Why Celgene and Gilead Stock Can Jump 30% This Year

Why Celgene and Gilead Stock Can Jump 30% This Year
February 8, 2016
By Mark Terry, BioSpace.com Breaking News Staff

Noting that the SPDR S&P Biotech exchange-traded fund (XBI) hit a high of $90 last summer and recently traded below $50, Barron’s recently took a look at two biotech companies that it expects to jump by 30 percent over the next year.

The two companies are Celgene and Gilead Sciences .

Summit, N.J.-based Celgene Corporation recently announced its 2016 financial outlook and preliminary 2015 financials. The company is projecting net product sales for 2016 of $10.5 billion to $11 billion, a 17 percent increase year-over-year. Revlimid net sales are expected to be about $6.6 to $6.7 billion. Revlimid is used to treat multiple myeloma, and in 2014 was responsible for 65 percent of Celgene’s sales. Its primary patent expires in 2019 and the final patent expires in 2027.

The company also recently announced changes to its executive leadership, with Mark Alles moving to chief executive officer, and Bob Hugin stepping in as executive chairman and continuing to lead the board of directors. Jackie Fouse, formerly chief financial officer and president of the company’s Hematology & Oncology franchise, steps up to become president and chief operating officer. Scott Smith will chair the company’s Global Management Committee.

Jack Hough, writing for Barron’s, notes that Celgene reached an agreement with Indian drug company Natco and its U.S. partner Arrow, owned by Allergan , to manufacture generic Revlimid ahead of the 2027 patent expiration, starting with limited quantities in 2022. “The deal,” he writes, “provides greater clarity around Celgene’s ability to protect its Revlimid patents, effectively protecting sales through early 2025, according to Yatin Suneja, an analyst at SunTrust Robinson Humphrey.”

Celgene also has opportunities for international growth, including potentially $14.8 billion in its blood-cancer business by 2020, and $2.2 billion from other cancer drugs, including prostate cancer. It also has the possibly of generating more than $4 billion from drugs for inflammatory diseases like psoriasis and Crohn’s diseases, with projected revenue of $21 billion by 2020.

Forest City, Calif.-based Gilead is best known for its hepatitis C treatments, Harvoni and Sovaldi. It’s been in an ongoing battle with AbbVie over pricing and market accessibility for their respective HCV treatments, but Gilead appears to be winning.

Most recently, Gilead indicated it had signed a definitive agreement with health insurance company Anthem, Inc. Anthem agreed that Harvoni will be the primary treatment for genotype 1 hepatitis C, noting better pricing compared to AbbVie’s Viekira Pak. On Jan. 7, it announced an exclusive rights deal with CVS Health Corp. to exclusive sell its hepatitis C treatments Harvoni and Sovaldi.

Gilead has a peculiar problem, one the world probably wishes happened more often. Its HCV drugs cure the disease. Hough writes, “The problem: Gilead is likely to lose its customers by making them well. That might have already begun. This year, Wall Street predicts combined Sovaldi and Harvoni revenue will fall 10%.”

However, Hough thinks that Gilead’s current share price may be pessimistic, because it suggests a possible 50 percent decline in the company’s combined HIV and HCV revenues over the next five years. “That seems unlikely,” he writes, “in part because insurers have been finicky about who is covered for the hep-C drugs, which has created pent-up demand. Gilead has beaten Wall Street’s earnings estimates by double-digit percentages in each of the past four quarters, suggesting analysts have an acute and chronic case of underestimating its performance.”

For investors not totally sold on Gilead, The Motley Fool’s Brian Feroldi recently looked at three companies that he thinks might be as fast-burning as Gilead, which gained more than 4,930 percent in the last 15 years. Those companies were Intra-Cellular Therapies , Prothena Corporation , and Exelixis .

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