Runners-up: buyer beware
Before we discuss the photo-finish for second place, let’s dismiss the laggard of the group, Vertex. It is the smallest, youngest, and riskiest investment of the bunch, with just two major drugs on the market. Incivek for hepatitis C and Kalydeco for cystic fibrosis brought in 83% and 11% of total revenue last year, respectively. Overreliance on one or two drugs is to be expected from a relatively new biotech company, but it does offer some cause for concern.
A fleeting glance at earnings shows that Incivek sales increased $209 million in 2012. However, the drug was approved in May 2011, meaning that monthly revenue actually dropped 29%. Vertex acknowledged that patients are waiting for newer, non-injectable therapies to hit the market and is developing its own all-oral treatment. The trials complement a phase 2 trial for rheumatoid arthritis, but investors may have to wait years for any data from the pipeline.
Can we have a three-way tie?
Meanwhile, Gilead is one of the reasons Incivek has fallen. The company recently announced that its new, all-oral hepatitis C drug achieved 100% cure rates — good enough to corner the market with a similar next-generation therapy from AbbVie Inc (NYSE:ABBV). The news fits well with an antiviral line that brought in $8.14 billion last year, a recently approved drug (Stribild) that has billion-dollar potential, and a cardiovascular franchise that grew 28% in 2012. All things point to a bright future for Gilead, but it is too reliant on antivirals (86% of sales) to claim the top spot.
Biogen closely mirrors Celgene in terms of size, revenue, and growth, but it has only four products on the market (compared with six for the latter). Of those four, only two recorded more than $60 million in sales. The company’s prospects took a hit in early January, when its phase 3 trial for a form of sclerosis failed across the board. Nevertheless, the company sees promise in three promising compounds in the late-stage pipeline.
Amgen may be an older company, but don’t think it can’t keep up with the young guns. The company boasts as many blockbusters (six) as Vertex and Biogen have approved therapies combined. An increasing focus on biologics in 2012 saw free cash flow increase 15% over 2011 and, I believe, set the company on the path to a bright future.
Foolish bottom line
Given the amount of upcoming binary events, the market could get a little carried away with Celgene, so investors may want to avoid jumping in on a big pop. There could be some big movements throughout the year in either direction, but overall I believe the volume of trials will insulate the share price from any one or two failures. However, if failure becomes the theme of 2013, then investors will have to step back and readjust their growth estimates for the company. Failures will hurt, but investors may be comforted by management’s expectations for its current lineup: growth of 11% to $6 billion in sales this year.
The article My Favorite Big Biotech for 2013 originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio or follow him on Twitter, @BlacknGoldFool, to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool recommends Gilead Sciences and Vertex Pharmaceuticals (NASDAQ:VRTX).
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