It's Time To Buy Back Celgene On Abraxane

| About: Celgene Corporation (CELG)

Stocks don't move in a straight line - in either direction - and prudent money management is a good way to protect from mean reversion. So, in early October, I recommended taking a little off the table in Celgene (NASDAQ:CELG) following a 27% move higher since my post in June.

From its peak in October, Celgene dropped from $81 to a low of $71, and despite a move following positive Phase III data for Abraxane as a treatment for pancreatic cancer, the stock remains nearly 8% off its 52 week high - suggesting this is a good time to buy shares back.

Abraxane label expansion remains bullish for 2013.

Celgene is likely to see sales growth across Abraxane next year as the company expands the drug's label to include pancreatic cancer.

In Phase III trials, Abraxane significantly improved overall survival when combined with gemcitabine, a drug previously sold by Eli Lilly (NYSE:LLY) as Gemzar prior to patent expiration in 2010. Prior to losing patent protection, Gemzar was generating over a billion a year in sales for Lilly.

While Celgene won't provide the actual survival data until January, during Phase II trials median survival was 12.2 months, far better than the 6 months on Gemcitabine alone and competitive to the generic drug cocktail Folfirinox, which has worrisome toxicity.

If the survival rates come in similarly to Phase II trials and the toxicity presents an advantage to Folfirinox, sales of Abraxane's could substantially increase beyond the $106 million generated last quarter - particularly given the significant unmet need tied to a 5 year survival rate of 5%.

Abraxane will already see tailwinds from non-small lung cancer sales next year.

The pancreatic cancer data comes on the heels of the FDA's October approval of Abraxane as a treatment for non small cell lung cancer, which accounts for 85% of all lung cancer cases and 150,000 deaths annually.

Abraxane, used with carboplatin, can be administered in a half hour, versus 3 hours for Bristol Myers (NYSE:BMY) Taxol. In Phase III studies, progression free survival for Abraxane patients was 12.1 months versus 11.2 months for Taxol, with 33% responding versus 25%, respectively.

Additionally, unlike Taxol, which relies on cremophor to solubolize the drug, Abraxane does not. This allows patients to receive larger doses with fewer side effects and allows patients to avoid pretreatment with steroids or antihistamines. Those advantages should help boost Abraxane sales as we move further into 2013.

Abraxane may also see label expansion as a treatment for metastatic melanoma.

Earlier this quarter, Celgene reported Abraxane helped metastatic melanoma patients live longer than when treated with the chemotherapy drug dacarbazine. According to the World Health Organization, there are 132,000 new melanoma cases diagnosed annually.

If Abraxane gains approval for metastatic melanoma, it will compete with Bristol-Myers' Yervoy and Roche's (OTCQX:RHHBY) Zelboraf.

Yervoy, which costs $120k for a full treatment course, was approved in March 2011 and generated $179 million in Q3 sales. Zelboraf produced 157 million Swiss francs in Q3 sales too.

Combined the two drugs control two thirds of the market, suggesting the indication may have billion dollar potential.

Celgene's Abraxane story is compelling on its own, yet it's not the only reason to buy Celgene.

The company's Apremilast met its Phase III endpoint as a treatment for psoriatic arthritis and Celgene plans to file for approval in Q1 2013.

Celgene is also studying Apremilast for psoriasis, with results expected soon. Future opportunity for the drug may also exist in treating rheumatoid arthritis.

The FDA is expected to make a decision on Celgene's Pomalidomide in February. If approved, this drug will provide an alternative therapy to Onyx Pharm's (NASDAQ:ONXX) Kyprolis for relapsed and refractory myeloma patients. In combination with low dose Dexa, Pomalidomide treatment generated a 30% response rate. Data from a Phase III trial studying the drug as a treatment for myelofibrosis is expected in the first half of 2013.

Celgene's lead drug, Relimid, which saw sales climb 18% year-over-year last quarter to $970 million, has an opportunity for label expansion too.

The company plans to file a supplemental filing as a treatment for mantle cell lymphoma shortly. Additionally, the company is accruing additional data on Revlimid across other lymphoma and leukemia programs, which could offer upside too. Investors should see data for the treatment of chronic lymphocytic leukemia in the next few months.

Overall, the company saw revenue grow 14% in Q3 as volume helped operating profit increase 19% year-over-year. Margins increased to 49.1% in the quarter and are 47.8% year-to-date, more than 280 bps better than the comparable period in 2011.

Given the long term opportunity and short-term news catalysts, Celgene is an attractive stock to trade around. Using pullbacks to boost your position and rallies to new highs to book some profit will likely remain a viable and profit-friendly strategy over the coming year.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CELG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.