Is It Time to Buy Celgene Corporation's Stock?

To put it lightly, Celgene's (CELG) stock has been on fire since the recession ended. Since the market bottomed in on March 9, 2009, Celgene shares have returned 376% as of Friday's close.

CELG data by YCharts

But can Celgene head even higher? That's a question we'll attempt to tackle today.

Before we do, though, it's worth noting that the stock market is a two-way street and stock movements are based on the collective opinions of millions of traders around the world. In other words, regardless of my own personal conclusion of whether Celgene is a buy or not, you should conduct your own analysis and determine if Celgene is right for your unique investing goals.

Celgene by the numbers
Let's start our discussion with a quick comparison of Celgene's important financial metrics relative to some of its peers. Normally financial metrics aren't as important in the biopharmaceutical sector given that so many companies are in the clinical stage of development and burning through cash, but for the handful of companies with established pipelines and strong cash flow like Celgene they can prove meaningful.

Here are some of the important figures you need to know about Celgene and its peers:

Source: Yahoo! Finance. TTM = trailing 12 months.

As you can see from the data above, some divergences are clearly apparent between Celgene and its peers. If you're curious why I chose these competitors, it's because Celgene's two primary areas of focus are cancer and arthritis, which just so happens to be a huge focus (for at least one of those two categories) for Roche, AbbVie, and Johnson & Johnson.

Celgene is clearly superior to its peers when it comes the company's five-year growth potential, practically tripling its closest competitor AbbVie. However, it has less favorable statistics in the other three categories. Celgene offers no dividend to investors – and we heard during its conference call, the company has no intention of paying one anytime soon – it's forward earnings multiple is noticeably higher than its peers, and its margins are also a bit lower.

UBS Global Life Sciences Conference presentation slide. Source: Celgene.

In terms of the company's higher P/E ratio I'd suggest that's easily forgivable considering its superior growth rate. When looking at its price earnings to growth ratio it's a mere 0.73 according to these figures. Comparatively Roche and Johnson & Johnson sport a PEG ratio well over two. This would imply that Celgene, despite its high P/E, may still be undervalued relative to the other three companies.

With regard to margins, I would suggest the variance lies with Celgene's high costs to roll out new drugs like Otezla, and a comparatively smaller pipeline of products to fall back on compared to a company like Roche or J&J. Roche, for instance, has 16 drugs that it currently derives revenue from in the U.S. Johnson & Johnson's moat is even more impressive, with 29 drugs currently approved for sale in the United States. By comparison, Celgene only has just seven approved therapies in the U.S., which means that it can be relatively costly and time-consuming when launching a new product.

Not to mention, Celgene has been fairly liberal with the collaborative deals it's orchestrated in recent years. One-time and regulatory expenses paid to its partners can certainly weigh on margins over the near-term.

Is Celgene a buy?
Now to answer the original question posed ealrier: Is Celgene stock a buy?

I would opine the answer is "Yes." Now allow me to explain my reasoning beyond the analysis we just finishing looking at.

First and foremost, Celgene's primary product, blood cancer drug Revlimid, has a long history of exclusivity still in front of it. Per the company's CEO Robert Hugin, Revlimid's patents should protect the company against generic competition until at least 2019, with a number of additional patents expiring through 2027. But, Revlimid is also being studied in a number of other indications. If Celgene finds success for Revlimid with these additional labels we could be talking about this drug as a blockbuster for another decade or even longer. Long story short, Revlimid, despite representing an abnormally large share of Celgene's total sales, is a train I believe shareholders can ride with confidence.

Secondly, I really like what Celgene is doing on the collaboration front. Whereas a majority of larger biopharmaceutical companies wait until they have concrete clinical data before agreeing to licensing deals, Celgene hasn't been afraid to partner up with small, innovative biotech companies in the early stages of development.

Shareholder meeting investor presentation slide. Source: Celgene.

Obviously this has its risks, as Celgene could lose the bulk of its upfront payment. However, it could also lead to advantageous licensing deals that might see Celgene garner a higher percentage of total sales than it would have otherwise received if it had waited until after late-stage data or FDA approval.

Lastly, it's all about how the company is growing. Even with its many collaborations, Celgene's projections that it'll bring in $13 billion to $14 billion in revenue in fiscal 2017, along with $7.50 in EPS, are all based on internal, organic growth. This is growth derived from product launches, such as psoriatic arthritis drug Otezla, label expansion from products like Abraxane and Revlimid, and existing drug growth, such as Pomalyst in the advanced multiple myeloma setting. If Celgene can continue to control its own destiny rather than rely on the need to buy other businesses, then there's little reason to believe the company can't hit on its aggressive growth targets.