Celgene sets high standard for biotech

If you’re interested in a company developing cutting-edge treatments for cancer and inflammatory diseases, consider fast-growing Celgene (Nasdaq: CELG), with a market value recently topping $100 billion.

Celgene sports the blockbuster cancer drug Revlimid, and its ability to continually expand Revlimid’s label for new indications, such as newly diagnosed multiple myeloma, has boosted its earnings and revenue. Celgene has been successful applying a similar approach to its other top cancer drug, Abraxane, and its new anti-inflammatory medicine Otezla.

The net result of this “growth by label expansion” approach has been soaring sales volumes for these drugs. This upswing in volume has been the main driver behind the biotech’s 20 percent annual average growth rate over the last five years.

Collaborations are another major growth driver for Celgene. It has more than 30 partnerships currently on its books (including a recent $1 billion, 10-year deal with Juno Therapeutics), which could land it the licensing rights to a number of first-in-class therapies. These include CAR T-cell immunotherapies and cancer stem cell-targeted drugs.

Better still, Celgene has a deep pipeline of drugs in development and isn’t threatened by looming patent expirations, as most of its best-selling and highest-growth drugs appear to be protected well into the 2020s. (The Motley Fool has recommended Celgene and Juno Therapeutics and owns shares of Celgene.)

Ask the Fool

Q: What are “triple-witching” days? – J.O., East Syracuse, New York

A: Triple witching occurs on the third Friday of March, June, September and December. It’s when stock options, stock-index options and stock-index futures all simultaneously expire. The “triple-witching hour” is the one before the market closes on that day (from 3 to 4 p.m. Eastern time), and it’s when the stock market is likely to be more volatile than usual as traders buy and sell various securities before the final bell.

You can enjoy a profitable investing life without giving much thought to triple witching. Most options and futures represent contracts based on short-term pricing rather than long-term business growth. If you’re a long-term investor, these things don’t matter much.

Q: I’ve sometimes heard that a certain stock would be good as a long-term investment. What, exactly, does “long-term” mean? – H.K., Las Cruces, New Mexico

A: Such expressions generally don’t have specific time frames in mind, but they often mean at least a few years instead of a few weeks or months. Aiming to hang on to great stocks for many years is a good strategy for building significant wealth, as great companies can grow for decades.

When it comes to taxes, though, Uncle Sam defines long-term differently. The IRS considers an investment long-term if you held it for at least a year and a day before selling. Any such gain would be a long-term capital gain, and can qualify for a lower tax rate – currently 15 percent for most of us and 20 percent for high earners. Assets held for less time are short-term, with short-term capital gains taxed at your ordinary income tax rate, which could be 25 percent to nearly 40 percent.

My dumbest investment

My dumbest investment was an exchange-traded fund (ETF) that sold short stocks in the financial industry, aiming to deliver investors three times the value of the decline if the stocks fell. I learned not to bet against the banks, as it’s like betting the casino will lose money. Totally stupid. I lost only a few hundred dollars, but at the time that was big money for me. – J.M., online

The Fool responds: Many ETFs, such as ones with low fees that are based on indexes tracking broad markets, are solid and will serve investors very well. You’re referring, however, to a dangerous kind of ETF – one that uses leverage (debt) and derivatives in order to amplify gains. One of the problems with such ETFs is that they amplify losses, too, if the underlying investments don’t move in the expected direction.

ETFs with “2X” or “3X” in their names are extra-risky, as are ones that are bearish or “short,” betting against a group of investments or the overall market. After all, the market and most industries will tend to grow in value over time, albeit not in a straight line. Don’t bet against them unless you’re confident that they’re likely to fall.

Note that these ultra-short ETFs are not meant to be used over long periods, as their returns are generally based on daily price movements. Most of us should steer clear of them.