It has been three long years since Celgene Corporation (CELG +0.00%) turned in an impressive annual performance. In 2017, the big biotech stock slipped nearly 10%, while biotech ETFs soared. Last year started out great, but Celgene experienced a meltdown in the final three months of the year after a big pipeline setback, missing revenue expectations and lowering its outlook.
But the past is the past, and it's a new year now. Could 2018 be Celgene's best year yet? The answer is yes. And no.
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Best year ever
In several respects, Celgene will almost certainly enjoy its best year ever in 2018. For example, I think it's a foregone conclusion that the biotech will generate the largest amount of revenue in its history.
Celgene's top moneymaker Revlimid ranked as the No. 2 best-selling drug in the world last year with close to $8.2 billion in sales. The company projects that the blood cancer drug will rake in roughly $9.4 billion in 2018, a year-over-year increase of nearly 15%.
Even stronger growth is anticipated for Celgene's other current blockbusters. Pomalyst made $1.6 billion last year. Celgene thinks sales for the multiple myeloma drug will jump 18% in 2018 to around $1.9 billion. Otezla, which encountered some headwinds in 2017 but still generated revenue of nearly $1.3 billion, should make $1.5 billion or so this year, a solid 17% year-over-year increase. The biotech expects sales for cancer drug Abraxane to grow slightly, with 2018 revenue of around $1 billion.
If you add up the projected sales for these current drugs, it totals $13.8 billion. That's higher than Celgene's estimated revenue for 2017 of $13 billion, the company's all-time high. However, Celgene also has a handful of other products. It also hopes to launch ozanimod, which could be one of the top five biggest new drugs of 2018. When everything is included, Celgene should be on track to generate revenue between $14.4 billion and $14.8 billion in 2018.
There are also a couple of reasons to think that Celgene will enjoy its best year yet for earnings also. One, of course, is the big increase in revenue that is expected. The other is that the company will have a much lower U.S. tax rate in 2018, thanks to tax reform legislation signed into law in December 2017.
Don't count on it
However, there is one area where it's highly unlikely that 2018 will be Celgene's best year yet: stock performance. Don't get me wrong, though. I think Celgene's share price should climb significantly this year. The problem is that the company's past performance sets the bar really high.
Celgene stock has more than doubled in three of the past 15 years. Its best performance in the 21st century came in 2005, with Celgene's share price soaring more than 140%. Celgene's best year ever for stock performance, though, was in 1999, when the stock skyrocketed over 350%.
Will investors be able to party in 2018 like it's 1999? Don't count on it. There aren't enough huge catalysts for Celgene stock to more than quadruple in price. That's not to say there won't be catalysts, however.
Regulatory approval for ozanimod is expected in the second half of this year. Results from a couple of late-stage studies of Revlimid in additional indications are anticipated in 2018. Late-stage results from two studies of promising candidate luspatercept in treating myelodysplastic syndromes (MDS) and beta-thalassemia are also expected in mid-2018. In addition, Celgene intends to file for FDA approval of fedratinib in treating myelofibrosis in the middle of the year. The company is picking up fedratinib with its pending acquisition of Impact Biomedicines.
Positive news from these pipeline milestones should drive Celgene stock higher in 2018. However, they're just not enough to give the biotech its best year ever.
Good should be good enough
In one of my favorite business books, Good to Great, Jim Collins wrote that "good is the enemy of the great." And he was right. On the other hand, when it comes to stock performance, investors don't need the greatest year ever to still have a terrific year. My view is that Celgene will have a good year in 2018, even though it won't be the best year ever for the stock.
We've already looked at several reasons why the stock should move higher this year, including strong revenue and earnings gains, as well as potential pipeline catalysts. Another reason why I expect Celgene stock to perform well in 2018 is its valuation. The biotech's shares trade at only 12 times expected earnings. With the company's realistic expectations of adjusted earnings-per-share growth topping 19% over the next five years, I think Celgene stock is dirt cheap.
Sooner or later, the market will recognize the biotech's attractive valuation. My hunch is that it will be more sooner than later. I fully expect that 2018 will be Celgene's best year since 2014, a really good year. For me, and I suspect for many investors, good will be good enough.
