The average investor has more than 5,000 publicly traded stocks on reputable U.S. exchanges to choose from. With that much hay in the barn, finding that needle can be quite difficult.
But if you're looking for the world's most perfect stock, perhaps your search might end with biotech megacap Celgene (CELG). Since March 1990, shares of Celgene have risen by 40,000% on a split-adjusted basis. While that's an incredible gain, there are a number of reasons to believe that it may still have plenty left in the tank.
Here are nine reasons Celgene might just be the world's most perfect stock.
1. A long-term deal for Revlimid
The company's most important product is unquestionably multiple myeloma drug Revlimid, which accounted for $6.97 billion of the company's $11.19 billion in full-year net product sales in 2016. Revlimid has benefited from a growing number of multiple myeloma diagnoses, as well as strong market share, excellent pricing power, and longer duration of use. Celgene anticipates that it'll generate north of $8 billion in sales in 2017.
Yet what's really important for shareholders is the deal Celgene struck with generic-drug manufacturers in Dec. 2015 that'll keep them from flooding the market with generic Revlimid until late Jan. 2026. Celgene, in effect, gave its cash cow of a drug a 10-year runway with which to rake in the dough. By the end of the decade, we could easily be talking about a drug capable of $10 billion in annual sales, if not more.
2. Label expansion opportunities
Another factor that makes Celgene an exciting company is its focus on organic growth. With the biotech industry seemingly focused on mergers and acquisitions, Celgene has primarily been focused on expanding the use of its existing product portfolio.
For example, cancer drug Revlimid and oral anti-inflammatory drug Otezla both have a number of indications they could pick up before the end of the decade. Revlimid is vying to become a maintenance and first-line treatment for the ABC-subtype of diffuse large B-cell lymphoma, as well as a treatment for first-line follicular lymphoma and relapsed/refractory indolent lymphoma, to name a few indications. Otezla may have legs to assist in treating Ankylosing spondylitis, Bechet's disease, atopic dermatitis, and even ulcerative colitis. These label expansion opportunities are the key to Celgene's consistent double-digit sales growth.
3. A pipeline geared at specialty indications
Celgene's pipeline is also worth marveling at. A bigger picture look at Celgene's areas of focus shows its strength in oncology, immunology, and anti-inflammatory medications. These are specialty medications that are in high demand today and are also commanding top dollars.
Beyond label expansion opportunities, some of the more intriguing pipeline products include ozanimod, a potential blockbuster treatment for multiple sclerosis and ulcerative colitis, and enasidenib, an IDH2 inhibitor designed to treat acute myeloid leukemia that could also eventually top $1 billion in sales if approved by the Food and Drug Administration.
4. Inorganic growth
Celgene isn't a company that traditionally relies on mergers and acquisitions to drive its growth, but the company has, from time to time, fueled its growth via buyouts. Its acquisition of Receptos in July 2015 for $7.2 billion is a good example. This deal brought ozanimod into the company's developing-drug portfolio, and management has suggested it has peak annual sales potential of around $4 billion. If this peak sales scenario is correct, Celgene will have netted itself quite the deal.
Celgene also acquired cancer drug Abraxane when it purchased Abraxis BioScience in 2010. Sales of the solid tumor drug have more than tripled since the acquisition to around $1 billion annually.
5. Collaborative licensing potential
Celgene has also, astutely, figured out that it can't research everything by itself. With this in mind, the company has forged dozens of drug development collaborative pacts that could result in it paying out billions of dollars in milestone payments -- but could also put the company in line to license a number of first-in-class medications to treat cancer and inflammation.
A good example is the collaboration between Celgene and Agios Pharmaceuticals (AGIO 2.43%) that may bring enasidenib to market to treat IDH2-mutation acute myeloid leukemia (AML), an indication affecting between 8% and 19% of AML patients. An accelerated new drug application for the drug has already been submitted, with the drug delivering a 37% response rate in a data set released at the American Society of Hematology's annual meeting in late 2015. It has the potential to become a standard-of-care therapy, which is exciting both for Celgene and Agios.
6. Exceptional pricing power
Another factor working in Celgene's favor is that it has exceptional pricing power, which has been instrumental (along with increased usage of its products) in pushing the company's sales and profits higher. This can mostly be attributed to Celgene's focus on specialty indications, as well as its substantial multiple myeloma market share via Revlimid.
Over the longer-term, Celgene and biotech stocks in general should be able to retain their strong pricing power. Even though President Trump has opined on multiple occasions that prescription drug pricing needs to drop, Republicans in Congress usually side with free-market economics. And, let's face it, Trump has far too much on his plate to over-focus on any one area of policy, which makes prescription drug reform unlikely anytime soon.
7. A centered management team
Warren Buffett has suggested that great companies can run themselves whether or not a competent management team is pulling the levers, and Celgene would likely be no different thanks to its kingpin drug, Revlimid. However, Celgene has received an extra boost because of the homegrown nature of its management team.
The recently retired Bob Hugin wound up leading Celgene for six years as CEO, but he served with the company as COO, CFO, and senior vice president at varying times since June 1999. Jacqualyn Fouse, who's now the company's president and COO, has been with Celgene since 2010, and its new CEO, Mark Alles, who took over when Hugin stepped down, has been with the company since April 2004. These long-tenured execs ensure that Celgene sticks to its strategy, which is great news for investors.
8. Share buybacks
To be crystal clear, Celgene's management has noted that a dividend payment is unlikely for investors anytime soon -- and that's A-OK. Celgene has been busy reinvesting its capital into collaborations, internal research and development, and the occasional acquisition.
However, the company has also been pretty liberal with its shareholder repurchase agreements. In June 2016, Celgene announced a $3 billion share repurchase agreement, which came on top of the $5.3 billion in remaining share repurchases that were already authorized by its board. Between 2009 and June 2016, the company repurchased $15.2 billion worth of its shares. Buying back stock can reduce the number of shares outstanding and possibly increase EPS, thus lowering a company's P/E ratio and making it more attractively valued.
Last, but certainly not least, Celgene is still very attractively valued despite a 27-year, 40,000% run-up in its share price. Celgene is valued at just 14 times next year's consensus profits and, given its nearly 20% average annual sales growth rate, a PEG of less than 0.8. Generally speaking, a PEG ratio below 1 is considered inexpensive.
If Celgene can retain its dominance in multiple myeloma, expand the label indications of existing medicines, have even moderate success with its bounty of collaborations, and sprinkle its growth with an occasional acquisition, it may very well be the world's most perfect stock.