Some sectors tend to do better than others in tough times.
Healthcare is one such area. Moreover, the biotechnology sub-sector
often surprises investors in good times and bad. This
sometimes-perilous niche can make or break a portfolio depending on
several factors: drug pipeline, continued investment, market factors,
and government approvals.
Biotech stock performance is often hostage to government action – or
inaction. If the FDA approves a particular compound, the company’s
shares can jump wildly higher. Denial can make a stock crater. You
can mitigate some of the risk by investing through biotech ETFs, but there are other times when individual biotech stocks make sense, too.
This week is one of those times. Celgene Corporation ( )
reported earnings last Thursday. Blood cancer products pushed second
quarter profits up by 19% . However, the bigger news was positive
clinical results for their product Revlimid. The expectation for
further development in Europe caused CELG to surge 18.6% by Thursday’s
close, the biggest one-day rise in many years. We think there’s more
upside for this New Jersey-based biotech company. Here’s why…
First, Celgene is riding the Revlimid wave. Revlimid is an oral cancer drug used to treat multiple myeloma. The 2nd
quarter saw 22% year-over-year revenue growth thanks to the drug’s
unique market position. Quarterly sales were $397 million. In
addition, recent independent tests revealed Revlimid has even greater
efficacy for blood cancers. This should produce more sales for this
high-margin, low-competition drug. In fact, it’s one of the fastest
growing oncology products to date.
Second, Celgene has a deep pipeline for continued drug development.
CELG holds patents or patents pending for 800 of the approximately
36,000 investigational drugs in the pipeline – a sizeable chunk for a
smaller, biotech player. Celgene’s research and development team has
continued to pour resources into the long waiting period from R&D
to market. It’s paid off more than once.
Third, international approvals continue to roll in for Celgene.
Efforts to expand beyond the US and Western Europe are working. New
markets are opening in Latin America, Eastern Europe, and Japan – where
cancer patients can afford Celgene treatments via national healthcare
systems.
With Celgene’s double digit Q2 profits behind them, their stock
continues to look forward to more appreciation. CELG was already in a
strong uptrend with the rest of the market and biotech. The entire
sector has strong intermediate-term momentum. To go with a strong
biotech stock in a rising sector, go with CELG.
