Source: Celgene Corp.
The volatility that comes with investing in biotech stocks can test the patience of even the most risk-tolerant investor. Many investors may be better served focusing on companies with proven track records of success rather than concentrating on emerging biotech stocks that are more promise than profit. Fortunately, investing in proven performers doesn't have to mean sacrificing growth! Here are three big cap biotechs with next-generation therapies that could cause revenue and profit to surprise next year.
1. Celgene Corp. (CELG +0.00%) is already one of the best-known biotech companies. Celgene markets Revlimid, a second-line therapy used to treat multiple myeloma that is on pace to generate $5 billion in sales next year. Celgene also markets Abraxane, a cancer treatment that had sales of $212 million last quarter, and Pomalyst, a third-line multiple myeloma drug that had sales of $181 million in the third quarter, up 102% from a year ago.
Thanks to the rising demand for those drugs, Celgene has beaten analysts' earnings per share, or EPS, estimates in three of the past four quarters. That track record has analysts expecting that Celgene's EPS will grow from $3.68 in 2014 to $4.86 next year. But Celgene could surprise investors with better results than that if two important things happen.
First, reported sales of Celgene's Otezla, a treatment that launched in September for psoriasis, have been more a trickle than a flood so far. That could change in 2015. Celgene believes that Otezla has peak sales potential of $1 billion or more, and during its third-quarter EPS conference call, the company indicated that Otezla prescription volume has been better than the prescription volume notched by other blockbuster therapies at the same point following their launches. Additionally, Otezla sales could benefit next year from winning EU approval soon given that a key advisory panel has already endorsed it.
Secondly, Celgene could also over deliver if the FDA agrees to expand Revlimid's label to include newly diagnosed multiple myeloma patients. The agency is slated to make that decision in February, and if it gives Celgene the green light, it could expand Revlimid's addressable patient population. According to the National Cancer Institute, there are roughly 24,000 new cases of myeloma diagnosed every year.
2. Biogen Idec's (BIIB 3.50%) multiple sclerosis drugs Avonex and Tysabri already generate billions of dollars in annual revenue; however, it's the company's latest MS drug, Tecfidera, that drove growth at the company in 2014. Tecfidera, an oral alternative to the injection-based drugs that dominate the indication, won FDA approval in early 2014. With sales of nearly $2 billion through the first nine months of this year, Tecfidera is already the top-selling oral MS drug in the United States.
Thanks to Tecfidera, Biogen's EPS has outpaced Wall Street estimates in three of the past four quarters -- and even better times may lie ahead. Analysts think that Biogen's sales will increase from $9.7 billion in 2014 to $11.18 billion in 2015, resulting in EPS improving from $13.53 this year to $16.28 next year. Delivering on that forecast would be impressive, and there's actually a chance that Biogen can beat that outlook.
Tecfidera continues to roll out in new markets globally. If Biogen can win over doctors in those countries, sales could head higher; however, Tecfidera isn't the only reason for investor optimism. In August, Biogen launched Plegridy, an MS therapy that can be taken once every two weeks, and its sales should become meaningful next year.
Biogen also launched two drugs for hemophilia this year that could become top sellers in 2015. Alprolix and Eloctate are long-lasting hemophilia drugs that can reduce a patient's treatment burden by reducing the number of weekly doses. So far, sales of those drugs are tracking at an annualized pace of about $140 million and $80 million, respectively. That's solid, but there appears to be room to expand sales in the indication given that hemophilia treatment is ongoing -- there is no cure -- and hemophilia treatments are expensive, costing north of $100,000 per patient annually.
3. Medivation (MDVN +0.00%) markets Xtandi, a top selling prostate cancer treatment. Prostate cancer is the most common cancer diagnosed in men, with 233,000 new cases diagnosed every year, according to the National Cancer Institute. Up until September, Xtandi had been only approved for use in patients who have already been treated and failed with chemotherapy.
While that significantly limited the drug's addressable patient population, Xtandi still has been a big commercial success for Medivation and Astellas, its partner on the drug. During the third quarter, sales of Xtandi in the U.S. reached $181 million, up 67% year over year. Thanks to launches in new global markets, Xtandi also racked up sales of $119.6 million overseas in the quarter.
Thanks to Xtandi, Medivation has exceeded analysts' earnings outlook in three of the past four quarters, including a 14.3% beat in the third quarter. Analysts think that Medivation's sales will grow from $663 million in 2014 to $848 million next year and that its EPS will increase from $2.67 to $3.44 between 2014 and 2015, and even that may prove to be too conservative.
Astellas continues to ramp Xtandi overseas; even more significantly, the two companies notched an important label expansion in September for use in pre-chemotherapy patients that significantly boosts the drug's potential reach. A similar label expansion for Johnson & Johnson's prostate cancer drug Zytiga resulted in sales of Zytiga climbing from $1 billion in 2012 to $1.7 billion in 2013. If Medivation and Astellas are similarly successful, Medivation may be able to drop more money to its bottom line next year than people expect.
Grains of salt
Of course, any number of things could derail the efforts of Celgene, Biogen, and Medivation to capitalize on their potential catalysts next year. However, each of these companies has had remarkable success so far, and each offers investors a balance sheet that bests many of their biotech peers. As a result, it may be worth giving each of these companies the benefit of the doubt that they'll over-deliver next year, suggesting that each deserves a spot in investor portfolios in 2015.
