Celgene's Revlimid: Sales To $8B? Patent To 2023?

| About: Celgene Corporation (CELG)

By David J. Phillips

Despite doubling in the value of its stock price in the last year, Celgene (NASDAQ:CELG) still offers investors a compelling growth story, assuming the drug maker can expand its pipeline of cancer treatments beyond multiple myeloma and successfully execute - pending regulatory approval - the launch of Apremilast in the crowded psoriatic arthritis market.

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Much of the risk around Celgene continues to be its dependence on Revlimid to drive top-line growth (66% of net sales); nonetheless, analysts believe that the drug's composition-of-matter and method-of-use patents are solid, offering durable barriers to entry (from repeated generic challenges) out to 2023. Additionally, anticipated regulatory approval in a first-line setting for newly diagnosed multiple myeloma (MM) patients, combined with a benign neurotoxic side-effect profile, should bolster growth and lead to peak global sales of approximately $8 billion per annum by decade's end, up from an expected $4.15 billion this year.

Similar to Revlimid, the efficacious and benign side-effect profile of Pomalyst has favorably positioned Celgene's newest entry as a preferred third-line treatment with hematological oncologists in refractory/relapsed MM patients. Executing on its "keeping it in the family" strategy, management told analysts on the third-quarter earnings' call that a majority of refractory/relapsed MM patients failing on Revlimid are receiving Pomalyst instead of Amgen's (NASDAQ:AMGN) newly acquired Kyprolis (carfilzomib).

Additionally, European approval in August, combined with eventual use in myelofibrosis (another disorder of the bone marrow), suggest Pomalyst could contribute another $1 - $2 billion to the company's MM franchise. Abraxane was initially approved in 2005 for metastatic breast cancer. Driven by expanded usage in non-small cell lung cancer and new patient starts in pancreatic cancer (September 2012 approval), this injectable form of the protein- bound chemotherapy drug paclitaxel, delivered a robust 60% increase in quarterly sales to $170 million. Abraxane could be the medicine that Celgene needs to broaden its oncology portfolio beyond blood cancers to solid tumors. Should the drug show clinical utility in additional indications, such as melanoma and Triple Negative Breast Cancer, peak annual sales could blow by current estimates of $1.5 billion - $2 billion.

Although growth prospects for Celgene's oncology franchise remain strong, the product portfolio remains highly concentrated. To justify a PE ratio almost twice that of key competitors, the company needs additional revenue streams to offset these known risks.

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Just in 2013, Celgene has invested more than $500 million in third-party ventures - young companies working on promising drugs, ranging from epigenetics (structure-based drug design) to cancer metabolism and immunotherapy. Celgene will owe millions more in milestone payments - should any of these ventures pan out. Luckily, the balance sheet is sound, with healthy credit metrics and liquidity available to finance both internal R&D expense and external ventures. The company holds a revolving credit facility totaling some $1.5 billion and its long-term debt maturities are staggered, with the bulk of maturities scheduled out to 2017 and beyond.

Celgene shares gave up some of their gaudy gains in recent weeks after higher expenses squeezed the operating margin in the most recent quarter.

Near-term, investors are energized about prospects for Apremilast, a novel small molecule that inhibits the production of multiple pro-inflammatory mediators, including interleukin, tumor necrosis factor (alpha), and leukotrienes. The company anticipates launching the drug for psoriasis and psoriatic arthritis (pending FDA approval) in second-half 2014. A combined filing is on-track for European submission by year-end 2013, too.

Though Apremilast would be entering markets long dominated by the injectable tumor necrosis factor (TNF) inhibitors - Johnson & Johnson's (NYSE:JNJ) Remicade (infliximab), Amgen's Enbrel (etanercept), and AbbVie's (NYSE:ABBV) Humira (adalimumab) - Celgene's novel treatment would be just the second oral drug available. Late-stage studies suggest the drug is as efficacious as the five currently approved anti-TNF medications - without the risk of autoimmune debilities, such as tuberculosis, lymphoma and fungal infections. Even if only used in inadequate anti-TNF responders, the convenience of twice daily oral dosing and benign side-effect profile could mean ready adoption by skin specialists, leading to $1 billion in annual sales by 2017.

Celgene is also evaluating opportunities for patient use of Apremilast in rheumatoid arthritis, ankylosing spondylitis (swollen and inflamed bones in the spine), and Behcet's disease (a rare immune-mediated disorder presented with small-vessel inflammation). If ongoing clinical results demonstrate that Apremilast is at least non-inferior to the efficacy of existing biologics therapies, the future could prove very healthy for shareholders and sufferers of chronic inflammatory diseases alike.

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. I have no business relationship with any company whose stock is mentioned in this article.