Healthcare Business

RBC Says Buy Big Biotechs Now for Possible Big 2016 Gains


This company is also one of JPMorgan’s top biotech picks for 2016. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.

Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs.

The company reported outstanding second-quarter results with revenues up 21% year over year. In addition, the company raised sales guidance to $11 billion on strong growth across most major products driven by 16% in demand and 6% in pricing. Upcoming catalysts include GED-0301 endoscopy study in Crohn’s disease with top-line results expected in August/September.

Wall Street analysts have noted that the company has discussed at their recent conference the benefits of longer duration Revlimid. Celgene has a very compelling pipeline, and with four existing Phase 3 trial assets, that may add strong new drugs and revenue prior to the end of the decade.

The RBC price objective is $135, and the consensus target is $136.45. The shares closed Friday at $112.19.

Gilead Sciences

This company is trading at an astounding multiple of less than seven times estimated 2016 estimated profits. Gilead Sciences Inc. (NASDAQ: GILD) discovers, develops and commercializes medicines in areas of unmet medical need in North America, South America, Europe and the Asia-Pacific. Its products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

The company recently announced that the FDA has approved Letairis in combination with Eli Lilly’s Adcirca (tadalafil) for reducing the risk of disease progression and hospitalization and improving exercise ability in patients suffering from pulmonary arterial hypertension. Both Letairis and Adcirca are approved in the United States, European Union and elsewhere as once-daily treatments for patients with pulmonary arterial hypertension.

Second-quarter total revenues met consensus and earnings-per-share beat on strength in Sovaldi/HIV franchise. 2016 product sales guidance was lowered. HCV sales missed due to pricing, unfavorable payer mix, lower patient starts and shorter treatment duration. Share buybacks are expected to be lower for the rest of 2016, and many on Wall Street think that could suggest willingness for pipeline acquisitions.

Investors are paid a 2.37% dividend. The RBC price target is $105, while the consensus price objective is $106.35. Shares closed Friday at $79.47.

Just because these stocks are cheap relative to the S&P 500, history says they won’t stay that way. In fact, the current consensus four-year growth expectations for the large cap biotechs have dipped since 2012 and is currently at the lowest level since 2010. In other words, cheap and somewhat ignored.