Editor's note: This video was filmed prior to AbbVie's announcement of FDA approval for its competing hepatitis C combination regiment. Read more on that here.

This healthcare edition of Industry Focus takes a look at three biotech stocks and why each company is positioned for a great performance in the coming year.

If your portfolio could use some exposure to healthcare and biotechs, join the Fool's Michael Douglass and Todd Campbell, along with special guest Kristine Harjes, to learn more about three promising stocks in the sector. Each analyst takes a look at one company, its drugs, its pipeline, and its prospects for 2015.

A full transcript follows the video.

Michael Douglass: Three top biotech stocks for 2015. This is Industry Focus.

[INTRO]

Hi Fools, health care analyst Michael Douglass here with health care contributor Todd Campbell all the way from New Hampshire. Happy New Year's Eve, Todd.

Todd Campbell: And to you, Michael, as well.

Douglass: Alright, thank you very much. We have a special guest here today. Healthcare analyst Kristine Harjes is joining us for her debut on Industry Focus. Kristine, welcome to the show.

Kristine Harjes: Thank you very much, Michael.

Douglass: How excited are you to be here?

Harjes: Very!

Douglass: All right, fantastic!

We figured, what better time than New Year's Eve to talk about, let's say a couple New Year's resolutions; perhaps, I don't know, some great biotech stocks for 2015?

The format we're thinking is, we're just going to do a real quick, 30-45 second elevator pitch for each of our top stocks. Then we'll go a little bit deeper, peel back behind the curtain, do the Foolish step forward. Todd, let's start with you.

Campbell: Absolutely. I just realized I probably should have been wearing a green sweater instead of a red sweater, since I'm talking about my favorite stock for 2015, but to get right into it, I think investors should be paying a lot of attention to Celgene (NASDAQ:CELG) this year.

The reason for that is that Celgene has a lot of catalysts that could translate into revenue and profit growth. They did about $6.4 billion in revenue last year, in 2013. The company in December said that by 2017 their sales were going to double that; they're going to be closer to $13-14 billion.

A lot of that's going to come on the heels, or on the strength of their multiple myeloma drug, Revlimid, which does $5 billion in sales now and is going to climb to $7 billion from there. It also has other successful drugs, including the cancer drug Abraxane and another multiple myeloma drug that's growing very quickly, called Pomalyst.

Douglass: Sounds good; a good, quick synopsis of Celgene's opportunities. Kristine, what's your pitch?

Harjes: Today I would like to talk about Gilead Sciences (NASDAQ:GILD). I think that they've had a tremendous 2014, and still stand a lot of growth potential in 2015.

Their big stories for 2014 were their hepatitis C drug Sovaldi, and then its next generation drug Harvoni, which we're just starting to see how it's going to ramp up. That will definitely be something to keep an eye on for 2015. Sovaldi just knocked it out of the park, and it certainly seems like Harvoni is poised to do the same.

But of course, we can't forget about their very promising HIV franchise which really is the core of the business, bringing in $10 billion annually in sales. That's something to keep an eye on, as well as there are some new drugs in development that can add to their dominance in the HIV market.

Douglass: Certainly. If you measure how successful and exciting Gilead is by how much we talk about it here on Industry Focus, I think it must be a pretty darn successful company, wouldn't you say, Todd?

Campbell: Yes. This has been a fantastic story, and we've covered it a lot! It probably will go and become a fantastic story next year, too.

Douglass: Yes, absolutely.

One thing we often talk about for folks who are just looking to get into biotech and health care in general is to look at companies with broad and deep pipelines, with a lot of drugs, a lot of opportunities.

I am going to actually step away from that. I'm going to pitch Medivation (NASDAQ:MDVN). Now, Medivation has one drug, and it really only has one drug in development too; Xtandi. Xtandi is a metastatic castration-resistant prostate cancer drug that, when you look at the growth ramp for the drug, just looks tremendous.

Our friends over at S&P Capital IQ are estimating that revenues are going to be up about 28% next year and earnings up 34%, then the year after that they're going to go up to about 35% and 43%, respectively. So, we're looking at essentially a doubling of both the top and bottom line over the next two years.

A lot of that's going to be tied to the fact that Xtandi recently was approved for a pre-chemotherapy indication, which is this big, broad market of potential in prostate cancer.

Stepping beyond that though, CEO David Hung recently mentioned to Credit Suisse's Ravi Mehrotra that when you look at prostate cancer treatment, usually the duration from diagnosis to finishing treatment is around 14 years; 12 with the urologist and about two with the oncologist.

What they're looking to do now is figure out how they can access that earlier urologist market, those 12 years, and really get in well before chemotherapy, well before a lot of these other treatments.

It's this upstream potential, so beyond 2015 there are some really exciting opportunities for this drug much further down the road, in broadening and deepening that prostate cancer market for them. That's how I'm going to pitch Medivation.

All right, let's get a little bit more into the weeds now. Todd, let's go ahead and start with Celgene. I noticed you didn't mention Otezla.

