Gilead, Alexion, Biogen, Or Celgene: 1 Mindboggling Metric Identifies The Best Value!

by: Brian Nichols


GILD, ALXN, BIIB, and CELG have all soared in the last five years, but looking ahead, one has the most upside.

This upside is based on one particular, and popular, metric along with the success of a new drug.

This metric combined with expected growth implies that one of these four stocks could double over the next two years.

For new midcap, and some large cap, momentum biotechnology companies, we already know that all have growth, innovation, and a pipeline of potential blockbusters, but where is the best value? Essentially, companies like Gilead Sciences (NASDAQ:GILD), Alexion Pharmaceuticals (NASDAQ:ALXN), Celgene (NASDAQ:CELG), and Biogen Idec (NASDAQ:BIIB) are investments in not only the now but also the future. However, with each of these companies already reporting first quarter earnings, one thing's for certain, and that's one of these companies is presenting an entirely different level of upside value.

A look at earnings, and value drivers
With the exception of Alexion, each of the noted companies market and sell multiple products. However, all of these companies are driven in valuation by one key drug, or blockbuster product.

Alexion markets Soliris for rare and life-threatening blood and genetic disorders; Soliris is also the most expensive drug in the U.S. In the first quarter, Soliris' net product sales increased 67.2% to $567 million and the company's EPS soared 135% year-over-year to $1.53 . Soliris' growth marks a significant acceleration after four consecutive quarters of growth below 40% year-over-year.

Celgene reported total revenue of $1.73 billion for 18.5% growth over last year. Its cancer drug Revlimid accounted for more than 65% of total revenue, and grew in sales by 14% year-over-year .

Biogen saw its revenue soar 50% behind the market success of the new multiple sclerosis (NYSE:MS) drug Tysabri, which earned $441 million of the company's $2.13 billion in total first quarter revenue. The company has another MS drug called Tecfidera that earned $505 million in revenue, after being approved last year.

Gilead is a leader in HIV medications, but with the launch of the hepatitis C pill Sovaldi, it is now a leader in HCV. During its first quarter with Sovaldi, revenue nearly doubled to $5 billion and Sovaldi sales accounted for $2.27 billion , thus allowing Gilead to beat top-line expectations by $1.2 billion, giving Gilead the biggest quarterly beat in the sector.

Here's a mindboggling metric
Sovaldi will likely become one of the best-selling drugs of all-time. Up until this point, no drug had ever earned $2 billion in annual sales during its first year of launch; Sovaldi earned $2.27 billion in the first quarter. Therefore, theoretically, it is already the greatest launch of all-time, far better than any drug of its peers.

However, what's really mindboggling is the value that can be found in shares of Gilead. Currently, Gilead has a market cap of $112 billion, and with $13.7 billion in revenue during the last 12 months, it might sound strange to call Gilead a value investment, trading at eight time sales. But, with Sovaldi being a treatment that cures HCV in nine of 10 patients, and Gilead operating in many important industries, its drugs command premium pricing.

Hence, if we look at Gilead, Alexion, Biogen, and Celgene, each has operating margins over 30%, with all but Celgene having margins in excess of 36%. In comparison, these margins nearly double some of the companies known as big pharma. Therefore, these four noted companies turn more dollars into profits, and for Gilead in particular, this makes it remarkably cheap.


Forward P/E Ratio









So, above you can see the mindboggling metric: Gilead trades at just 10 times forward earnings!

These are companies that all have impressive growth rates, and there could be an argument that each of the four stocks are fairly priced based on growth. However, thanks to Sovaldi, Gilead is a company expected to grow 85% this year, and then another 18% in 2015, trading at just 10 times forward earnings.

Final thoughts

With all things considered, Gilead is a company that could trade considerably higher and still be cheap. In fact, its high product gross margin guidance of 76% implies that its shares could double over the next year and still be cheaper than Alexion or Biogen if the latter two trade flat in the same period. Granted, long-term over the next five years Biogen may have the greatest upside, or Celgene, as pipeline development becomes a major catalyst. However, short-term, and in looking at the next two-years, shares of Gilead have without question the most upside potential.

Disclosure: I am long 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.