It's been proven time and time again that investing for the long haul outperforms short-term trading, but biotechnology stock investors must also realize that the industry moves so quickly that only the best-of-breed players ought to be stashed away for the long term. For that reason, while I'm happy to own a few speculative biotech stocks here and there, the biotech stocks that I'm counting on for the long term are industry Goliaths like these three.
No. 1: Celgene (NASDAQ:CELG)
Celgene is a major player in the treatment of cancer, and the company recently launched its first therapy for autoimmune disease, but the real reason that I'm such a fan of this company is that it is among the few that are willing to go out on a limb and offer insight to investors on where they think they'll be years from now.
Celgene's top-selling drug is Revlimid, a second-line therapy for multiple myeloma that racks up $5 billion in annual sales. The company also markets the pancreatic and nonsmall lung cancer drug Abraxane, the third line multiple myeloma drug Pomalyst, and the psoriasis drug Otezla. Altogether, net product sales for Celgene in 2014 totaled $7.56 billion, up from $6.36 billion in 2013.
That's solid growth, but Celgene thinks sales could go much higher over the coming years. In January, the company targeted sales of between $9 billion and $9.5 billion this year, of between $13 billion and $14 billion in 2017, and of at least $20 billion in 2020. Based on that guidance, Celgene thinks that its sales will more than double over the next five years. With a track record of success and solid balance sheet that is flush with cash, Celgene appears to be well worth including in long-term portfolios.
No. 2: Gilead Sciences (NASDAQ:GILD)
Gilead Sciences shares have stalled since AbbVie won approval for its competing hepatitis C drug Viekira Pak in December. But that's OK. After all, stocks don't go up in a straight line, and when they do, they often retreat at some point along the way.
Sure, AbbVie's drug will cut into some of the market share for Gilead's market-leading hepatitis C drugs Sovaldi and Harvoni, which combined to generate more than $12 billion in sales during 2014, but I believe that it will be Gilead Sciences -- not AbbVie -- that rolls out the next generation of market dominating hepatitis C drugs. If so, Gilead Sciences could have plenty more running room in the indication.
In the U.S., there are roughly 3 million patients with hepatitis C, and that suggests it will take years for every patient in America to be treated. Additionally, there are over 150 million people globally that will need hepatitis C treatment, too. The sheer size of the patient population implies that hepatitis C drugs will remain blockbusters for years.
But, hepatitis C isn't the only reason I like Gilead Sciences long term. At the core of Gilead Sciences is a robust HIV drug franchise that includes five separate drugs that are on track to deliver more than one billion dollars in revenue this year. Altogether, sales of these HIV therapies eclipsed $10 billion in 2014, and since HIV patients are living much longer than they were a decade ago, it's unlikely that demand for those drugs will shrink.
Additionally, Gilead Sciences is also committed to establishing itself as a major player in oncology. The company's first cancer drug, Zydelig (idelalisib) launched last year, and it has five additional cancer drugs in development, too.
With the company's pockets overflowing thanks to its success so far, Gilead Sciences has the financial flexibility to fuel significant R&D and to reward investors. In January, the company decided to issue its first quarterly dividend of $0.43, and a bright future could mean that dividend payout climbs nicely in the future.
No. 3: Biogen Idec (NASDAQ:BIIB)
Biogen Idec's dominance in multiple sclerosis is reason enough to like its stock, but Biogen Idec isn't simply relying on its MS blockbuster drugs Avonex, Tysabri, and Tecfidera to drive it higher in the future.
Last year, the company rolled out its first two hemophilia drugs, and while sales of those drugs totaled roughly $80 million in the fourth quarter, there should be plenty of room for growth. The hemophilia market is expected to grow from $8.5 billion in 2011 to $11.4 billion in 2016, and given that Biogen's two drugs have longer half-lives than previous therapies, it should be able to continue winning away share.
Biogen is also investing in research that could lead to additional drugs targeting other big markets. One of the most exciting of these drugs is BIIB-037, a treatment for Alzheimer's disease for which the company recently offered up some intriguing early stage results.
In a phase 1 study, BIIB-037 successfully reduced amyloid levels, suggesting that it could be used to destroy amyloid plagues that build up in the brain and are thought to be a reason behind the disease. Biogen's excitement over BIIB-037 is so high that it's skipping phase 2 trials and kicking off phase 3 trials in a move that it hopes will allow the drug to reach the market sooner. Results from that phase 3 trial probably won't be available until 2018, but given the need for Alzheimer's therapies, BIIB-037's potential helps make Biogen a name that could be worth sticking with for the long haul, too.
Staying the course
Owning companies for the long term can be hard, especially when the economy inevitably stumbles, but long-term thinking can help investors avoid the risk of reacting emotionally when times get tough. Building a solid foundation that includes owning great companies with rock solid balance sheets like these three may also help investors weather any eventual storms, and for that reason, I'm content to stash shares in these away for a long time.