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Few biotech firms can match Celgene's (NASDAQ:CELG) recent success: its shares have more than doubled in the past two years. The success can largely be credited to one drug: Revlimid, one of the most successful cancer therapies ever developed.

Revlimid is approved in the U.S. and internationally for the treatment of multiple myeloma and myelodysplastic syndromes, or MDS. Both are bone marrow diseases that result in fewer red blood cells being produced.

Revlimid

Multiple myeloma (NYSE:MM) is a result of the accumulation of plasma cells, a form of white blood cells, in the bone marrow, where they interfere with production of healthy blood cells. It affects between 1 and 4 in every 100,000 people and accounts for about 1% of all U.S. cancers.

Revlimid capsules contain an active ingredient called lenalidomide, which is an immunomodulating agent. The way in which lenalidomide works is not yet completely understood. However, it has several actions.

Firstly, it stops the cancerous plasma cells from multiplying by enhancing the action of cells in the immune system called natural killer cells. These naturally attack abnormal cells, including cancerous cells.

It also stops the development of new blood vessels. Cancer cells need a blood supply that provides them with nutrients and oxygen in order to grow. The drug also stimulates production of red blood cells by the bone marrow.

Revlimid was approved in the US in 2005 for previously treated patients with multiple myeloma, in combination with generic dexamethasone. Currently, Celgene is trying to get approval for first-line and maintenance treatment which is potentially a $1 billion market.

Revlimid's off-label use in first-line MM therapy has been adopted as standard of care in the US, and the drug is readily reimbursed despite a lack of approval in this setting.

Not so in Europe. In Europe, in order to approve Revlimid for first-line use, European reimbursement authorities are now increasingly looking for a statistically significant overall survival (OS) benefit. Even if the company gets approval as first-line therapy, reimbursement will only come once survival data is demonstrated.

Celgene is trying to provide the data from four Phase 3 trials. Three of those (MM-015, IFM 0502 and CALBG) have reported good interim efficacy results. Revlimid has demonstrated quality of life and a progression-free survival (NYSE:PFS) benefit, but there was no overall survival improvement in the MM-015 trial or IFM study. CALGB did show a benefit in certain subgroups, but the data was not entirely convincing. From a fourth trial, a large international Phase 3 study, MM-020 interim survival data is expected soon, by the second quarter of 2013.

According to management, Revlimid's overall multiple myeloma market share in the US was approximately 55 percent at the end of 2012. In the core international markets, the market share in second-line myeloma trended higher and is now above 50%.

In 2013, Revlimid sales are expected to grow by expanding into new indications and moving into new markets like China, where the drug was recently approved.

Additional indications considered are mantle cell lymphoma, diffuse large B-cell Lymphoma, follicular lymphoma and Chronic Lymphocytic Leukemia.

Price

Revlimid doesn't come cheap: Wal-Mart's price for 30 capsules of Revlimid, 10 mg strength, with coupon cost $12,757.80 or $ 153,093 per year or about $425.00 a capsule.

Competition

Takeda and Johnson & Johnson's (NYSE:JNJ) Velcade is the current leader in first-line use with more than 60 percent share and more than 50 percent share as a second-line therapy, as claimed by Takeda's Millennium unit.

Millennium is running a phase 3 trial of a successor to Velcade, MLN9708. The new drug is a once-weekly pill as opposed to Velcade which is given by injection under the skin or intravenously.

In 2012, the FDA approved Onyx Pharmaceuticals' (NASDAQ:ONXX) Kyprolis. The newer drug is not an immediate competition to Revlimid, since it is approved only as a third-line treatment for patients who relapsed after taking Revlimid and Velcade.

AbbVie (NYSE:ABBV) and Bristol-Myers Squibb (NYSE:BMY) are developing elotuzumab and it is currently in Phase 3 trials.

The Decision Resources advisory service forecasts an increasing penetration of Celgene's Revlimid into the first-line setting and the growing use of combinations of the various treatments.

Revlimid will be used in combination with Kyprolis, MLN9708 and Bristol-Myers Squibb/AbbVie's elotuzumab.

Velcade will be combined with AEterna Zentaris (NASDAQ:AEZS) and Yakult Honsha's perifosine and Novartis's (NYSE:NVS) panobinostat.

Decision Resources Analyst Khurram Nawaz says:

"We forecast that Revlimid will garner impressive major-market sales of $1.6 billion in 2021 from its use in combination with Kyprolis, MLN9708 and elotuzumab. By comparison, Velcade will garner less than $70 million from its use in combination with panobinostat and perifosine...
Kyprolis and MLN9708 will benefit from physicians' positive opinion of proteasome inhibitors for the treatment of multiple myeloma, but their sales will be overshadowed by those of first-to-market Velcade."

The FDA has also approved Celgene's Pomalyst, a new oral treatment for patients with multiple myeloma that have resisted two or more prior treatments.

Some analysts forecast Pomalyst sales to reach $1.1 billion in 2017.

RBC Capital Markets analyst Michael Yee told Bloomberg that he expects doctors to move patients back and forth between Kyprolis and Pomalyst, and in some cases prescribe a combo of the two, enhancing the sales of both.

Investor summary

Celgene's revenue in 2012 was $5.5 billion, an increase of 14 percent from the year before. Adjusted diluted earnings per share were $4.91, up 30 percent.

Revlimid produced a 17 percent annual growth with equal contributions from the U.S. and other countries.

Vidaza, a myelodysplastic syndrome (NYSE:MDS) treatment, finished up 17 percent for the full year and sold more than $800 million in 2012. It is an amazing feat, considering that Vidaza already lost patent protection back in 2011.

Abraxane ended the year with strong momentum on the heels of the approval for non-small cell lung cancer and the positive results in both the pancreatic and melanoma trials. The product grew 11% for the full-year 2012 over 2011 with over 40% growth outside the U.S.

Celgene produced cash from operations over $2 billion in 2012. In using the cash the company is trying to strike a balance between investing in the business and returning funds to shareholders. The preferred way has been share repurchases. Celgene bought back $2.1 billion of its own stock during 2012 after having done $2.2 billion in 2011. In 2013 there is a $1.8 billion of repurchase authorization left to use.

In 2013, the sales target is $6 billion, a year-over-year growth of about 11 percent. In that $6 billion revenue target, the company has figured in the absorption of two quarters of impact of a generic Vidaza in the U.S. should it occur.

Revlimid sales are expected in $4.1 to $4.2 billion range, growth of about 10 percent.

Earnings per share is envisioned in the range of $5.50 to $5.60. In a longer term perspective to 2017, the company expects to produce a 13 percent constant annual growth rate. In the past 52 weeks, Celgene's share price ranged between $58.53 and $115.44.

Decision Resources projects that the multiple myeloma drug market will grow significantly, mainly due the new and more effective drugs. It will increase from $4.4 billion in 2011 to $7.2 billion in 2021 (a 5.2 percent annual growth) in the United States, France, Germany, Italy, Spain, the United Kingdom and Japan.

By 2017 Revlimid is projected to have global sales of $7.7 billion, according to BioPharm Insight.

Since Revlimid accounts for over two-thirds of Celgene's revenue and Revlimid is expected to do well in the future, Celgene will most likely do very well.

Source: Celgene's Star Drug Revlimid And Its Competitors