul up to $6 billion.
Reason 2: CAR-T therapies
At the heart of Celgene's $1 billion partnership with Juno Therapeutics (NASDAQ: JUNO) are novel treatments that could potentially transform the $100 billion oncology drug market. Celgene has a 10% stake in Juno, as well as rights to sell its chimeric antigen receptor technology (CAR-T) technologies, which have seen success against some of the most deadly cancers.
While $1 billion is the largest up-front sum for a biotech licensing deal ever, Juno's most advanced program, JCAR015, is tantalizingly close to an FDA filing. The potential that Wall Street could be missing, however, is that Juno-Celgene follow-on CAR-T programs are even stronger. Last month, experimental therapy JCAR014 showed a stunning 82% overall response rate in advanced lymphoma patients. A somewhat similar therapy, JCAR017, is being tested in blood cancers and is probably headed for $2 billion in annual sales. Both treatments could become front-line therapies for non-Hodgkin's lymphoma and lymphoblastic leukemia, giving Celgene room to harvest big gains for many years to come.
Reason 3: Next-generation CELMods
Celgene recently released very promising early clinical trial results from its next-generation CELMods -- CC-122 and CC-220. In addition, a surprise announcement Celgene made in its Q2 earnings presentation indicated that it will start a pivotal lymphoma trial this year with CC-122. That's a speeding up of the timeline for these drugs, and Celgene has also said it now expects application beyond core targets of cancer and inflammatory diseases. In other words, these drugs' future could be much, much bigger than the market expects.
While early stage drugs don't have much of an impact on share price, investors need to pay attention, because they help determine a company's growth in the next decade. The good news is that Celgene's early stage pipeline has never been more powerful. The company doubled its investigational new drug applications, projecting that eight to 10 experimental meds will make the jump from lab to clinical trials annually for at least the next four years. Having so many therapies beginning the pathway to becoming new revenue-drivers indicates that a further ramp-up in Celgene's growth could be coming.
Reason 4: Near-term myeloid disease drugs
Celgene's collaboration with Agios Pharmaceuticals yielded a potent IDH mutation-targeting oral drug for hematologic malignancies, AG-221. The drug showed 37% response in patients with relapsed acute myeloid leukemia, while 18% of patients showed complete remission. With those kind of results, AG-221 could become the standard of care for this indication and potentially reach $1 billion in annual sales. In a recent presentation, Celgene said it plans to file AG-221 for approval in the U.S. by the end of this year.
Reasons 5, 6, and 7: Demcizumab, mongersen, and AVL-292
This is no means an exhaustive list. I've left out some promising investigational meds because they're getting so much press elsewhere. But I'll end with a great trio, starting with monoclonal antibody demcizumab. The drug comes from Celgene's partnership with OncoMed Pharmaceuticals and has shown potential as a first-line treatment for non-small-cell lung cancer and pancreatic cancer.
No. 6 is GED-0301, mongersen, which could become the preferred therapy in Crohn's disease based on terrific data it released a few weeks ago. As a pill, mongersen could well steal sales from Humira, the AbbVie (NYSE: ABBV) megablockbuster. The seventh (AVL-292) drug could also threaten AbbVie. Celgene acquired AVL-292 when it nabbed Avila Pharmaceuticals, and it has potential to go up against AbbVie's blood cancer blockbuster Imbruvica and snag its market share in lymphoma, leukemia, and macroglobulinemia.
Cracks in the foundation?
Are there risks in Celgene's pipeline? Yes -- investigational drugs all run the risk of faltering in clinical trials, or failing to make it through the FDA gauntlet. But individual failures are to be expected. Unless they exceed a reasonable number, they won't cause long-term damage. In fact, when you take this pipeline's total sales potential into account, Celgene's overall foundation looks strong enough to withstand most any storm.