We are in the midst of the earnings season, my favorite time of the year. Some of the largest and most powerful publicly traded firms have already reported their second-quarter earnings with a few still left to report. Among those that have already announced their results are two biotechnology favorites, Gilead Sciences (NASDAQ: GILD) and Celgene (NASDAQ: CELG) .
In recent weeks, I recommended investors to buy both these names on broad market weakness. If you did, you would have done well with a 30% return on Gilead alone. In this article, I would review the most recent quarterly fillings and see how these companies might perform in the future.
Approaching $100 billion
Gilead is no longer the mid-sized biotechnology company it used to be just last year. After a sharp 5% move to the upside following the report, Gilead's market cap approached the $100 billion mark. The company reported net income of $772.6 million, or $0.46 per share, an 8.5% increase from $711.6 million reported in the second quarter of last year.
The strong results were fueled by a good showing from the company's two best selling HIV medications, Atripla and Truvada. The two drugs performed well, with sales up 4% and 3%, respectively. Total product sales increased 14% to $2.66 billion for the period ended June 30. Moreover, Gilead reported strong growth in its new, single tablet HIV combination of Complera and Eviplera where sales rose a whopping 159% to $188.7 million.
As of today, the company is dabbling in various areas such as HIV, AIDS, liver disease, cardiovascular, respiratory, oncology, and inflammation. In every one of these categories, Gilead has at least one drug pending approval or in Phase 3 trials. The company has truly separated itself from the pack through diversification and sheer volume. Analysts are expecting 10% growth this year, followed by 47.2% growth next year. Even with a sharp move to the upside this year, the stock doesn't look overpriced with a PEG ratio of only 1.20.
The diversified, fund favorite
Celgene reported yet another strong quarter. After all, the company has a long history of reporting better-than-anticipated results. The company reported $1.52 earnings per share for the quarter, beating the analyst estimate of $1.44. Net income for the quarter rose alongside revenue, due in large part to shareholder buybacks and a strong performance from its portfolio. Celgene actively pursues treatments across the disease spectrum. Everything from Myeloma, MDS, Acute Myeloid Luekemia, Lymphoma, Anemia, and Inflammation are in focus.
In terms on cancer-related progress, the company has 22 treatments awaiting FDA approval and an additional 12 treatments currently making way through Phase 3 trials. Revlimid, the company's best seller, accounted for 67% of revenue while growing at 13% on a year over year basis. Despite patent expiration, the company's Vidaza held up well with $211 million in revenue.
Earnings guidance for the full year was raised 4.5% to $5.80 to $5.90 per diluted share. While shares have run significantly higher already this year, things don't look too expensive for the late investor. A PEG ratio of 1.09 gives me the impression the company's growth potential still hasn't been fully accounted for in comparison to others within the sector. If you consider analysts' estimated 20% growth next year, the forward earnings multiple of 25 times isn't outlandish by any means.
The fund play
I always like to include an exchange traded fund alternative when discussing volatile sectors such as biotechnology. In this case, I would strongly recommend investors choose the iShares NASDAQ Biotechnology Index ETF (NASDAQ: IBB) , which provides exposure to many of the top biotechnology firms. The fund's top three holdings are Amgen , Gilead, and Celgene, all of which have at least a 7.73% weighting within the fund. Yes, you're going to be paying 0.48% in fees, but this number is fairly low considering the commissions you would be paying if buying shares separately.
While biotechnology has performed exceptionally well already this year, Gilead and Celgene don't look expensive in comparison to the rest of the high growth market. Both companies have decent productive pipelines and a bright future. I would suggest using broad market weakness to start positions in these companies if you have missed the run up until this point. If you do want to buy in today, I would recommend choosing the iShares fund mentioned above as it will easily diversify you across the entire sector while giving you exposure to both Gilead and Celgene.