Biotech Madness!

Greg is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

March Madness is well under way with the Final Four taking place this weekend. There is no doubt that the Final Four will be entertaining, but there is an even better type of madness going on called Biotech Madness! I have come up with my Final Four Biotech company selections as well as the winner, which will be announced later in this article.

Biotech Facts and Opportunities

  • Biotechnology utilizes modern technologies such as genetic engineering and microbial genomics to discover and create advanced medications.
  • Biotechnology can provide innovative, life-changing drugs with enormous capabilities that traditional medications typically cannot match.
  • The development of biotech products is very challenging and can take over a decade, but when a successful biotech drug is produced it can be extremely rewarding, both financially and for the benefit of patients.
  • Generic versions of biotech products (biosimilars) are tougher and more expensive to develop than with traditional drugs and require advanced manufacturing processes. Celgene's Vidaza is an example of a biotech product whose patent has expired without any generic versions being created.
  • Biotech companies with sustained profitability and a proven ability to create life-changing medications can make great investment opportunities with multi-bagger potential.

The Biotech Final Four

Amgen (NASDAQ: AMGN) is the clear #1 seed. Amgen is the largest biotech company with revenues of $17.3 Billion. Amgen also pays a significant and growing dividend, which is very rare for biotech companies. Over the last decade, Amgen's sales and net income has doubled. The future is very bright for Amgen with 8 late-stage product candidates, 6 potential biosimilar products that will initialize in 2017, and additional Enbrel profits that will begin in2014. The following is a breakdown of Amgen's current products:

<table> <tbody> <tr> <td><em><strong></strong></em><strong> AMGEN PRODUCTS<br /></strong></td> <td><strong>TREATMENT TYPE</strong></td> <td><strong>2012 PRODUCT SALES</strong></td> <td> <p><strong>% INCREASE OVER 2011 </strong></p> </td> </tr> <tr> <td><strong>Enbrel</strong></td> <td>Inflammation</td> <td>$4.24 Billion</td> <td>14%</td> </tr> <tr> <td><strong>Neulasta/Neupogen</strong></td> <td>Infection</td> <td>$5.35 Billion</td> <td>3%</td> </tr> <tr> <td><strong>Epogen</strong></td> <td>Low red cell count</td> <td>$1.94 Billion</td> <td>(5%)</td> </tr> <tr> <td><strong>Aranesp</strong></td> <td>Anemia</td> <td> $2.04 Billion</td> <td> (11%)</td> </tr> <tr> <td><strong>Xgeva/Prolia</strong></td> <td>Bone metastasis</td> <td>$1.22 Billion</td> <td> 120%</td> </tr> <tr> <td><strong>TOTAL PRODUCT SALES</strong></td> <td> </td> <td><strong>$16.6 Billion</strong></td> <td> <strong>9%</strong></td> </tr> </tbody> </table>


Celgene (NASDAQ: CELG) is an upcoming biotechnology powerhouse with 2012 revenues of $5.5 Billion. Celgene's growth over the last decade has been astounding with a 20-fold increase in sales and a 58-fold increase in net income. As you can see from the chart below, Revlimid has been the star performer for Celgene, and there is much more to come due to its patent protection through 2027. Celgene has an impressive pipeline which includes Apremilast and six new indications for Revlimid and Abraxane that are currently in phase III. Pomalyst is a recently approved product with significant potential to compliment Revlimid in treating multiple myeloma. The following is a breakdown of Celgene's products:

<table> <tbody> <tr> <td><strong>CELGENE</strong></td> <td><strong>TREATMENT TYPE</strong></td> <td><strong>2012 PRODUCT SALES</strong></td> <td><strong>% INCREASE OVER 2011</strong></td> </tr> <tr> <td><strong>Revlimid</strong></td> <td>Multiple Myeloma</td> <td>$3.7 Billion</td> <td>17%</td> </tr> <tr> <td><strong>Vidaza</strong></td> <td>Cancer</td> <td>$823 Million</td> <td>17%</td> </tr> <tr> <td><strong>Abraxane</strong></td> <td>Chemotherapy</td> <td>$427 Million</td> <td>11%</td> </tr> <tr> <td><strong>Thalomid</strong></td> <td>Multiple Myeloma</td> <td>$302 Million</td> <td>(11%)</td> </tr> <tr> <td><strong>Istodax</strong></td> <td> lymphoma</td> <td> <p>$50 Million</p> </td> <td>62%</td> </tr> <tr> <td><strong>TOTAL PRODUCT SALES</strong></td> <td> </td> <td><strong>$5.38 Billion</strong></td> <td><strong>15%</strong></td> </tr> </tbody> </table>


