Want Multibaggers? Consider These 3 Biotech Companies
Aug 23rd 2013 10:18AM
Updated Sep 11th 2013 8:54AM
In after hours trading on April 18, a few hours after the release of my previous article focusing on Exelixis , Vertex Pharmaceutical , and Celgene , Vertex's share price increased more than 60%. This increase was due to positive data on its approved cystic fibrosis drug Kalydeco in conjunction with VX-661, its high-potential cystic fibrosis drug candidate currently in phase 2 clinical trials. This combination provides an improved lung function for a percentage of cystic fibrosis patients.
VX-809 is another key cystic fibrosis drug candidate in phase 3 clinical trials. This product would provide additional treatment options for cystic fibrosis patients, both in combination with Kalydeco and on its own. The approval of VX-661 and VX-809 would be enormous for Vertex and would significantly enhance its cystic fibrosis market potential by expanding its treatment options well beyond its current capabilities. In addition, Vertex's pipeline includes two high-potential drugs in development to treat rheumatoid arthritis and influenza.
Vertex has had mixed results recently. Kalydeco's sales have grown impressively while its hepatitis-C product, Incivek, has experienced a decline in sales. Fortunately, Kalydeco's enormous potential should easily offset Incivek's declining sales. Vertex's share price has been relatively steady since April, reaching a high of more than $89 per share in July. The share price has since dropped to below $80, creating a compelling opportunity to open or add to a position.
As I described in my previous article, Exelixis has completely focused its efforts on cabozantinib and earlier this year achieved the important milestone of obtaining its first product approval with Cometriq, which is a form of cabozantinib that treats medullary thyroid cancer. Cometriq has limited opportunity due to a small number of cases to treat, but this approval was huge, because it means that Exelixis has a very good chance to gain key upcoming approvals for additional cabozantinib indications with blockbuster potential.
These indications include COMET-1 and COMET-2, which are in phase 3 clinical trials for the treatment of prostate cancer, and METEOR, which will begin phase 3 clinical trials soon to treat metastatic renal cell carcinoma.
Exelixis is trading in the same range as it was during my previous article, and due to the great potential of the many indications for cabozantinib, I believe that it's an excellent time to consider opening or adding to a position.
Celgene, a great investment opportunity for the long haul
Celgene is one of the ultimate biotech success stories and exemplifies the level of returns that are possible when a biotech company develops one or more blockbuster products. Celgene's share price has resulted in a 168-bagger over the last 20 years and a 14-bagger over the last 10 years.
Since 2005, Celgene's blockbuster drug, Revlimid, has been responsible for a majority of its success. Revlimid treats multiple myeloma, which is a serious form of cancer that develops in bone marrow.
Revlimid was launched in 2005, and its sales have since skyrocketed to $3.7 billion in 2012 and continues to grow impressively. In addition, Revlimid has patent protection through 2027 and should create significant revenue for a very long time. Celgene has a large number of Revlimid approvals pending for additional indications, which would help boost its results even further.
Revlimid's continued success and lengthy patent protection period will provide Celgene plenty of time and resources to develop future blockbusters. Celgene has made significant progress in building on Revlimid's sucess by developing a portfolio of promising drugs including Istodax (for lymphoma), Abraxane (for breast and lung cancer), and Pomalyst (for multiple myeloma). Celgene has an impressive pipeline of drugs highlighted by apremilast, which is projected to receive approval soon for several anti-inflammatory indications.
Celgene's share price has come a long way, and I believe that the company still has the potential to deliver multibagger returns over the long term due to the continued success of Revlimid and its ever-improving product portfolio.
Foolishly invest in biotech for multibagger opportunities
Vertex's significant move higher in April illustrates the amazing return potential and volatility of biotech companies. While it is also possible for biotech companies to plummet significantly on disappointing data or approval delays, the long-term capital gain potential of a select group of biotech companies makes it worth riding out the volatility.
I believe that the biotech industry is one of the most important industries to invest in due to the life-changing therapies that advanced biotechnology medications provide, as well as the extended patent protection periods associated with these medications.
A $10,000 investment in Celgene 20 years ago would be worth $1.68 million today. These are the level of returns that are possible in the biotech industry, and that could potentially be achieved with an investment in Exelixis and Vertex. However, keep in mind that Exelixis and Vertex have not achieved sustained profitability yet and as a result are still considered speculative. Therefore, I recommend that you invest accordingly.
Due to the amazing return potential within the biotech industry, I recommend developing a basket of at least five biotech positions to be included as part of a diverse, well-managed portfolio. At least two of these positions should be in established companies such as Celgene, and at least three should be smaller positions in speculative companies with multibagger potential, such as Exelixis and Vertex.
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The article Want Multibaggers? Consider These 3 Biotech Companies originally appeared on Fool.com.Greg Williamson owns shares of Vertex Pharmaceuticals, Exelixis, and Celgene. The Motley Fool recommends Celgene, Exelixis, and Vertex Pharmaceuticals. The Motley Fool owns shares of Exelixis. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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