Bio technology is a hot area of investment. The returns can be high – stock prices sometimes grow by triple digits overnight on news of a new drug – but the stakes are equally high.
Just look at Celgene (NASDAQ:CELG)and Biogen (NASDAQ:BIIB). These two companies have been at the forefront of the biotech revolution, but past performance is not necessarily indicative of future success, particularly given the nature of the industry. Taking a long position on either company requires research and a leap of faith.
Let’s look at some of the pros and cons for investing in biotech stocks.
The Pros and Cons of Buying Biotech Stocks
The risks of investing in biotech should not be glossed over. For one, investing in the biotech industry can be very volatile.
Most companies in the industry have small market capitalizations and they only have a handful of products in the pipeline. If a compound in clinical trials misses the mark, it’s common for the underlying stock to tank; if the results are beyond expectations, the share price may equally soar.
Securing regulatory approval can be a determining factor that influences share price performance. Biotech stocks are more closely tied with this type of news than pharmaceutical stocks because these companies tend to have fewer product lines.
Competition is another hazard. Biotech companies experience similar risks of drugs going generic as pharmaceutical companies do.
However, it’s not all bad news. With biotechnology, the patent term is much longer – a full twelve years versus five years to manufacture and distribute drugs for pharma companies.
Plus, the nature of biotech means that developing a similar product could be more difficult than copying a specific chemical composition. This means that if a biotech company can develop a successful drug, there is a good chance that the drug will be able to generate significant sales for several years before facing the risk of competition.
Is Celgene Stock Worth Buying?
Celgene is focused on the treatment of cancer and immune-inflammatory related diseases using biotechnology.
Some of the company’s current clinical trials focus on pancreatic cancer, triple-negative breast cancer, chronic lymphocytic leukemia (CLL), and non-Hodgkin’s lymphoma (NHL). In the past year, its share price has ranged from $74.13 to $147.17 per share.
Its flagship product is Revlimid, a myeloma treatment.
The medication, which has been criticized for its steadily increasing price, accounts for 63 percent of the Celgene’s revenue.
The original patent for the drug, which has no direct competition, is expiring in 2019.
However, the company has taken steps to deter generic competition by limiting access to the drug (or so claim a few dozen lawsuits from generic drug manufacturers), filing 27 patents for the drug, and establishing a variety of market exclusivity grants.
At this point, the biggest risk is a deal Celgene struck with Natco Pharma to allow the competitor to introduce a generic version of Revlimid in 2022, which is five years shy of when the last patent on the product expires.
Investors can reasonably expect that Celgene will have revenue from Revlimid for at least this long.
There are also some reasons for a bullish outlook for the long term. While 2018 was not kind to the company – delivering both a Refusal to File letter from the FDA for multiple sclerosis drug Ozanimod and some clinical trial setbacks, Celgene has been focusing on new drugs and making major investments, such as the acquisitions of Impact Biomedicines and June Therapeutics in 1Q18.
When the company made those purchases, it did more than add additional assets to its portfolio. It also added new drugs to its roster, like the Impact Bio-developed Fedratnib and Juno’s JCAR017.
These investments have dinged the company’s balance sheet, but the future revenue upside may be worth the cost.
Some promising deals offer investors further hope. For example, the chronic anemia medication Luspatercept that Celgene licensed from Acceleron Pharma and the cancer drug BB-2121 that stemmed from a collaboration with BlueBird Bio.
Is Biogen Stock Worth Buying?
Biogen’s focus is on neurological diseases, including Alzheimer’s disease, multiple sclerosis (MS), and dementia.
Roughly 30 percent of the company’s revenues come from the MS drug TECFIDERA® while income from other multiple sclerosis drugs AVONEX®, PLEGRIDY®, andTYSABRI® are also significant as are sales of spinal muscular atrophy drug SPINRAZA.
The company has a much smaller pipeline than Celgene, but it also has several medications in development.
In September 2018, Biogen announced the beginning of a Phase 3 clinical study for BIIB093, a drug used to treat and prevent cerebral edema.
The market research firm is estimating that it could be worth $10.2 billion– which is almost as much as the company’s gross profit in 2017 ($10.6 billion) and more than its gross profit in 2016 ($10 billion).
While the risk is high – a high number of Alzheimer’s drugs fail in trial – there are reasons to be encouraged. Biogen has deals with Ionis Pharmaceuticals (which brought it SPINRAZA amongst other drugs) and Pfizer for schizophrenia drug BIIB104.
Celgene Stock Vs Biogen: Which Is Better?
US News & World Report calls biotechnology stocks “one of the most polarizing areas of the investment world.” While there is risk with any investment, if you play the biotechnology market and choose poorly, you could lose your shirt.
Both Celgene and Biogen have the potential to deliver jaw-dropping success – or not. Celgene has a larger pipeline of drugs (aka more possibilities of success), but Biogen may be best long-term if Alzheimer drug treatments pay off.