Buy Celgene As Markets, Revenues, And Earnings Expand

| About: Celgene Corporation (CELG)

Biotech investing is an inherently risky business, where company specific fundamentals trump everything. While that can often be refreshing in a market where fundamentals do not seem to matter at all, it is important to remember that a single drug can dramatically alter the fortunes of any company. We would like to highlight a major biotech company that we think will reward investors in 2012.

Celgene (NASDAQ:CELG) is one of the Big 4 biotech companies, dominating the market with Amgen (NASDAQ:AMGN), Gilead (NASDAQ:GILD), and Biogen Idec (NASDAQ:BIIB). But of those 4, we think Celgene is the most promising. A 14% advance in 2011 in no way marks the end of Celgene's run.

As one of the Big 4 biotechs, Celgene is insulated from the risks (and to some extent the rewards) of single drug biotechs, such as Human Genome Sciences (HGSI) or Alexion (NASDAQ:ALXN). We think Celgene's strong financial condition, as well as its pipeline make the company attractive at these levels. We profile both of these below.

Celgene Financials

Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010
EPS (GAAP/Non-GAAP) $0.81/$1.02 $0.59/$0.89 $0.54/$0.83 $0.73/$0.45 $0.75/$0.60
Revenues $1,249,737,000 $1,183,155,000 $1,125,281,000 $1,066,288,000 $910,111,000
Cash $2,579,087,000 $2,789,111,000 $2,430,619 $2,601,301,000 $3,530,265,000
Debt $1,546,441,000 $1,259,646,000 $1,247,420 $1,247,584,000 N/A
Share Buybacks 15.5 Million Shares for $885 Million 4.1 Million Shares for $239 Million 8.5 Million Shares for $450 Million N/A N/A

The changes in the fourth quarter of 2010 are due to the acquisition of Abraxis BioScience, which is one of the main growth drivers of Celgene going forward. Celgene is in what we like to think of as a sweet spot in biotech. It has a strong balance sheet supported by growing sales of well-established products, and can fund investments in its pipeline internally. That is why we like the Big 4 biotech companies, because they blend the stability of big pharma with the growth of pre-commercial biotechnology. Make no mistake, Celgene may be a multinational biotech company, but it is in full investment mode. Its pipeline contains 59 different compounds in various stages of development, and below we profile several of the most promising ones.

  1. Revlimid: Revlimid is one of Celgene's most important drugs, designed for the treatment of transfusion dependent anemia, and more recently, multiple myeloma. