Is This Global Biopharmaceutical Primed for Growth?

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

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the new year begins, I would like to pinpoint a global biopharmaceutical company engaged in the discovery, development, and commercialization of therapies for cancer and immune-inflammatory related diseases, Celgene (NASDAQ: CELG).

Strengths:

  • Accelerated Revenue Growth: In 2006, Celgene reported revenue of $899 million; in 2011, the company announced revenue of $4.84 billion, representing year over year annual growth of 40.31%, a trend which is highly anticipated to sustain into the future, with projections placing 2016 revenue at $9.10 billion, this explosion in growth was caused by the introduction of several new products into the market
  • Institutional Vote of Confidence: 82% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Cash & Equivalents: Currently, Celgene possesses $1.86 billion of cash and cash equivalents on their balance sheets, a major upside to the business
  • Strong Product Portfolio: As of the end of 2011, Celgene possessed 4 major drugs, with several more in developmental stages, and this diversification and strong product portfolio gives the company greater predictability and sustainability
  • Wide Reach: In 2011, Celgene employed 4,500 in over 50 countries, and in total utilized their therapies to benefit 200,000 patients across the globe, and with this wide reach comes greater diversification and predictability
  • Double Digit Margins: At the moment, Celgene carries a net profit margin of 27.22%, representing a strong and profitable company primed for growth, this double digit margin is due to Celgene’s pricing power and premium offerings
  • Strong Translation of Revenue Growth into Gross Profit Growth: The translation of revenue growth into gross profit growth has been outstanding by the company, with margins increasing over time (2006 net margin: 7.7% 2011 net margin: 27.2%), a sign of a strong company

Weaknesses:

  • Lack of Dividend: In no time in the company’s history has a dividend been paid to shareholders, and no plans have been expressed by the company to do so in the future, a major disadvantage
  • Pricy Valuation: Celgene currently carries a price to earnings ratio of 21.64, a price to book ratio of 6.17, and a price to sales ratio of 6.79, all of which point to a company trading with a relatively pricy valuation
  • Debt: At the moment, Celgene carries $2.78 billion of debt on their balance sheets, a major disadvantage to the business
  • Operating Expenses: When a business expands such as Celgene’s has, the cost related to operating that business grow, however over the past years operating expenses have outgrown revenues, due to a meteoric rise in research and development spending

Opportunities:

  • Product Pipeline: Celgene possesses a strong product pipeline which includes several drugs in the realms of hematology, oncology, inflammation and immunology, and research and early development, and this strong product pipeline provides Celgene with a future filled with opportunity and potential growth
  • Implementing a Dividend: Celgene carries a sizable pile of cash on its balance sheets, and it is a very realistic possibility that Celgene could implement a dividend program and reward investors
  • Results of Research and Development Spending: In 2011, Celgene poured $1.60 billion into research and development, and any rewards that yield from this investment could fuel future growth and establish solid revenue streams
  • Acquisitions: In March 2012, Celgene acquired Avila Therapeutics, and further acquisitions in the future could introduce new technologies to the company and fuel growth

Threats:

  • Competition: The biotechnology industry is extremely competitive, and the battle to offer the best product for the least amount of money can lead to margin compression
  • Generics: Generics are the worst nightmare every biotechnology company, and absolutely destroy their pricing power, and any generics made to compete with Celgene’s offerings could prove detrimental to their success
  • Sluggish Economic Landscape: In a sluggish economic landscape, less people have the money to pay for health insurance, and in turn less of Celgene’s products are sold

Competitors:

Major publicly traded competitors of Celgene include Novartis (NYSE: NVS), GlaxoSmithKline (NYSE: GSK), Amgen (NASDAQ: AMGN), and Bristol-Myers Squibb (NYSE: BMY). All of these companies operate in the biotechnology industry. Novartis is valued at $153.05 billion, pays out a dividend yielding 3.92%, and carries a price to earnings ratio of 17.87. GlaxoSmithKline is valued at $106.79 billion, pays out a dividend yielding 5.35%, and carries a price to earnings ratio of 13.52. Amgen is valued at $66.00 billion, pays out a dividend yielding 2.19%, and carries a price to earnings ratio of 15.38. Finally, Bristol-Myers Squibb is valued at $53.45 billion, pays out a dividend yielding 4.32%, and carries a price to earnings ratio of 29.59.

The Foolish Bottom Line:

Financially, Celgene is as solid as a rock. The company possesses incredible revenue growth, growing margins, an expanding dividend, a sizable pile of cash, and strong product pipeline that offers significant opportunity in the future. Despite the company’s rather pricy valuation, much of this valuation can be compensated in the company’s caliber of growth and future prospects. All in all, Celgene is a tremendous long-term investment and should prosper for years to come, as their product pipeline yields substantial returns.


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend GlaxoSmithKline. 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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