You have lots of options for investing for your retirement years. One of the best alternatives is the Roth IRA (individual retirement account). While you don't get to defer taxes on the amount you contribute to a Roth IRA, when you make qualified withdrawals later, you won't have to pay any taxes at all. That's tremendously attractive for many investors planning for retirement.
But what stocks should you buy for your Roth IRA? Some investors might be tempted to steer away from biotech stocks, since they can be volatile. However, I think there's at least one biotech stock that would make an excellent choice. That stock is Celgene (NASDAQ: CELG). Here's why this biotech is one stock you don't want to overlook for your Roth IRA.
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Growth from current products
Any stock with a solid potential for growth makes a good pick for a Roth IRA. Celgene's current product lineup definitely gives the big biotech nice growth prospects.
Revlimid ranks as Celgene's biggest moneymaker. The blood cancer drug generated revenue of nearly $8.2 billion in 2017, making it the No. 2 top-selling drug in the world. Celgene expects Revlimid to pull in close to $9.4 billion this year, a 15% year-over-year jump.
Like all drugs, though, Revlimid will eventually lose patent exclusivity and begin to see revenue fall off. Revlimid's key patents expire in the U.S. in 2027 and in Europe in 2024. Celgene signed an agreement with Natco, however, that allows the company to market a generic version of Revlimid in the U.S. at limited volumes beginning in March 2022. The biotech is working to reach similar settlements with other potential generic rivals. If Celgene is successful in these efforts, it means the company will continue to enjoy strong revenue from Revlimid for several more years.
In the meantime, the company claims other blockbuster products that continue to perform well. Sales for multiple myeloma drug Pomalyst increased 23% in 2017 over the prior year to $1.6 billion. Otezla, which is approved for the treatment of psoriasis and psoriatic arthritis, generated revenue of nearly $1.3 billion last year, up almost 26% from 2016.
Celgene believes that it will grow revenue by a compounded annual growth rate (CAGR) of 14.5% through 2020. The company projects that adjusted earnings per share will grow by around 19% compounded annually. Most of this top- and bottom-line growth will stem from the biotech's current products.
Growth from pipeline candidates
What about growth beyond 2020? That's where Celgene's pipeline comes into play. The biotech has quite a few promising candidates that could reach the market over the next few years. The following chart from Celgene's latest investor presentation shows just how significant its pipeline potential might be.
Celgene believes that it will launch 10 potential blockbusters by 2022. The combined peak annual sales for these drugs is $16 billion. That's more than Celgene made from all of its current drugs last year. And that $16 billion total could be too pessimistic.
For example, Celgene hopes to win Food and Drug Administration approval for ozanimod in treating multiple sclerosis later this year. The company is also evaluating the drug in late-stage clinical studies for treating Crohn's disease and ulcerative colitis. Although the chart shows ozanimod with potential peak sales of greater than $2 billion, Celgene actually thinks the drug could achieve peak sales between $4 billion and $6 billion if approved for all targeted indications.
Growth from acquisitions
Three of the pipeline candidates on Celgene's potential blockbuster chart came from acquisitions. Celgene picked up ozanimod with its 2015 buyout of Receptos. A couple of the potential blockbuster candidates were gained from more recent deals.
Celgene announced on Jan. 7, 2018, that it was buying Impact Biosciences for $1.1 billion up front and up to $1.25 billion in potential milestone payments. The purchased brought fedratinib into Celgene's fold. Celgene plans to file for FDA approval of fedratinib in treating myelofibrosis in mid-2018.
The company announced an even bigger deal on Jan. 22 with the planned acquisition of Juno Therapeutics. Celgene is paying $9 billion on top of $1 billion spent in 2015 to buy a 9.9% stake in the small biotech.
I fully expect Celgene to make more acquisitions in the near and longer term. In fact, when asked recently if the company might take a breather from mergers and acquisitions (M&A) activity, Celgene CFO Peter Kellogg replied that "it's not in our DNA." My view is that the big biotech should get even more growth from future deal-making.
A ridiculously low price
Peter Lynch popularized the idea of buying stocks that deliver "growth at a reasonable price." In Celgene's case, you can get growth at a ridiculously low price. The biotech's shares trade at a little over nine times expected earnings.
Some of this discount is due to some disappointments from Celgene in the fourth quarter of 2017. The company threw in the towel on a once-promising late-stage Crohn's disease drug, missed third-quarter revenue estimates, and lowered its full-year 2017 and longer-range 2020 outlook.
However, the fact remains that Celgene is a bargain considering its growth potential. You won't find many stocks offering the combination of tremendous growth and bargain price that Celgene does for your Roth IRA.
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