Chronic kidney disease is one of the most common medical issues around the world and more than 25 million Americans suffer from the disease. The disease is common amongst people who have diabetes or cardiovascular issues. Long-term treatment with antibiotics is also a common cause of chronic kidney disease. If successful, this treatment will allow cell tissues to be created from the kidney and reduce the need for painful processes such as dialysis or transplant.
Competition
A Couple of weeks back, Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) announced that it has rejected an acquisition bid from Amgen. The stock appreciated approximately 50% and speculation started on other prospective buyers for the company. The most commonly taken names are Bayer and off course Amgen. The street is missing the high synergy that could exist between Celgene and Onyx. It is true that Celgene is not as cash rich as Bayer or Amgen, but any form of a merger could be beneficial to shareholders of both companies.
Celgene Corporation (NASDAQ:CELG) is already an established player in the blood cancer market with its products Pomalyst, Revlimid and Thalomid. With Onyx proteasome inhibitor, Kyprolis, the two companies combined will totally dominate the blood cancer market. Celgene is already trying to diversify its blood cancer portfolio with purchase of Avila Therapeutics and investments with Morphosys. If any rumors or actual news breaks in this regard, valuations of both companies could soar.
Valuation
Celgene has appreciated approximately 65% YTD on approval of Pomalyst and sales growth of Revlimid. The company is trading at a forward P/E of 19, which is way below the industry average of 35. Using industry average P/E and consensus estimates, my Celgene price targets are as follows. The industry average P/E might seem to over state the price target considering it includes a lot of very small biotechnology companies with very high P/Es; however, the consensus EPS estimates also underestimate the true sales potential of Revlimid and Pomalyst. The high P/E also takes into account the synergy in the event it acquires Kyprolis.
| Celgene Target Price | ||||
|---|---|---|---|---|
| Year End | EPS est | P/E | Target Price | Upside |
| 2013 | $5.73 | 35 | $200 | 33% |
| 2014 | $6.93 | 35 | $242 | 45% |
Bottom line
Celgene Corporation (NASDAQ:CELG) has one of the strongest oncology pipelines in the entire healthcare sector. The company has a dominating position in the blood cancer treatment market and is looking to further consolidate this dominance with strategic acquisitions. It is highly likely that Celgene will be interested in acquiring Onyx Pharmaceuticals and offering a comprehensive blood cancer portfolio. Any development in this regard will result in immediate price appreciation for both companies. Therefore, Celgene is a solid investment due to its high earnings visibility and immense upside potential.
The article Can This Biotech Go Even Higher? originally appeared on Fool.com and is written by Mohsin Saeed.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool recommends Celgene. Mohsin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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