Biotechnology stocks are notorious for their hit-and-miss nature, and that makes them some of the market's most volatile investments to own. But for those of us willing to take on the risk of owning shares in companies in this sector, there are some best-in-breed names worth considering, especially since share prices are dropping.
For example, each of these three companies offers investors strong revenue growth, rock-solid balance sheets, and pipelines that are packed with potential blockbusters. Read on to learn more about these three biotech stock leaders and whether they might be right for your long-term portfolio.
No. 1: Gilead Sciences (NASDAQ:GILD)Recently, investors' attention has focused on Gilead Sciences' blockbuster hepatitis C drugs, Sovaldi and Harvoni. Those two drugs produced a combined $12.4 billion in sales for Gilead Sciences last year. However, investors shouldn't forget that Gilead Sciences has also been a long-standing leader in HIV treatment.
Last year, Gilead Sciences' various HIV drugs combined to generate more than $10 billion in sales This year, Gilead Sciences could easily have five HIV medicines eclipse the billion-dollar blockbuster-sales level, including the fast-growing combination therapies Complera and Stribild. Since patents protecting these HIV therapies stretch into the 2020s, it's unlikely that Gilead Sciences' HIV revenue stream is going to dry up anytime soon.
The pace of Gilead Sciences' growth will slow this year as new competitors angle for share in hepatitis C; however, the company still expects to deliver low-double-digit sales growth and even better earnings growth in 2015.
If Gilead Sciences can make good on its outlook, then its balance sheet, which already boasts more than $14 billion in cash, should get even stronger, even though the company is plowing more money back into research and development and spending billions on share buybacks and dividends. In the first quarter, Gilead Sciences bought back $3 billion in stock and announced a healthy quarterly dividend payout of $0.43 per share.
Gilead Sciences' future growth is likely to be fueled by a pipeline that includes next-generation pan-genotype hepatitis C drugs, cancer drugs, and drugs to treat hepatitis B. With $24.9 billion in sales last year and analysts expecting EPS will clock in at $10.59 this year and $10.87 next year, Gilead Sciences deserves to be near the top of the list of companies to consider buying on sale.
No. 2: Celgene Corporation (NASDAQ:CELG)Few companies are as successful as Celgene at developing and commercializing drugs. Celgene's product lineup includes four therapies that could generate a billion dollars or more in annual sales someday.
Celgene's top-selling drug is the multiple myeloma drug Revlimid, and Celgene thinks its status as the most prescribed second-line therapy for the disease will translate into sales of between $5.6 billion and $5.7 billion this year.
Celgene also markets the cancer drug Abraxane, the third-line multiple myeloma drug Pomalyst, and the psoriasis pill Otezla.
Thanks to label expansion and rollouts in Europe, Abraxane's first-quarter sales grew 20.5% to $223 million, and that has Celgene expecting that full-year Abraxane sales will be $1 billion, or more. Pomalyst is growing even faster. Last quarter, rising market share led Pomalyst sales to jump 46% to $199 million. And since winning approval last fall as a psoriasis therapy, Otezla is starting to pick up steam, delivering first-quarter sales of $60 million.
These top-selling drugs kick off plenty of shareholder-friendly cash flow that the company is reinvesting into research and returning to investors through buybacks.
Last quarter, the company generated $858 million in operating cash, allowing it to buy back $1.1 billion in stock, while maintaining a more than healthy $7.3 billion in cash on the books.
Importantly, Celgene's future should remain bright thanks to its aggressive policy of investing in collaborations (often including equity stakes) in some of biotech's most intriguing emerging companies. Celgene's product-development deals cut across immuno-oncology, cell metabolism, and epigenetics research.
No. 3: Biogen (NASDAQ:BIIB)Dominating an indication provides a lot of advantages for investors, and when it comes to treating multiple sclerosis, no one is bigger than Biogen. The company markets three billion-dollar blockbuster MS therapies, including long-standing leaders Avonex and Tysabri, and relative newcomer Tecfidera.
In Q1, Biogen reported that sales jumped 20% year over year, thanks to rising revenue for Tecfidera, an oral MS therapy that since launching in 2013 has become the most prescribed oral MS option. Last quarter, sales of Tecfidera jumped 63% year over year to $825 million, giving the drug an impressive $3.3 billion annualized sales run rate.
Tecfidera's success helped lift Biogen's adjusted EPS by 55% year over year to $3.82 and boosted the company's cash stockpile from $1.85 billion last year to $2.15 billion exiting the first quarter.
Biogen has multiple drivers that could boost shares over the next few years, including rising demand for its recently launched hemophilia drugs Eloctate and Alprolix, and the launch of its long-lasting variation of Avonex, which is sold as Plegridy.
Even further out, Biogen's pipeline includes at least one potential blockbuster: BIIB-037 is a promising therapy that could offer new hope to Alzheimer's patients. During early-stage trials, results for BIIB-037 were so strong that Biogen decided to skip straight to phase 3 trials, which should begin by year end.
Overall, industry watchers think that Biogen's earnings will hit $16.75 this year and reach $19.46 next year, and that means investors can still pick up shares in this double-digit grower for less than 20 times next year's earnings.
Tying it together
Biotech stocks have been one of the best market performers over the past two years, so the recent drop in prices isn't unexpected. It can be tough to step in and buy stocks when they're declining, but if you understand the story behind the company and plan on holding shares for the long haul, picking up companies such as Gilead Sciences, Celgene Corporation, and Biogen when they're on sale could prove to be savvy.
Todd Campbell owns shares of Gilead Sciences and Celgene. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool recommends Celgene and Gilead Sciences. The Motley Fool owns shares of Gilead Sciences. 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.