Are all biotech stocks priced at ridiculously high valuations? Actually, no. Based on their price-to-earnings-to-growth (PEG) ratios, several biotech stocks look like great bargains.

Admittedly, PEG ratios involve more art than science. It's tough to accurately predict how much a company's earnings will really grow over a five-year period. But these forward-looking multiples are helpful in comparing the valuations of potentially fast-growing biotech stocks.

The three best biotech bargains on the market right now based on PEG ratios are Celgene (NASDAQ:CELG), Exelixis (NASDAQ:EXEL), and Jazz Pharmaceuticals (NASDAQ:JAZZ). Here's why these biotech stocks are priced attractively.

Three scientists in a lab

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1. Celgene

Celgene's PEG ratio is a super-low 0.46. The stock trades at only 6.8 times expected earnings. So why is Celgene such a bargain? The main reason is due to risk related to Revlimid.

Over 60% of Celgene's total revenue comes from its top-selling blood cancer drug. That wouldn't be too big of a problem, except the patent protection for Revlimid is under attack. Celgene is currently in litigation with Dr. Reddy's Laboratories over key patents for Revlimid. A loss in court would be devastating for Celgene. However, Celgene remains confident that it will either prevail in its litigation or, as CEO Mark Alles hinted at in the company's Q4 conference call, reach a settlement. 

The big biotech is also confident in its other approved drugs and its pipeline. Celgene claims two blockbuster drugs for which sales are growing faster than Revlimid -- Pomalyst and Otezla. The company's pipeline includes five drugs that could win regulatory approvals by 2020 with blockbuster sales potential.

There's also the prospect that Bristol-Myers Squibb (NYSE:BMY) will soon acquire Celgene in a deal that gives Celgene shareholders a return of close to 20%. Some big Bristol-Myers Squibb shareholders are opposed to the acquisition, but it still seems likely that the transaction will close within a few months. 

Check out the latest earnings call transcripts for Celgene, Exelixis, and Jazz Pharmaceuticals.

2. Exelixis

Exelixis claims a PEG ratio of 0.48, only a sliver higher than Celgene's. However, Exelixis' forward earnings multiple of nearly 17 makes the stock appear more expensive at least over the near term.

Most of Exelixis' fortunes ride on Cabometyx. The drug is already one of the top second-line treatments for kidney cancer. Exelixis' senior vice president, P.J. Haley, stated in the company's Q4 conference call in February that Cabometyx captured roughly 90% of the market share for kidney cancer patients who progressed from a combination of Bristol-Myers Squibb's Opdivo and Yervoy.

But Exelixis has more to look forward to than settling for being a second-line kidney cancer therapy. The company won FDA approval in December 2018 for Cabometyx as a first-line treatment for kidney cancer. The drug is only beginning to pick up what should be sustained momentum in this expanded indication.

Cabometyx also secured FDA approval as a second-line treatment for liver cancer in January 2019. This presents another sizable growth opportunity for the company. Meanwhile, Exelixis is using the cash generated from rising sales of its flagship drug to beef up its pipeline and has another experimental cancer drug, XL092, that recently advanced to phase 1 clinical testing.

3. Jazz Pharmaceuticals

Jazz Pharmaceuticals' PEG ratio of 0.71 looks quite attractive. The stock also trades at less than eight times expected earnings.

The primary source for Jazz's revenue currently is sleep disorder drug Xyrem. However, the company has three other approved products that generate significant sales -- acute lymphoblastic leukemia drug Erwinase, rare liver disease drug Defitelio, and acute myeloid leukemia drug Vyxeos. 

Jazz hopes to add another approved drug to its lineup soon. An FDA decision on sleep disorder drug solriamfetol is expected within the next couple of weeks. The drugmaker also has high hopes for another experimental sleep disorder drug, JZP-258, that contains 90% less sodium than Xyrem. Jazz CEO Bruce Cozadd said in the company's Q4 conference call that top-line results from a late-stage study of JZP-258 in treating narcolepsy are expected this spring.

There is a challenge for Jazz, though: Xyrem loses patent exclusivity in 2023. The company thinks newer drugs, especially JZP-258, will help offset sales declines for its current top-seller. However, the discounted price of Jazz stock indicates that some investors are skeptical. 

Best bargain of all

My view is that Celgene is the best bargain among these three biotech stocks. As previously mentioned, Bristol-Myers Squibb's pending acquisition of Celgene would give investors a quick and easy profit. The deal is also sweetened by a contingent value right share that entitles Celgene shareholders to receive $9 in cash if certain regulatory milestones are met for key pipeline candidates. 

What happens if the acquisition falls through? Celgene's share price would no doubt tumble. However, the overall prospects for the biotech still look good, in my opinion. Celgene is a bargain with or without the Bristol-Myers Squibb deal.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.