Campbell: I didn't mention it for a reason and the reason is that so far it hasn't taken off yet -- as far as meaningful sales, I should say. You're talking about Celgene already has $6 billion in sales, so adding a few million here or there isn't going to move the needle much.

That being said, next year is a big potential year for Otezla. The drug won approval in psoriasis, huge indication, in September; 125 million globally, 7 million or so here in America, that this drug could conceivably treat. It's a multi-billion dollar indication.

Celgene has said in the past and continues to say even as of December that this is going to be a $1-1.5 billion drug over the course of the next few years. They're saying $1.5 billion by 2017, so this will be part of that strategy that gets them to the $13 in sales in 2017. It just hasn't moved the needle yet.

Douglass: Also, I think people are going to want to watch the follow-ons with Revlimid and with some of these other drugs, where they're basically going into one indication and then trying to expand beyond that.

Campbell: Label expansion is huge for Celgene. Revlimid is at $5 billion run rate now. It's a second-line treatment, and in February the FDA is going to make a decision on whether or not to approve it for use as a first-line treatment.

If it gets that approval and if other trials pan out that they're doing -- that would basically turn Revlimid into a once-a-day drug for people until the disease progresses -- Celgene thinks that those things could make Revlimid into a $7 billion drug by 2017, so you're talking about going from $5 billion today to $7 billion, just for that drug, over the course of the next couple of years.

Harjes: That's impressive!

Douglass: Todd, I think you hit that nail on the head. Todd and I, we should probably disclose we're both shareholders in the company, I think because we've just both been really confident in its growth ramp.

Campbell: Yes. Michael, they spend a lot of money on R&D.

Douglass: Yes.

Campbell: More than a lot of their peers of their size. Yes, that dampens down their profitability slightly, currently, but because of that they have just this awesome pipeline. They've got dozens of products under development. They've got relationships with some of the fastest-growing emerging biotech companies out there, including Agios (NASDAQ:AGIO) and Acceleron (NASDAQ:XLRN). These are companies that aren't even baked into that 2017 forecast.

Douglass: Yes, I think that's a very good point and one of the reasons Celgene is priced the way it is, I would say, and also has the kind of opportunities that it seems to be capitalizing on and really doing a good job of building up those sales ramps.

Speaking of sales ramps, let's turn to our friends, Gilead Sciences. Kristine, what is the one thing that people should be most keeping an eye on with Gilead Sciences this next year?

Harjes: Michael, it is hard to pick just one!

Douglass: Yes.

Harjes: I think many eyes will be kept on the ramping up of Harvoni. That's definitely set to be absolutely huge, and people will certainly be comparing those numbers to the $9 billion in sales that we saw just in the first three quarters for Sovaldi.

However, I think that we also really want to keep an eye on the potential approval of a drug, TAF, which is set to come into their HIV pipeline as a replacement for the active component of Viread, which is a huge part of their HIV lineup.

This approval should hopefully come sometime in the next year and is set to be really, really important, especially as Viread is set to come off patent in the next coming years.

Douglass: Yes, that is a very good point, sort of a stepping beyond the headline. I think all the headlines -- Todd, correct me if you disagree -- but I think all the headlines have and will continue to focus on the hepatitis C franchise. But ...

Harjes: But meanwhile, the core of the business is HIV.

Douglass: Absolutely.

Campbell: Right. This is a forgotten story, if you will, in 2014. This is where Gilead made its chops. Again, full disclosure, I happen to own shares in Gilead Sciences is well.

HIV is a $10 billion a year business for Gilead. It's growing high single digits/low double digits annually, and you're right. TAF has a lot of potential because if it does get the go-ahead, this could extend patent protection on a lot of HIV drugs that Gilead produces that are combination drugs that include Viread, which is the predecessor, if you will, to TAF. Yes, this is a good story.

Harjes: Definitely.

Douglass: I think that's a very good point.

Now, one thing that I think folks say when they look at Gilead is, "Well OK, sure. But hasn't this already been priced in?" The market's known about Sovaldi and Harvoni for a while. Do you think that's fully priced in, that growth opportunity, or do you think there's still some potential value to be had?

Harjes: I would definitely say the latter there. I think that it's priced fairly. It's not a bargain deal right now.

Douglass: Seven times sales, something like that?

Harjes: Yes, a PS of around 7, which is pretty cheap when you consider the rest of the biotech industry, which is somewhere around 10 or 11 on the whole. But I think given the amount of growth room that Gilead has, it's priced absolutely fairly, and is definitely something that investors should consider, going into 2015.

Douglass: Gosh, Todd. It's amazing to hear. Biotech, a lot of it, trading at that 10 price-to-sales; just enormous valuations we're seeing in the market.

Campbell: Yes, and there's only a half dozen or so biotechs that are generating out the kind of profitability that investors really want to ultimately end up seeing. I suppose you could argue that Gilead is fairly cheap on forward earnings estimates.

Douglass: Yes, I think that's a fair call.

