- Gilead, Celgene and Amgen stocks have all dropped in the past month.
- All three companies have potential blockbuster drugs in their pipeline.
- Though the biotech sector may be volatile there are a number of positive reasons that these three stocks should move higher.
In the past month both Gilead Sciences (NASDAQ:GILD) and Celgene (NASDAQ:CELG) stock have given back over 18% of its value. Amgen (NASDAQ:AMGN) has fared better only paring back 9% of its value. While these stocks have done very well over the past few years there is concern that perhaps the biotech sector as a whole may be in a bubble. Those who bought these biotech stocks over the past few years have experienced substantial gains. I believe that the current pullback will be short lived, and investors now have a much better entry point for three stocks that have the potential to see solid gains in the future.
Gilead - Primed For Continued Profits With Its Hepatitis Drug
Today Gilead Science is all about Sovaldi, its novel hepatitis drug. The hepatitis C market is forecast to increase by 230% by 2023, and according to the research and consulting firm Datamonitor Healthcare, the market is expected to peak at $15.5 billion in 2022. Sovaldi boasts a cure rate of 90% along with a shorter treatment period, and in many cases does not require the use of Interferon. While sales have been brisk since its approval there has been a backlash from insurers and some members of congress as the high price tag of $84,000 for the 12 week treatment. But the real costs might not be nearly as high when one factors in the costs of treating the effects of hepatitis including liver cancer and a liver transplant. Sovaldi is expected by some analysts to reach sales of $9 billion by years end. Other analysts are a bit more cautious, though still seeing the drug as a blockbuster. The more tempered estimates came in at $6.6 billion in 2016.
Gilead recently announced Sovaldi's Phase 3 clinical study in Japan used in combination with ribavirin for the treatment of type 2 hepatitis C (HVC) met its primary efficacy endpoint of superiority compared to a predefined historical control sustained virologic response rate. In terms of worldwide revenue this is positive news for Celgene as Japan has one of the highest rates of liver cancer of any industrialized country, and the majority of cases are from chronic HCV infection. There are an estimated two million people in Japan that have the HCV infection, and approximately 20-30% carries the genotype 2 strain. Results of a second Phase 3 study in Japan evaluating the efficacy and safety of a once-daily combination of Sovaldi and ledipasvir, an NS5A protein inhibitor, with and without ribavirin, are expected in the second half of 2014.
Gilead may have some stiff competition on Sovaldi from Merck (NYSE:MRK). On April 10th Merck updated its information on its Phase 2 trials of its novel hepatitis drug, and may have the best chance of challenging Sovaldi. In a multi-faceted phase 2 clinical study the two drugs MK-5172 and MK-8742 combined into one pill, taken once daily for twelve weeks, has shown to have a 98% cure rate for hepatitis C patients who do not have cirrhosis. Once launched, analysts expect the drug combination to bring in $400 million in revenue. The question is if and when Merck gains FDA approval will insurance companies balk at the high price tag on Gilead's drug and switch their customers to Merck's drug which is expected to be less expensive? If Merck's drug is approved, Sovaldi sales will come under heavy pressure and Merck will have its next blockbuster drug.
While Sovaldi will drive the sales growth for the company for a number of years to come, Gilead also is developing what looks like a solid pipeline of drugs for hepatitis, HIV, and cancer. I look for drugs, such as idelalisib, which is in Phase 3 trials for non-Hodgkin's lymphoma and chronic lymphocytic leukemia, to move the company into the cancer drug market in a strong way. As I noted in an earlier article Goldman Sachs sees peak sales idelalisib reaching $6 billion per year while Bernstein Research analyst, Geoffrey Porges, is more reserved in his estimate and sees idelalisib sales reaching $2.5 billion by 2020. Using either number, Idelalisib has the potential to be another blockbuster drug for Gilead.
Gilead has a market cap of $108.65 billion. Its stock closed on April 10th at $65.48 per share, well off its 52 week high of $84.88. On Feb 4th the company announced quarterly earnings of $3.04 billion in revenue, up 20.5% compared to the same quarter last year, and beating the consensus estimates of $2.85 billion. Gilead earned $0.55 per share beating the consensus estimate of $0.50. Analysts predict that Gilead will post $3.86 EPS for the current fiscal year.
On March 26th analysts at Morgan Stanley put a price target of $75.00, while analysts at Nomura reiterated a "buy" rating and have a $119.00 price target. While I do see that Gilead has the potential to reach $119 it may be a rocky road for the next few months, but I see Gilead continue to grow, and with its recent dips a good buy at this time - just hold on for a bumpy ride.
Amgen's new Cholesterol Drug Has Blockbuster Potential
Amgen is developing a promising new monoclonal antibody, evolocumab, for the treatment of high cholesterol. Evolocumab, which is currently in late stage trials, works to rid the body of LDL, the "bad" cholesterol out of the bloodstream, and according to some experts may be the biggest advancement in cardio treatments since statins were introduced. Scott Wasserman, Amgen's executive medical director for global development, said of the drug, "We look at this a game changer for patients. We believe this is going to put a significant stranglehold on cardiovascular disease."