Gilead Sciences (NASDAQ: GILD) is a very successful biotech company with 2012 revenues of $9.7 Billion. Gilead Science's growth over the last decade has been excellent, with sales increasing by 1000%. Gilead has a very large number of successful products currently on the market. Gilead's pipeline consist of a wide variety of new product candidates including Sofosbuvir (Liver Diseases/HIV), Idelalisib (Oncology/Inflammation), Aztreonam (Respiratory), and Ranolazine (Cardiovascular). The following is a breakdown of Gilead's current products:

<table> <tbody> <tr> <td><strong>GILEAD PRODUCTS</strong></td> <td><strong>TREATMENT TYPE</strong></td> <td><strong>2012 PRODUCT SALES</strong></td> <td><strong>% INCREASE OVER 2011</strong></td> </tr> <tr> <td><strong>Atripla</strong></td> <td> HIV</td> <td> $3.57 Billion</td> <td> 11%</td> </tr> <tr> <td><strong>Truvada</strong></td> <td> HIV</td> <td> $3.18 Billion</td> <td> 11%</td> </tr> <tr> <td><strong>Viread</strong></td> <td> HIV</td> <td> $849 Million</td> <td> 15%</td> </tr> <tr> <td><strong>Complera/Eviplera</strong></td> <td> HIV</td> <td> $342 Million</td> <td> 783%</td> </tr> <tr> <td><strong>Stribild</strong></td> <td> HIV</td> <td> $58 Million</td> <td> No 2011 Sales</td> </tr> <tr> <td><strong>Letairis</strong></td> <td> Cardiovascular</td> <td> $410 Million</td> <td> 40%</td> </tr> <tr> <td><strong>Ranexa</strong></td> <td> Cardiovascular</td> <td> $373 Million</td> <td> 17%</td> </tr> <tr> <td><strong>AmBisome</strong></td> <td>Infectious Diseases</td> <td> $347 Million</td> <td> 5%</td> </tr> <tr> <td><strong>Cayston</strong></td> <td> Respiratory</td> <td> $107 Million</td> <td> 17%</td> </tr> <tr> <td><strong>TOTAL PRODUCT SALES</strong></td> <td><strong> </strong></td> <td><strong> $9.4 Billion</strong></td> <td><strong> 16%</strong></td> </tr> </tbody> </table>


Cubist Pharmaceutical (NASDAQ: CBST) is this years Cinderella company with 2012 revenues of $926 Million and net income of $128 Million. Cubist's sales and earnings have skyrocketed from only $3.4 Million in revenues in 2003. Cubist is mush smaller than the rest of the Final Four companies but has enormous growth potential. Cubust's pipeline is highlighted by Cefolozane/Tazobactam (Infections), Surotomycin (CDAD), and Bevenopran (Pain), which are all currently in Phase III. The following is a breakdown of Cubist Pharmaceuticals products:

<table> <tbody> <tr> <td><strong>CUBIST PRODUCTS</strong></td> <td><strong>TREATMENT TYPE</strong></td> <td><strong>2012 SALES</strong></td> <td><strong>% OVER 2011</strong></td> </tr> <tr> <td><strong>Cubicin</strong></td> <td> Antibiotic</td> <td>$860 Million</td> <td>16%</td> </tr> <tr> <td><strong>Entereg</strong></td> <td> GI Recovery</td> <td>$40 Million</td> <td>1500%</td> </tr> <tr> <td><strong>TOTAL PRODUCT SALES</strong></td> <td><strong> </strong></td> <td><strong>$900 MILLION</strong></td> <td><strong>22%</strong></td> </tr> </tbody> </table>


Celgene - The Foolish Champion

Although Cubist Pharmaceutical is the Cinderella company with great growth potential, I consider it to be more of a speculative candidate for your portfolio. Cubist has two successful products but does not have the product and pipeline diversity that the other three Final Four companies have.

Although Amgen, Celgene, and Gilead all have successful existing products in addition to solid pipelines, I am declaring Celgene to be the winner of the 2013 Biotech Tourney. Celgene is the winner due to their  ability to increase Revlimid's already successful sales figures, which will provide the resources to allow Celgene to continue to market its other products and develop more blockbusters in the future.


Greg Williamson owns shares of Amgen, Celgene, and Cubist Pharmaceuticals. The Motley Fool recommends Cubist Pharmaceuticals, Celgene and Gilead Sciences. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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