Celgene Corporation's (NASDAQ:CELG) slate of top selling medicines already makes it one of biotech's biggest success stories, but Celgene's recent long-term forecast suggests that the company's best days are ahead of it. Here are five reasons why investors ought to consider Celgene for long haul portfolios.
1. Operating Excellence
Great biotech companies not only innovate, they also manage their businesses for long term success. By that measure alone, Celgene may be one of the best companies out there.
In the past year, Celgene's sales have climbed 19% to $7.6 billion, its operating margin has expanded by 2.2%, and its earnings per share have climbed 24% to $3.71. Thanks to its sharp pencils, the company's cash and equivalents have jumped from $5.7 billion exiting 2013 to $6.8 billion coming out of the third quarter. That strong cash position means that Celgene's current ratio, a measure of how likely it is that a company will make good on its short term financial obligations if creditors come knocking, is an industry-leading 6.3.
2. Market dominance
Great biotech companies tend to dominate at least one indication, and in Celgene's case that indication is multiple myeloma.
The company's drug Revlimid is the leading second-line therapy for multiple myeloma, with $5 billion in annual sales, and expected to climb, as shown in the chart to the left.
In 2015, Revlimid's dominant market position could strengthen if it wins FDA approval for use in newly diagnosed patients. Additionally, Revlimid could someday win approval for use as an ongoing maintenance therapy for multiple myeloma patients as well.
Celgene also markets the third line multiple myeloma drug Pomalyst. Pomalyst, which won FDA approval in 2013, is quickly becoming a blockbuster therapy in the indication, too. In the fourth quarter, Pomalyst sales jumped 123% to $680 million.
The combined strength of these drugs has Celgene expecting to generate multiple myeloma revenue of between $9.5 billion-$10 billion by 2017, up from $5.7 billion in 2013.
3. Oncology expansion plans
While Celgene already dominates the market for multiple myeloma, it's only scratching the surface in other cancer indications.
For example, the company's drug Abraxane, which is approved to treat non-small cell lung cancer and pancreatic cancer in the U.S., saw its sales grow 31% to $848 million in 2014, and sales could head higher this year as the drug rolls out across Europe and in Japan, where it received approval for use in pancreatic cancer patients in December. Abraxane could also see its sales climb if the EU approves its use for non-small cell lung cancer this year, too.
Additionally, Celgene is studying Abraxane's use alongside other widely-used pancreatic cancer drugs and as a treatment for triple negative breast cancer. If those studies pan out, Abraxane could eventually be a multi-billion dollar a year therapy.
4. Burgeoning autoimmune franchise
Celgene is branching outside of oncology with Otezla, an autoimmune drug that won U.S. approval as a treatment for psoriasis and psoriatic arthritis in 2014. Since its launch, Otezla's weekly prescription growth trajectory has outpaced competitors, including Johnson & Johnson's $2 billion-a-year Stelara. As a result, Otezla's sales have climbed from $5 million in Q2, to $18 million in Q3, to $47 million in the fourth quarter.
Over time, Otezla's growth could accelerate further if the EU decides to approve it -- a decision is expected this quarter -- and trials of Otezla as a therapy for ulcerative colitis and atopic dermatitis are successful.
5. Long term thinking
Celgene isn't afraid of laying out its long term forecast for investors to digest, and its most recent forecast, which extends all the way to 2020, is impressive.
Celgene thinks that its existing product line up will allow for sales to grow by a compounded 15% annually through 2020. If label expansion and new product approval play out as hoped, then Celgene thinks its compounded annual growth will accelerate by 18% instead. If that happens, Celgene's sales will eclipse $20 billion in the next five years, allowing it to deliver more than $12.50 per share in earnings.
Celgene's sales and profit forecast is compelling, but it may not reflect Celgene's peak potential given that the company is one of the most active research and development spenders. In the past 12 months, it's plowed 35% of its sales back into R&D -- a significantly higher percentage than its peers.
The company has also inked collaboration deals and -- in some cases -- taken equity stakes in a number of high profile emerging biotech stocks, including Agios, bluebird bio, and Acceleron. If a few of those deals work out, Celgene's pipeline could exit this decade even fuller than it is today.
Tying it together
There aren't a lot of big cap biotech stocks with the financial flexibility of Celgene, and that flexibility offers Celgene plenty of chances to market its drugs, conduct new trials, and invest in partnerships. However, there's likely to be stumbles along the way. After all, more than 90% of drug trials fail, and Celgene investors aren't immune to that risk. Regardless, Celgene offers compelling reasons why investors that are willing to take the long view might want to include it in their portfolios.
Todd Campbell is long Celgene. Todd owns E.B.Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Legal beagles don't let me ask or them to tell me. The Motley Fool recommends Celgene and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. 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.