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Celgene Shows Savvy as Gilead Keeps Backsliding -- Barrons.com
7:08 am ET March 16, 2017 (Dow Jones) Print
By Ed Lin
When investors buy shares of Celgene, they are not only getting shares of a savvy company, they are also getting a small biotech exchange-traded fund within it.
It is an ETF rather than mutual fund because the portfolio is more of a passive investment than something actively managed.
Unique among the larger biotechs, Celgene's (ticker: CELG) public holdings total more than $1 billion spread across 12 smaller biotechs. According to S&P Capital IQ, it holds stakes of about 10% or more in Agios Pharmaceuticals (AGIO), Juno Therapeutics (JUNO), Acceleron Pharma (XLRN), CRISPR Therapeutics (CRSP), Jounce Therapeutics (JNCE), GlobeImmune (GBIM) and Alliqua BioMedical (ALQA).
In fact, Celgene on March 1 disclosed that it doubled the stake in Alliqua to more than 22%. Alliqua, which has been pummeled in recent years, specializes in advanced wound-care solutions.
Celgene itself has healed nicely from the sector rout last year and has proved to be probably the most resilient. We noted last month that it had already broken out to the upside, in technical-analysis terms.
In terms of competing with peers, it has had a much easier time than Gilead Sciences (ticker: GILD), which we recently opined was "the poster child for big biotech's problems." Gilead's pipeline "has yet to produce a follow-up blockbuster to its hepatitis C treatments, its sales have continued to slide, and it has yet to make an acquisition to add growth back into the mix."
Celgene faces similar headwinds in the sense that it derives most of its revenue from a single product, the blood-cancer drug Revlimid. But Celgene was shrewd enough to reach a settlement in late 2015 that delays a generic threat to Revlimid, and sales haven't slowed meaningfully yet.
Joseph Edelman, founder of Perceptive Advisors and its hedge fund, Perceptive Life Sciences, told us in February, "Celgene keeps chugging along. It has a broad pipeline for cancer and autoimmune diseases; it's in cellular therapy, gene therapy. It has a higher multiple but very stable earnings growth. Gilead is very cheap. If the company can acquire something or give people confidence, there is longer-term value after their cure for hepatitis C."
Celgene indeed keeps chugging along -- a remarkable thing in an industry rife with volatility -- while the confidence of Gilead investors continues to wane. Not even news of a raised dividend or buying a priority review voucher to speed up a Food and Drug Administration review lifted Gilead shares.
Celgene shares suffered in the 2016 biotech slump, but its loss of 3.3% was a gentle landing compared with Gilead's 28% dive. The divergence continues in 2017: Celgene is up 9.6% though Wednesday's close while Gilead has slipped 3.6%.
In a market where the winners keep winning, the investment choices of the winners are certainly of interest.
Celgene paid $2 million for four million additional shares of Alliqua in the latter's private placement of 5.5 million shares at 50 cents a pop. The other major buyer was Alliqua Chairman Jerome Zeldis, who bought 400,000 shares for $200,000. Zeldis had spent nearly 20 years at Celgene, most recently as chief medical officer, before leaving in August to join Sorrento Therapeutics (SRNE) as chief medical officer and president of clinical development.
Celgene now holds the equivalent of more than eight million Alliqua shares, including warrants that are exercisable immediately for about a million shares. It is the largest holder of Alliqua shares, with Celgene admirer Perceptive Advisors in second with 1.9 million shares. Zeldis now holds just under 700,000 Alliqua shares.
Celgene's ties to Alliqua date to November 2013 when Celgene invested $6 million in the latter, and Alliqua received the right to develop and market advanced wound-care products Biovance and Extracellular Matrix.
Don't consider Celgene's latest transaction a clear buy signal for Alliqua, however. Keep in mind that its share price has been slashed 84% since the $3.59 purchase price in Celgene's initial investment. Yet analyst optimism abounds for Alliqua. A consensus of analysts polled by S&P Capital IQ holds a Buy rating.
H.C. Wainwright analyst Swayampakula Ramakanth wrote in November that 2017 could be an inflection point for Alliqua with the planned acquisition of Soluble Systems, a Newport News, Va., wound-care firm. Revenue could double and growth would come from "cross-selling synergies between Alliqua and Soluble Systems sales teams," Ramakanth wrote. He reiterated a Buy rating on Alliqua at the time.
Alas, Alliqua wasn't able to secure the financing to buy Soluble and the deal was called off in late February.
As a big biotech with a sizable public portfolio, Celgene embodies Walt Whitman's declaration, "I am large, I contain multitudes." Even as Celgene chugs along, it has components that exemplify the uncertainties of the sector.
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(END) Dow Jones Newswires
March 16, 2017 07:08 ET (11:08 GMT)
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