Image source: Flickr user stockmonkeys.com.
The NASDAQ Biotechnology ETF (NASDAQ: IBB) has fallen 23.5% this year, but its 4.27% gain since Feb. 8 is double the return of the S&P 500, and if that bounce continues, then investors might want to consider picking up shares in Gilead Sciences (NASDAQ: GILD), Celgene Corp. (NASDAQ: CELG), and Regeneron Pharmaceuticals (NASDAQ: REGN). Returns for all three of these companies are outpacing the industry recently and each has important catalysts coming that could drive sales and profit significantly higher.
No. 1: Dominating markets
Worry that Merck & Co.'s (NYSE: MRK) newly approved HCV drug Zepatier will push Gilead Sciences off the podium in hepatitis C could be overblown, and if they are, then shares in the company could be too cheap.
Zepatier is challenging Gilead Sciences Harvoni, the $14 billion per year blockbuster drug most prescribed to hepatitis C patients, but even though Zepatier launched with a lower price, Gilead Sciences may remain the dominant player.
Zepatier is only approved to treat genotype 1 and genotype 4 patients and patients must be tested to see if they have specific polymorphisms of the disease that reduce Zepatier's efficacy. Zepatier is also contraindicated in people with moderate to severe liver disease and the shortest duration of treatment with it lasts 12 weeks.
That may not match up competitively to Harvoni, which can be used to treat patients with genotypes 1, 4, 5, and 6. Harvoni doesn't require testing for polymorphisms, it isn't contraindicated in moderate to severe liver disease, and up to 45% of genotype 1 patients qualify for an industry leading 8-week short-duration regimen.
Harvoni's advantages and the potential Food and Drug Administration approval of the company's next-generation HCV drug this summer have me thinking investors are right to warm up to Gilead Sciences' shares, especially since they're still trading at a bargain-bin 7.3 times forward EPS valuation.
Image source: Celgene Corp.
No. 2: Advancing its pipeline
With more than $9 billion in sales last year, Celgene Corporation has plenty of financial firepower to invest in new therapies that could help it deliver on its $21 billion sales goal in 2020.
Sales of the company's top-selling Revlimid grew to $5.8 billion in 2015 and that cash -- along with cash tied to growing sales for its cancer drug Abraxane, multiple myeloma therapy Pomalyst, and psoriasis drug Otezla -- allowed Celgene to plow $2 billion into R&D last year, which was roughly $400 million more than the company spent on R&D in 2014.
R&D investments have it on pace to report data from least 18 phase 3 studies between mid-2016 and mid-2018.
A lot of those studies are for drugs it already has on the market and that means that if the data is solid, then label expansions could quickly contribute to Celgene's top and bottom lines.
Results are also on tap for entirely new compounds, including the the oral MS drug, ozanimod, and the Crohn's disease drug, GED-0301. Ozanimod MS data should be available in 2017 and results from GED-0301's study should be ready in 2018.
Because Celgene's 2020 revenue target translates into a forecast for at least $13 in EPS that year and actual results could end up being higher because of its R&D efforts, now could be the perfect time to buy.
No. 3: Multiple blockbuster opportunities
Rapid sales growth for the company's vision loss drug Eylea have led to Regeneron Pharmaceuticals' shares returning an eye-opening 331% since 2012, but the future could be just as bright because of its recently launched cholesterol-lowering drug Praluent and promising drugs addressing various multibillion-dollar indications that are in the works.
Eylea is used to treat age-related macular degeneration and diabetic macular edema and because the patient population for each of those indication is growing, demand for the drug pushed its sales up more than 40% to $4.1 billion in 2015.
Praluent may not end up being as big of a seller as Eylea, but tens of millions of patients with high cholesterol could eventually benefit from using it alongside statins. Given that insurance reimbursement is getting easier and cardiovascular outcomes study results are on the horizon, Praluent's potential revenue opportunity remains massive.
Image source: Regeneron Pharmaceuticals.
Another similar needle-moving opportunity could be coming in October, when the FDA is set to make a decision on the company's rheumatoid arthritis drug sarilumab. Sarilumab has a good shot at carving away hundreds of millions of dollars in sales from existing RA therapies, including Humira -- the planet's best-selling drug -- and if results from a study comparing sarilumab against Humira are positive, then sarilumab could become a blockbuster drug someday, too.
Additionally, Regeneron's dupilumab is in phase 3 studies as a treatment for eczema, a condition affecting 3 million Americans, and asthma, another major market indication that affects millions of people. If those studies succeed, then a dupilumab approval could conceivably mean that Regeneron Pharmaceuticals has four different billion-dollar blockbusters on the market in the next few years.
Admittedly, Regeneron Pharmaceuticals' shares aren't as cheap as those of Gilead Sciences and Celgene, but it may offer the biggest opportunity for profit growth of the three over the next decade, and for that reason, it could be worth owning.
