Celgene Expands Into Solid Tumor Oncology

| About: Celgene Corporation (CELG)

For those in the medical profession, or, in the investing cosmos, Celgene (NASDAQ:CELG) needs little introduction. From the vantage point of investors, Celgene is a kingpin in the biotech sector, and, although it has hovered in a trading pattern for the past five years, it is starting to rise again. Through the lens of the medical community, Celgene's flagship pharmaceutical Revlimid is primarily used for blood-borne (hematological) cancers. Its main usage is for treating multiple myeloma, and, commands a large market share, a market share that has been steadily growing.

As CEO Robert Hugin explains in the July 28th, 2011, Q2 conference call: "Revlimid sales continue to be strong with 35% year-over-year growth. In the United States, Revlimid has approximately 50% of the overall myeloma market, up 2 points versus last quarter and 52% share in second line also up 2 points versus the first quarter of the year. Increasing duration of treatment is a continuing indicator of effective chronic disease control and a valuable growth driver. International sales grew 43% year-over-year.".

Although Celgene is pigeonholed as first and foremost an organization that battles hematological disorders, this is about to change. In 2010, the company acquired Abraxis Biosciences with their drug Abraxane. Abraxane is approved for metastatic breast cancer, and, Celgene is slowly introducing the product on a worldwide basis with their globally positioned sales staff. Abraxane is also in Phase III trials for non-small cell lung cancer, pancreatic cancer and melanoma.

"Expanding our oncology franchise is an important objective", says CEO Hugin in the Q2 conference call, "Abraxane sales grew by 28% quarter-over-quarter to $95 million. Following the completion of the commercial team integration and the repositioning of Abraxane, sales in the United States grew 15%. In Europe, Abraxane is being launched in the 4 major markets and will continue to launch on a country-by-country basis in the second half of 2011 and 2012."

In total, Celgene has an eye-opening 25 drugs in Phase III trials. These are not all different medications, but different uses for some of the products they already have on the market. For instance, Revlimid is currently being examined for a multitude of remedies that include blood-borne cancers and also solid tumors. Non-Hodgkin's lymphoma is one of the hematological battle grounds Revlimid is being studied for. In addition, it is being tested for tumors in areas like prostate, pancreatic and colorectal cancers. It's a hotbed of activity.

The 2010 sales breakdown for Celgene's pharmaceuticals are as follows: Revlimid 68%, Vidaza 15%, Thalomid 11%, Abraxane 2%, and, the remaining 4% from royalties. Vidaza is the global market leader for patients with high-risk MDS (meyelodysplastic syndromes), and, Thalomid is used to combat multiple myeloma and leprosy. You may have noticed that both Revlimid and Thalomid are both prescribed to treat multiple myeloma. Thalomid was Celgene's first drug on the market to address the malady, and, Revlimid is its successor.

What stands out to me about the product mix is that 94% of the company's revenues are derived from the hematology market. Although it's a lucrative sector, and, Celgene's estimated sales for 2011 is 4.5 billion dollars, it's the solid tumor area where they stand to really profit. As the CEO stated in the 2010 annual report: "The global oncology market is five times the size of the hematology market." With Abraxane constituting only 2% of sales, and, Revlimid just getting started in this new arena, Celegene could be writing a blueprint in how to make money, for both the company and for investors.

The world has taken a few spins since I originally covered the company on February 21st, 2011, in a posting "Celgene: Biotech Baron or Barren Biotech." In the article I stated that I believed the stock was undervalued, and, that investors would make money in it if they had two year horizon. I also said that I would not be buying the security at that time because I thought the market was going to correct. Well, the S&P 500 went from 1315 to 1138 since that time, down almost 200 points. However, Celgene bucked the market trend, and, went from $53 to its current price of $62, a gain of 17%.

I am not sure what the catalyst was for the price appreciation, but you would've made a chunk of change if you bought Celgene in late February. It paid off pronto. Although the first Phase III trials will not have their results in until early 2012, there is a lot to like about this top-notch security. As is, not only the company, but Wall Street seems to believe in its future. It's got a short float of only 1.8%, and, 89% of its outstanding shares are owned by institutional investors. On the company side, as of June 30th, Celgene had $2.8 billion in cash on the books, and, in August, the board of directors authorized a $2 billion buyback of shares. Insiders seem to like it, too.

Let's check out the stat sheet to see where analyst estimates are. According to Yahoo Finance, Celgene's average earnings estimates for 2011 and 2012 are $3.60/share, and, $4.23 respectively. At $62/share, that gives us P/E Ratios of 17.2 for the current year, and, 14.7 going forward. Very reasonable for a growth stock. However, when you consider the five year CAGR (compound annual growth rate) is a whopping 24%, you get bargain basement PEG Ratios of 0.7 for 2011 and 0.6 for 2012. The equity is still undervalued even after a 17% run.

Celgene has a lot of cachet, and, I would buy it in a heartbeat, but am currently out of the market. In fact, I have short positions in some of the major indexes like the S&P 500, and, will remain there until I believe the debt crisis has been resolved. The company should be given the priority treatment in regards to its share price, but still seems to be going through the motions on a five year timeline, trading between $45-$60. Although it has recently crested the $60 milestone, I will wait until the global debt crisis has come to culmination before I invest in this quality equity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I am short the market with inverse ETFs.