I have been a shareholder of Gilead Sciences (NASDAQ:GILD) for a couple years now and have recently had the opportunity to add another biotech stalwart to my portfolio - Celgene (NASDAQ:CELG). The company has a top-tier pipeline, its cash cow drug, Revlimid, is insulated from generics until 2026, and has been working for shareholders, returning $15.2 billion since 2009 via the common stock purchase.
Share Buybacks & Value Creation For Shareholders
The company recently authorized an additional $3 billion in share repurchases under its buyback program, which was an addition to last year's $4 billion from last June. Given what remains of the $4 billion authorization and adding it to the recently approved $3 billion, Celgene has about $5.3 billion remaining to repurchase shares. While some investors prefer cash be used for dividends, this is still very much a growth company, and as such, there are more important uses for cash such as trials, partnerships, or potential acquisitions. Authorizing a share buyback allows management to execute the strategy if expenses and conditions are right, or use the cash for the other functions listed above. While doing all of this, Celgene repurchased $1.4 billion in shares (slide 7) in Q1 of 2016.
Celgene currently has 30+ collaborations such as its partnership with OncoMed Pharmaceuticals (NASDAQ:OMED) that contains six anti-cancer compounds, and has also invested $1 billion into Juno Therapeutics (NASDAQ:JUNO) (of which $150 million was cash and the remainder in stock). The capital requirements of these collaborations would not be as readily available if the company were to pay a dividend to its investors and would limit its opportunities for deals.
The Pipeline & Partnerships
Celgene's pipeline is impressive (seen here on CELG's webpage) where there are some potential data points that could have a significant impact on the company. With ozanimod in phase III trials for its use in relapsing multiple sclerosis with data coming in 2017, as well as currently being in phase II trials for the treatment of ulcerative colitis and Crohn's disease, there is an estimated $4 to $6 billion in annual sales if all three are approved (second line of the release).
Another one to watch is AG-221, which Celgene is partnering with Agios (NASDAQ:AGIO). Celgene is paying Agios $200 million up front for opt-in development rights over the beginning four-year period with AGIO being eligible for milestone payments. CELG has worldwide development and commercialization rights for AG-221, which has the potential to become a standard-of-care treatment and will have phase III data in 2017; could be approved as soon as 2018.
A third catalyst I would watch is the partnership with Juno Therapeutics on JCAR015, targeting acute lymphoblastic leukemia (ALL), which is currently in phase II clinical trials. JCAR015 could see approval as soon as 2017, but l would stay focused on the upcoming phase II results. In addition to JCAR015, Celgene also has options on JCAR018.
Celgene has a great reputation as being a favorable partner as Agios and Juno have greatly benefited from their relationships with the company. Being a respected potential partner helps Celgene form these critical relationships in which it can use its cash to continue to build its pipeline and grow revenues.
Celgene is an investment I plan on holding for a long time, and I cannot wait to see where the company is five years from now with all that it has going on with its pipeline and partnerships, as there are 18 phase III trials expected to report data (slide 5) in the next two years. If you can tolerate share buybacks, acquisitions and partnerships over receiving a dividend, Celgene is certainly a biotech that fits the bill. With its potential as a growth stock and with it currently trading near a 52-week low, now can be as good a time as any to buy Celgene for a long-term investment.
Disclosure: I am/we are long CELG, GILD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.