Mad Money

Cramer’s Quest for Next Pharma Powerhouse

Big Pharma Lost Its Luster?

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"In the late 1990's a typical big pharma stock such as Bristol-Myers traded at 30 or even 40 times earnings," said Jim Cramer. "These days, they trade in the teens or even lower."

Largely the reason for the significantly lower multiple is that most of the blockbuster drugs have gone off patent and the tried and true pharmaceutical companies just aren't discovering new drugs like they used to.

Never one to sit and wait, Cramer has decided to take matters in his own hands and seek out the next gigantic pharma stock.

"These days that means looking at the larger biotech outfits with deep pipelines that are growing up fast," Cramer explained.

And the Mad Money host thinks Celgene may fit the bill.

First and foremost Cramer is impressed with the pipeline.

"Celgene has a number of terrific drugs on the market for various types of cancer and blood disorders," he said.

For example, "Celgene's main drug is Revlimid, a mega blockbuster that's expected to do $4.1 billion in sales for 2013. And Revlimid is far from finished growing, as it has the potential to do peak sales of $6 billion, just treating multiple myeloma," Cramer said.

And they have another multiple myeloma drug calledthat just received FDA approval about six weeks ago for patients who aren't responsive to Revlimid.

"This one indication alone could be worth as much as a billion dollars, but Pomalyst is a drug that could have a host of other indications down the road, including systemic sclerosis—a potentially lethal autoimmune disease—as well as a bone marrow disorder called myelofibrosis and also sickle cell anemia," Cramer said.

John B. Carnett | Popular Science | Getty Images

may be yet another catalyst.

"They've gotten positive phase 3 clinical trial results showing this drug can help with pancreatic cancer and metastic melanoma—the really bad kind of skin cancer. With these two new indications, Celgene sees Abraxane sales going to $1.5 billion by 2015. And the pancreatic cancer indication alone could ultimately be worth $2 billion in peak sales," Cramer explained.

Also a drug called could also generate tailwinds.

"The drug has shown positive phase 3 trial results for psoriasis and psoriatic arthritis. Celgene plans to file a new drug application with the FDA for both indications sometime in the first half of the year—so this could be a very big catalyst, especially as the drug could ultimately generate $3 billion in peak sales," Cramer said.

But it's not just the promising therapies alone that draw Cramer to this stock.

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"I think it has among the best management in the business under the leadership of CEO Bob Hugin. Hugin is bankable."

Also Cramer likes the metrics.

"Celgene believes it can earn between $13 and $14 in 2017. Even at the low-end of the range, we're talking about a stock that's trading at just 8.6 times its earnings in the outyears."

All told, Cramer is impressed.

"Even with the stock at $112 and change, three points off its high, the darned thing is still only selling for 16 times next year's earnings estimates. I think it could have a lot more room to run," Cramer said

Call Cramer: 1-800-743-CNBC

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