Campbell: Yes, I think there's room for upside there. I think that investors really should remember, though, that the comparisons are going to be a lot tougher next year so the year-over-year growth is going to be less.

Douglass: Yes, I think that's a very fair point, something we'll want to keep an eye on.

All right, Medivation. Let me expand on a couple points. First off, I forgot to mention earlier that Xtandi is Medivation and Astellas Pharma's (NYSEMKT: ALPMY) drug; always important to make sure that all the partners are included in that.

It's funny, because when I look at Medivation -- and we're talking valuation -- Medivation is pretty darn expensive. It's trading at about 10 times next year's estimated sales, which is not cheap, frankly.

But I think that the market is beginning to price in, but still perhaps hasn't adequately priced, some of the really incredible growth opportunities this drug may have. They're looking at potentially this drug, Xtandi, in breast cancer and they're attacking prostate cancer a number of different ways, so I think it's a drug to be pretty excited about.

Harjes: Yes, those are huge indications, but Michael that's one drug that they have.

Douglass: Yes.

Harjes: How do you weigh that in?

Douglass: Yes and, especially, it's a drug with competition; let's be honest. Johnson & Johnson's (NYSE:JNJ) Zytiga; although, when analysts have looked at the two drugs -- now, they've not been running head-to-head -- but when looking at the two drugs, analysts have said on the whole it looks like the data for Xtandi is a little bit better.

Now that Xtandi is moving into these newer and further upstream indications, I think there's a lot of opportunity for it to punch back at Zytiga and steal market share. Actually, there's one trial that I think really exemplifies this.

It's the PLATO trial, which is supposed to read out in late 2016 -- so not a 2015 catalyst, to be fair -- but in late 2016. Basically it's Zytiga, prednisone, and Xtandi, versus just Zytiga and prednisone in pre-chemo metastatic castration-resistant prostate cancer.

What you might have there is essentially everyone who's on Zytiga and prednisone, whose doctor has them ... if the data look like Xtandi plus Zytiga looks better, they might say, "Okay, well we'll just add Xtandi to what they've already got," so that's a nice way for Medivation to potentially steal some more of that market share, even while they're also hopefully winning in the head-to-head against Johnson & Johnson. I like their chances, personally.

Campbell: You know, Michael, there's some evidence too that you're going to be right on this. Zytiga was also approved originally for the post-chemo, and then got approved later on for the pre-chemo indication.

As a post-chemo drug, it is doing about $1 billion in sales a year. Then when it went and got the extra indication it went to $1.7 billion, so a $700 million pop after you got that pre-chemo indication from Zytiga.

The reason that's important to Medivation is that Medivation is the market share leader now in the post-chemo indication.

Douglass: Right.

Campbell: They have moved ahead of, if you will, Zytiga in that indication, which would suggest that they could outperform or win away share in the pre-chemo indication. If that happens, yes, you've got a drug that's gone from $500 million to $1 billion to potentially $1.5 billion or more in fairly short order.

Douglass: To be honest, I think it's JPMorgan (NYSE:JPM) has estimated as much as $6 billion for the drug. Now, I think that $6 billion might be a little rich for it. I'm not willing to guess that much quite yet -- and let's face it, because there is commercialization risk, always, and because frankly ...

Especially that's true when you're up against Johnson & Johnson, of all people. They are kind of the gargantuan gorilla in the space.

Harjes: A little bit experienced.

Douglass: Yes, you know. They're pretty good at their job, from what I hear!

But then also of course they are running a number of additional trials, so it's hard to see exactly how much this drug could potentially make.

That said, I am very comfortable that it is going to be a heck of a lot bigger than it is right now, and I think that we will really see that ramp over the next couple years and have a much better sense of exactly what this company might be worth.

It's a company I'm really excited about. I'm thinking we all pitch companies we're very excited about!

Here at The Motley Fool, one of the things we really focus on is great growth stocks; growth stocks like these biotechs, growth stocks like some of the great tech stocks -- the Amazon.coms (NASDAQ:AMZN), the Netflixes (NASDAQ:NFLX), the Apples (NASDAQ:AAPL) -- that have really just cleaned up and beaten the market, year in and year out, over a long-term holding period.

Here at The Motley Fool, David Gardner actually has some ways that he tries to identify what he calls these Rule Breaking stocks. I encourage folks who are listening or watching the video to send us an email, growth@fool.com. Again, that's growth@fool.com, and we can send you a free report on how David identifies those fantastic stocks. One more time, that's growth@fool.com.

Thanks much, everybody. Todd, Kristine, thank you for being on the show with me today. Please check back to Fool.com, and of course the Industry Focus podcast for all of your investment -- health care and otherwise -- needs, and Fool on! 

Todd Campbell owns shares of Amazon.com, Gilead Sciences, and Medivation, Inc. Michael Douglass owns shares of Gilead Sciences and Celgene. The Motley Fool recommends Amazon.com, Apple, Celgene, Gilead Sciences, Johnson & Johnson, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, Gilead Sciences, Johnson & Johnson, JPMorgan Chase, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.