At the American College of Cardiology Conference, Amgen presented results of five phase 3 studies consisting of over 4,000 patients. The drug reduced LDL cholesterol by 57% compared to a placebo, and 75% when combined with a statin. If successful, evolocumab could be a major revenue producer for the company, as there are an estimated 71 million Americans with high cholesterol. The drug can be taken along with statins or in lieu of statins. Analysts have estimated that evolocumab could bring in roughly $10 billion in revenue. Amgen looks to file an FDA application sometime in 2015.
Unlike statins, evolocumab works by blocking the PCSK9 gene. It was found that overactive PSCK9 genes were in patients with untreatably high LDL levels, while people who had super low cholesterol had broken PCSK9 genes. While evolocumab was found to have no significant neurological side effects, its competing PCSK9 drug being developed by Sanofi (NYSE:SNY) did have issues with potential for cognitive impairment. However, in late stage tests Evolocumab's efficacy and safety endpoints were met. The drug was well tolerated, with adverse event rates similar to those in placebo and with the group treated with the cholesterol drug ezetimibe, and there were no sign of liver damage or muscle problems. However, the concern may have been one of the reasons for the stock's recent decline.
The other issue that may mitigate evolocumab sales is that statins are much cheaper, especially with so many generics available, and this new class of medications will end up be the most expensive on the market. Therefore there is a question as to whether Doctors will switch from statins to PCSK9 drugs for patients who can tolerate statins. Even if Doctors don't switch their patients there are still enough patients that can benefit from PCSK9 drugs that once approved it should be a blockbuster for Amgen.
Amgen is an $89.45 billion market cap company. The stock closed on April 10th at $114.11 per share, and is up roughly 3.5% YTD. On March 28th equity analyst Eun K. Yang at Jefferies raised his price target from $138.00 to $145.00 per share citing expected earnings increase between 22 to 49% from 2017-2020 in the U.S. and Europe. Mr. Yang also pointed out risks of pricing pressure, stiff competition, and the possibilities of regulatory delays or failure of evolocumab that could have a negative effect on the stock. Amgen recently announced it was laying off 252 employees by the end of April, consisting of U.S. sales force, operations and other corporate employees. I do like Amgen, though I would like to see it dip a little more before buying, however, I'm not so certain that the dip, though small, hasn't already occurred.
Celgene Looks To Double Sales In the Next Three Years
Celgene's sales revenue for 2013 came in at $6.4 billion, up 18% year-over-year. Early last CEO, Bob Hugin said his pipeline of drugs will drive revenue to $12 billion a year by 2017. To do this the company needs other blockbuster drugs besides its flagship Revlimid. Revlimid is used for the treatment of multiple myeloma, and in 2013 the drug has sales of $4.3 billion or roughly 66% of the company's revenue. Revlimid sales for 2014 are forecasted to come close to $5 billion, an increase 16% YOY, and the company expects to see sales reach $7 billion by 2017. That's still $5 billion below Mr. Hugin's 2017 goal.
To reach the $12 billion by 2017 Revlimid will need help, and Celgene has a number of drugs that can drive the sales higher. Its most recent drug, Otezla, was approved by the FDA in late March for the treatment of psoriatic arthritis. Celgene is expecting to extend the indication of Otezla to include the large market for psoriasis sufferers. The FDA is expected to make a decision by September. Sales are projected reach between $1.2 and $1.5 billion by 2017.
To add to sales, Celgene's newest immunomodulatory drug, Pomalyst, also for treating multiple myeloma, was approved by the FDA early last year. Pomalyst is expected to see peak sales of $1.1 billion. Celgene's other cancer drug, Abraxane, used for pancreatic cancer is expected to reach sales of $1.5 to $2 billion in 2017. If these three drugs come close to sales expectations there should be little doubt that Mr. Hugin will see his company reach its sales goal.
There are some bumps for Celgene as some of its older drugs have lost ground. The company's once popular multiple myeloma drug Thalomid has seen sales steadily decline as Revlimid sales increased. Also its once number two revenue producing drug Vidaza, which once had peak of over $800 million, saw U.S. sales drop 70% in the fourth quarter as the drug went off patent and is under competitive pressure from generics.
Celgene has a market cap of $56.12 billion. The stock closed on April 9th at $139.98, well off its 52 week high of $174.66. However, in late March analysts at UBS AG raised their price target from $200.00 to $209.00, and analysts at Summer Street raised their price target from $180.00 to $205.00. However, analysts at Morgan Stanley gave Celgene a $150.00 price target. In the past the stock has pulled back almost 15% YTD, which gives investors, what I see as, a good entry point for the stock, and one that has potential to rise considerably over the next few years, especially if Mr. Hugin looks to be able to have his company bringing in revenue of $12 billion in 2017.
All three companies profiled are solid companies with great potential to continue to drive the industry forward. And while some see biotech as being in a bubble and the prices still too high, I think all three are at good entry points, and excellent stocks to have in one's long-term portfolio.