Celgene Offers Stable Revenue And A Solid Product Portfolio

Dec.18.12 | About: Celgene Corporation (CELG)

Investment Thesis

Celgene Corporation (NASDAQ:CELG) is a biopharmaceutical which engages in the discovery and commercialization of therapies for the treatment of cancer and immune-inflammatory diseases. Its primary marketed products at the moment include: Thalomid, Revlimid, Vidaza and Abraxane. The first three products are used in the treatment of blood cancer.

Revlimid is still the most important drug for Celgene which accounted for ~70% of net product sales in the 3Q'12. The drug should provide revenue growth as doctors begin to use Revlimid for longer durations as a maintenance therapy for the treatment of multiple myeloma. Findings from three studies of Revlimid maintenance therapy were published in May, 2012 and revealed that the therapy significantly delayed the progression of multiple myeloma. Moreover, Abraxane is being tested for several indications and was recently approved for non-small-cell lung cancer. Two more promising drugs are in the pipeline which I will explain below in the article. Given the sustainable revenue growth driven by Revlimid and promising developments for other drugs in the pipeline, I am bullish on the stock.


Celgene acquired Abraxis BioScience in 2010 which led to the inclusion of Abraxane in Celgene's product portfolio and the drug was already approved in 2005 for the treatment of breast cancer. On October 15th, 2012 FDA approved this drug for the first-line treatment of locally advanced or metastatic non-small-cell lung cancer which is the most common type of lung cancer. Global market for non-small-cell lung cancer is expected to grow to $6.9bn by 2019.

Abraxane is being investigated for other indications as well and results from a phase-III trial revealed that the combination of Abraxane and Eli Lilly's (NYSE:LLY) Gemzar helped achieve patients, diagnosed with pancreatic cancer, statistically significant overall survival rates than patients taking Gemzar alone. Pancreatic cancer is the fourth most common type of cancer and has the lowest survival rate of any cancer type. Since not many alternative treatments for pancreatic cancer exist, the approval of Abraxane in the indication would provide Celgene with another sustainable revenue stream. Approval although is not expected until 2014.

Findings from a Phase-III melanoma study further showed that Abraxane achieved a statistically significant improvement in the progression-free-survival (PFS) in chemotherapy-naïve patients with metastatic melanoma compared to patients receiving dacarbazine chemotherapy.

Pomalidomide and Apremilast

The drug Pomalidomide is intended for the treatment of multiple myeloma which is a type of cancer in which malignant plasma cells are overproduced in the bone marrow. These malignant plasma cells then in turn replace normal plasma cells and white blood cells important to the immune system of the body.

Encouraging Phase-III results of the Pomalidomide study were recently announced as well. The study segregated patients into two different arms. In one arm, patients were given the combination of Pomalidomide and low-dose Dexamethasone whereas in the other arm, patients were given only the high-dose of Dexamethasone. Findings revealed that patients who were administered Pomalidomide had free survival rates of 3.6 months compared to the 1.8 months in patients taking the high-dose of dexamethasone.

Investors await a decision by the FDA on the marketing approval of Pomalidomide by February 10th, 2013. Celgene has also submitted a Marketing Authorization Application to the European Medicines Agency and a decision in the second half of 2013 is expected.

Apremilast is another drug in Celgene's pipeline and is in Phase-III testing for psoriatic arthritis, psoriasis and ankylosing spondylitis. JP Morgan analysts believe Apremilast is a potential $500 million drug.

Target Price

Analyst mean target price for CELG is $85 with an expected long-term EPS growth rate of 22%. With an industry average forward P/E multiple of 17x and estimated FY'13 EPS of $5.55, I calculate a price target of $94 which translates into an upside potential of ~19%. Given the facts and expectations stated in the article, I believe the stock is a buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.