The biotechnology industry is one of the favorite industries for investing in up-and-coming companies. A lot of them offer promise, but few end up making it to the finish line. In this article, I will discuss why Celgene Corporation (NASDAQ:CELG) has been so strong and why it will continue to do so in the future. Before we get to that, let’s go over an example of how the biotechnology industry can provide big rewards, but also big risk.
High Risk, High Reward
One of the hottest stocks of 2012 and January 2013 was Celsion Corporation (NASDAQ:CLSN). The company was completing its Phase III trial of ThermoDox. As the chart below shows, Celsion had run up several hundred percent heading into January 2013 when it was scheduled to announce its results.
However, when Celsion announced the Phase III results on January 31, 2013, the results were a complete disaster. The official announcement contained the dreaded words that the trial failed to meet the primary endpoint in the liver cancer study. After all the hype and promise that investors were banking on, the share price collapsed by more than 80%. This is a cautionary tale of risk and the need for investors to risk only what they can afford to lose, especially when dealing with biotechnology stocks.
Celgene’s Recent Rise
For a large-cap stock, Celgene Corporation (NASDAQ:CELG) has had one of the most impressive runs over the past 52 weeks. As the chart below shows, Celgene has had a heck of a run.
Celgene shares have increased by more than 86% during the previous 52 weeks. This compares extremely favorable to both the overall market and the most popular biotech ETF, iShares Dow Jones US Pharmaceuticals. IHE has shown a return of approximately 25% over the past 52 weeks. Celgene Corporation (NASDAQ:CELG) has appreciated because of new drugs and strong earnings. One of Celgene’s most anticipated drugs is Abraxane, used in advanced stages of pancreatic cancer. On May 30, 2013, the FDA granted priority review for Abraxane in combination with gemcitabine for first-line treatment of patients with advanced pancreatic cancer. If the company can manage to get FDA approval, the shares will likely see a significant pop.
Fundamentally, Celgene appears to be sitting in a fairly strong position as well. The company reported first-quarter earnings on April 24, 2013. The results were very favorable. It also provided a guide as to how the company can continue to outperform well into the distant future. For the first quarter 2013, Celgene Corporation (NASDAQ:CELG)’s revenue totaled $1.46 billion, a 15% increase compared to the first quarter 2012. A few highlights include the following:
–REVLIMID sales for the first quarter increased by roughly 16% to $1 billion and were driven by overall market share gains and increased duration of therapy.
–VIDAZA first quarter sales increased by roughly 10% to $204 million. Sales were driven by increased demand in the U.S., Europe and Latin America.
In addition to strong earnings, the company also provided future guidance. Total net product sales are expected to increase by approximately 11% year over year to $6 billion. REVLIMID net product sales are expected to increase by approximately 10% year over year to $4.2 billion. Adjusted EPS guidance was raised to a range of $5.55 to $5.65 from a range of $5.50 to $5.60.
Earlier I mentioned the potential for Celgene because of its drug Abraxane. During a June 3 presentation at the American Society of Clinical Oncology annual meeting, Celgene Corporation (NASDAQ:CELG) presented additional data on the current MPACT Trial of Abraxane. Overall trial results showed that patients treated with Abraxane plus gemcitabine had a statistically significant improvement in overall survival compared to those who were treated with gemcitabine alone (median of 8.5 vs. 6.7 months). Given that pancreatic cancer is the eighth-leading cause of cancer-related death worldwide and the fourth-leading cause of cancer-related death in the U.S., the market potential is huge.
The competition
Clearly Abraxane has potential. But what about competitors? The large competitor is currently Threshold Pharmaceuticals, Inc. (NASDAQ:THLD). Threshold is currently involved in a Phase III trial called MAESTRO. This is a randomized, double-blind, placebo-controlled trial of TH-302 in combination with Gemcitabine in patients with metastatic or locally advanced unresectable pancreatic cancer. Threshold’s technology is built around hypoxia activation. Hypoxia (oxygen deprivation) is a characteristic of most solid tumors. Because of the presence of tumors, the blood flow is typically inadequate which can cause hypoxic areas to grow. The cells found in these areas are typically extremely resistant to traditional cancer therapy. So Threshold is attempting to fill this area of need. Thus far, the studies have proved promising.
Consider Celgene
Despite the competition risk from Threshold, I still believe Celgene Corporation (NASDAQ:CELG) will end up prevailing – or potentially even acquiring Threshold. Threshold currently has a market capitalization of $323 million, which would be a drop in the bucket for Celgene (market cap of $51.5 billion). Therefore, I would encourage investors to strongly consider adding Celgene Corporation (NASDAQ:CELG) to their portfolio if they haven’t already done so because of its strong fundamentals, deep pipeline of drugs, and strong technicals.
Ted Mayer has no position in any stocks mentioned. The Motley Fool recommends Celgene.
The article Celgene Soars in 2013; What Does the Future Hold? originally appeared on Fool.com.
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