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Celgene Corporation (CELG) witnessed strong revenue growth of 17% in the second quarter ended in June 2013. Its multiple myeloma drugs' performance was outstanding, which drove revenue growth. Recently the company received two important statutory approvals, one in Europe for bone marrow disorder and the other in the U.S. for pancreatic cancer, which brightens the outlook for the company in the coming future. Also, the company's international expansions in Europe, China, and Japan are providing an opportunity to boost revenue.

The multiple myeloma franchise

Celgene's multiple myeloma drugs continue to drive its revenue. Multiple myeloma is a blood cancer occurring in white blood cells, which are part of human's immune system. Celgene offer drugs for every stage of multiple myeloma.

Drug

Stage

Thalomid

For newly diagnosed

Revlimid

For those who received at least one multiple myeloma treatment

Pomalyst

For those who have stopped responding to the prior two treatments

In the second quarter ended in June 2013, Revlimid's sales grew 12.6% to $1.05 billion year over year. Increased unit sales, price increases, and duration of the therapy all drove this blockbuster's growth. Although multiple myeloma is a relatively rare cancer, the company's geographical expansion is helping it gain revenue. Revlimid has been approved in all the major international markets, including the U.S., Europe, China, and Japan. According to International Myeloma Foundation there are currently 750,000 people suffering from multiple myeloma worldwide.

Revlimid's label expansion, which is a statutory approval to treat other diseases, has provided extra sales opportunity to the company. In June 2013, the FDA approved Revlimid for third stage treatment of patients with mantle cell lymphoma, or MCL, a kind of blood cancer. There are about 11,000 MCL patients in the U.S. Revlimid is also approved for myelodysplastic syndrome, which is a condition that occurs when the blood-forming cells in the bone marrow are damaged. This disease affects about 10,000 people every year in the U.S. In June 2013, the European Commission also approved Revlimid for second stage treatment of myelodysplastic syndrome.

Currently, Celgene is facing meaningful multiple myeloma drug competition from Velcade by Takeda, which is also marketed by Johnson & Johnson (JNJ) in Europe, and ONYX Pharmaceuticals' (ONXX) Kyprolis. Velcade and Kyprolis are approved for first stage and third stage treatment respectively, which means Revlimid's continues to remain the leader in second stage treatment. Meanwhile, Johnson & Johnson's Velcade had significantly higher response rate than Celgene's Thalomid and has performed better, gaining 9% revenue growth year over year in June 2013 quarter.

Other pharma companies are also trying to enter multiple myeloma drug market. Recently Bristol-Myers Squibb Company (BMY) and AbbVie (ABBV) jointly announced their phase-two data for the treatment of multiple myeloma. Although the competitive forces are working hard to break into the market, there is currently no threat to Celgene's Revlimid for the second stage treatment of multiple myeloma. In light of the latest approval, we expect Revlimid, which accounts for more than 64% of Celgene's revenue, to continue the growth momentum.

New approval, new opportunity

Abraxane is another shining star of Celgene's offerings. In October 2012, Celgene received FDA approval for the first line treatment of advanced non-small lung cancer. The new approval brought a revenue gain of 41% for Abraxane in the recent June quarter, year over year. The latest approval of Abraxane came on September 6, 2013 for late stage pancreatic cancer in combination with Gemcitabine, a drug used to treat cancer earlier marketed by Eli Lilly (LLY) as Gemzar.

The FDA has estimated around 45,220 patients will be diagnosed with pancreatic cancer in 2013 in the U.S. Pancreatic cancer is often diagnosed at an advanced stage. In the clinical trials, patients who were treated with the Abraxane and Gemcitabine combo lived 1.8 months longer than those who were treated with gemcitabine alone. The new approval will provide an option for physicians to prolong the patient's life. According to Celgene management, Abraxane will cost between $6,000 and $8,000 a month per patient. Assuming doctors prescribe this drug for 50% of newly diagnosed patients, we estimate a revenue gain for Abraxane of more than $200 million in one year's time from the U.S. market.

Meanwhile, if we take a look at Gemzar's revenue figure in 2010 when its patent expired, it was $1.15 billion for Eli Lilly. The patent for Gemcitabine expired in November 2010, and since then Eli Lilly's revenue from this drug has declined by more than 60% consistently year over year due to the competition from generic drugs.

Talking about numbers

Moving forward, Revlimid and Abraxane are expected to drive revenue. This is reflected on the company's earnings estimates. The company is trading at a forward PE of 20.59 compared to its trailing PE of 41.52, indicating a earnings per share estimate of $7.21 in the next twelve months, compared to $3.58 for the trailing twelve months. On the other hand, if we take a look at Johnson & Johnson and Eli Lilly which are more diversified companies, their PE looks more attractive as compared to Celgene's, but EPS growth potential for Celgene makes it a good pick in this pool.

Company

Trailing PE

Forward PE

Celgene

41.52

20.73

J & J

19.66

15.22

Eli Lilly

11.97

19.23

Source: Yahoo finance

Conclusion

We expect Celgene to perform strongly with its multiple myeloma drugs Revlimid, Thalomid and Pomalyst. The new approvals will increase the company's revenue. Revlimid, the shining star of the company's portfolio will continue its strong growth momentum with the new approval for MCL. Abraxane is expected to experience strong revenue growth with the latest approval for pancreatic cancer. In all, Celgene is in one of its best phases, and we expect it to outperform in the marketplace in the near future.

Source: Celgene: FDA Approvals Shining The Biopharma Stock

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Satya Prakash, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.