Inside Wall Street: Celgene is an attractive biotech

Positive action on new drugs by FDA in 2011 bodes well for biopharmaceuticals in 2012, and Celgene can offer long-term growth.

By Gene Marcial Jan 9, 2012 9:37AM
SuperStockIs the Food and Drug Administration becoming more of an ally than an obstacle to young biotech companies? Some analysts are starting to believe so. The FDA last year approved 30 new drugs, the highest yearly total since 2004, which industry watchers say represents very positive news for biotech companies.


"We see the FDA's modestly raised fiscal 2012 budget supporting continued improvement in the approval of new drugs on first review cycle," says Steven Silver, a biotech analyst at Standard & Poor's. The FDA's approval of new drugs in 2011 jumped 63% after an increase of about 50% in 2010, indicating a much-improved dedication by the FDA in supporting biotech and pharmaceutical companies in their quest for badly needed new drugs, Silver argues.


A collateral consequence would be more robust mergers and acquisitions and increased partnership deals, says Silver, as the big pharmaceutical companies will push harder to find new drugs in the wake of the expiration of some major patents on their blockbuster products. The more positive stance by the FDA will also encourage larger biotechs to focus more on re-invigorating efforts to develop new therapies in order to improve their growth prospects over the long haul.


One company that’s expected to be a big beneficiary is Celgene (CELG), which primarily develops and markets small molecule drugs for the treatment of blood-borne and solid tumor cancers and other severe immune, inflammatory diseases.

Celgene recently transitioned from a large biotech company, usually valued by its drug pipeline and potential, to a small pharmaceutical that gets more attention on Wall Street because of products on the market and larger market capitalization, says John McCamant, the editor of the Medical Technology Stock Letter. Celgene's market value has increased to $30 billion from $18 billion in 2009.


Celgene, which is already making money from approved drugs that are already on the market, is now "commonly mentioned in the same breath as Amgen (AMGN) and Gilead Sciences (GILD)," McCamant says. Among Celgene's FDA-approved drugs is Revlimid, a treatment for the blood disorder myelodysplastic syndrome. The company also has a rich pipeline of drugs in development, including a treatment for severe psoriasis and Crohn's disease. It is awaiting data for 25 pivotal clinical trials being conducted on its new proposed drugs.


"Expect a broad-based rally in biotech stocks in 2012," says McCamant, largely because of the currently cheap valuation of many biotech stocks. "Some of the biotechs could double in value during the rally -- and still be attractive investments because of their long-term growth potential," says McCamant. He believes Celgene, which he rates a buy, will continue to be one of the winners. Currently trading at $67 a share, the stock is up from its 52-week low of $48.


Celgene was scheduled to be the first biopharma presenter Monday morning at the opening of the usually well-attended yearly J.P. Morgan Healthcare Conference in San Francisco. This is the biggest industry meeting of biotech and other health care companies. McCamant expects Celgene to discuss the growth potential of Revlimid and the new drug candidates that Celgene may submit for FDA approval, possibly including pomalidomide, a treatment for multiple myeloma, the second most diagnosed blood cancer.


S&P's Silver says Celgene is very attractive, as it has the "brightest growth prospects among the large-cap biotech companies." He expects revenues in 2011 jumped 34%, to $4.84 billion, with 30% growth in Revlimid sales, to $3.2 billion. For 2012, the analyst forecasts revenues growing 11%, to $5.35 billion, with Revlimid sales growing 15%, to $3.68 billion. On earnings, Silver forecasts profits of $4.05 a share in 2012, way up from an estimated $3.43 in 2011, and $1.88 in 2010.


Celgene's stock has been a stellar performer among biotechs, but Silver sees it flying even higher despite its robust rise. His confidence in the stock is reflected in his 12-month target for Celgene: $89 a share.

Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money's Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.


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