Celgene: Fast Growth and Value

12/09/2016 10:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

This featured recommendation — which concentrates on various cancers — is among the fastest growing companies in the biotech sector, explains J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

The leading drug at Celgene (CELG) is Revlimid, comprising 60% of the company’s total sales. Revlimidis an oral cancer drug used to treat multiple myeloma. The drug works against cancer cells partly by impacting the functioning of the immune system.

Third-quarter Revlimidsales surged 30%, and sales should continue to rise bolstered by expanded uses and market share gains. Celgene has attained patent protection for Revlimidthrough the end of 2026.

Celgene’s pipeline is led by Otezla, which is approved by the FDA to treat psoriatic arthritis in March 2014.

Otezlais also under FDA review for psoriasis, and in Phase III study for ankylosing spondylitis, a type of arthritis that affects the spine.

Celgene is also in Phase II study with PDA-001, a regimen using placental-derived cells for the treatment of Crohn’s disease.

Recently approved Pomalystand Otezla, and new uses for Abraxanewill likely accelerate sales and earnings growth during the next several years.

Total sales will likely advance 22% in 2016 and 17%, in 2017. Revlimidsales will climb 15% to 20% in 2016 and 2017. Earnings per share will explode, rising from $1.94 in 2015 to $4.92 in 2016 and $7.00 in 2017.

In August, CELG acquired Receptos for $7.2 billion. Receptos’ main drug candidate is Ozanimod, currently in Phase III trials to treat multiple sclerosis.

The drug is also in Phase II trials for ulcerative colitis, and Phase I for Crohn’s disease. CELG predicts Ozanimodwill become a blockbuster drug.

Celgene does not pay a dividend, but the balance sheet is strong with $6.4 billion in cash and manageable debt.

I expect CELG to climb 39% to reach my minimum sell price target of $169.91 before the end of 2017. Buy at $124.75 or below.

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By J. Royden Ward, Editor of Cabot Benjamin Graham Value Investor

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