If you're looking for a smart stock to buy right now, look no further than Celgene (CELG). The big biotech has hit a rough patch lately, with a major clinical setback, missing third-quarter revenue expectations, and lowering its full-year 2017 and longer-term outlooks. All this bad news caused some investors to panic and sell off the stock.
But is Celgene really a lost cause? Not at all. In fact, the arguments for investing in the biotech are pretty compelling. Here are five that I think are irresistible reasons to buy Celgene stock right now.
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1. It's dirt cheap
The headline gave this one away, but the fact is that Celgene stock really is dirt cheap. Shares currently trade at less than 12 times expected earnings. But Celgene fully expects to generate adjusted earnings-per-share growth over the next three years of 19.5%. That translates to a price-to-earnings-to-growth (PEG) ratio that's hard to beat, especially in the biopharmaceutical world. Don't expect this bargain price to last for too long.
2. Revlimid has staying power
Without a doubt, the biggest key to Celgene achieving its growth goals is continued success for Revlimid. The blood cancer drug should have staying power for several reasons.
One is that it's expanding market share. Revlimid picked up an important new indication earlier in 2017 for treating patients with multiple myeloma who have had stem cell transplants. Even though new drugs have entered the market, most of them work better if they're combined with Revlimid (or Celgene's other blockbuster multiple myeloma drug Pomalyst). There's also significant opportunities for patients to increase their duration of use of Revlimid, which generates more sales.
What about generic threats? Revlimid doesn't lose exclusivity until 2027 in the U.S. and 2024 in Europe. The company did negotiate an agreement with Natco that allows a generic version of Revlimid to launch in the U.S. in 2022. However, it's a volume-limited license that shouldn't hurt Revlimid sales very much. And while there are other challengers hoping to launch their generic versions of the drug, Celgene has over 30 patents that should allow it to successfully fend off potential rivals.
3. Its inflammation and immunology franchise is stronger than you might think
Some might look at Celgene's cut of $1.2 billion to $1.4 billion from its 2020 projections for inflammation and immunology (I&I) and see weakness. However, Celgene is stronger in I&I than you might think.
Around $750 million of the outlook reduction was due to the failure of GED0301 in the Crohn's disease study. There was also an adjustment of expectations for Otezla sales, but Celgene CFO Peter Kellogg recently said the adjustment "wasn't that big" and is in line with what Wall Street analysts were expecting all along. Most of the 2020 outlook reduction not related to GED0301 was due to timing of clinical trials for ozanimod in ulcerative colitis. Celgene originally thought it would be able to launch the drug for the indication in 2020, but now expects the launch to be in 2021.
With these reductions in outlook, it's easy to overlook that Celgene still expects to more than double its I&I revenue in just three years. Although the psoriasis market for Otezla is not growing as quickly as the company anticipated, the drug should continue to perform well overall as major managed care contracts enter into their second and third years, where profitability should be higher.
4. The pipeline remains one of the best around
There's no question that the GED0301 failure stung Celgene. The experimental drug, however, was just one of 10 current pipeline candidates that the biotech expects to become blockbusters. Probably the greatest potential is with ozanimod in multiple sclerosis and ulcerative colitis and luspatercept in beta-thalassemia and myelodysplastic syndromes (MDS), which Celgene is developing with partner Acceleron Pharma (XLRN).
Several other pipeline candidates could turn out to be even bigger than originally expected. I'd put CAR-T drug bb2121, with which Celgene is partnering with bluebird bio (BLUE -6.51%), high on the list. Clinical data for bb2121 presented at the American Society for Clinical Oncology (ASCO) was very impressive.
And Celgene is developing several next-generation CelMODs that hold the potential to eventually take the reins from Revlimid in treating blood cancer. Overall, the biotech's pipeline is one of the best around.
5. More deals are on the way
Celgene's product lineup and pipeline prospects aren't just limited to what the company has now. Peter Kellogg stated in September that the company "is on the cusp of looking at different deals." These could be more licensing deals, like the one with Acceleron for luspatercept and Bluebird for bb2121. But they could also be acquisitions, like the Receptos buyout in 2015 that brought ozanimod into Celgene's pipeline.
At the Credit Suisse conference on Nov. 7, Kellogg said that Celgene has "a lot of financial power to do more deals." He mentioned that potential deals wouldn't "all be early science" and could include picking up products already on the market.
The likelihood of future deals by Celgene isn't the top reason to buy the stock right now. But in combination with the other four reasons listed above, the case for Celgene appears to be rock-solid in my view.
