December 20, 2016
By Mark Terry, BioSpace.com Breaking News Staff
“Buy low and sell high” is the mantra of successful investing. But when are low stock prices low because the company is undervalued and ready to take off, or because they’re just plain underperforming? Cory Renauer, writing for The Motley Fool, takes a look at three biotech stocks he feels are currently cheap, but ready to soar.
1. Celgene
Renauer notes that Celgene stock is trading for 43.9 times trailing earnings, which would not indicate the stock was undervalued. But Wall Street estimates its bottom line will grow annually at 22.6 percent over the next five year—a little bit slower than it’s grown over the last five years.
Celgene’s biggest growth product is Revlimid, for multiple myeloma (MM). It’s been expanded beyond its main indication and third-quarter sales rose 30 percent compared to the same period in 2015. And the company’s follow-up product, Pomalyst, appears to be gaining traction, with year-over-year sales growing 33 percent in the third quarter.
In addition, it has a promising pipeline, and the company’s Otezla, launched in 2014 for psoriasis, is gaining steam.
Renauer writes, “Soaring sales of its commercial-stage products alone make this biotech seem like a bargain, but there’s more to like further ahead. Its clinical-stage pipeline is second to none. With acquired assets such as multiple sclerosis and ulcerative colitis hopeful ozanimod, and collaboration agreements with more than 30 partners, Celgene is poised to continue putting up double-digit growth for many years to come.”
Celgene is currently trading for $117.68.
2. Incyte
Incyte has two products on the market, Jakafi and Iclusig. Jakafi is a JAK1 and JAK2 inhibitor to treat polycythemia vera. In May, Incyte acquired the European rights to leukemia drug Iclusig from Ariad Pharmaceuticals . In October, a survey by Evercore ISI of 244 biotech industry observers, cited Incyte as the top choice as an acquisition target.
Renauer notes it is trading for 129 times trailing earnings, “but the stock is far cheaper than it looks.”
Jakafi sales grew 38.8 percent in the third quarter, and are projected to double in the coming years. It also has an interesting pipeline, with baricitinib, which it has partnered with Eli Lilly on. In a head-to-head trial against Humira, baricitinib came out the leader, and if approved, could generate $2 billion-plus annually for the two companies.
In addition, Incyte’s epacadostat is in a late-stage combination trial with Merck and Co ’s Keytruda. If successful, it could hit the market as part of a combination therapy for patients newly diagnosed with advanced melanoma.
Incyte is currently trading for $101.74.
Renauer isn’t the only one interested in Ionis Pharmaceuticals . In early November, George Budwell, writing for The Motley Fool, laid out an argument for why Biogen should acquire Ionis. The company’s valuation is down almost 60 percent based on some concerns about its technology, which appears to have been discounted.
But one of the big reasons to look at the company is it has 27 compounds in clinical-stage trials, and three in Phase III trials for rare diseases. Its nusinersen to treat spinal muscular atrophy (SMA), a leading cause of genetic infant mortality, is furthest along in partnership with Biogen. It approved, it could hit peak annual sales of $2.5 billion.
Renauer writes, “Despite having a stellar year, Ionis shares have fallen about 25.6 percent in 2016. With a market cap around $5.58 billion, and a bulging pipeline that could start spewing out profits, this biotech stock looks incredibly cheap.”
Ionis is currently trading for $52.24.
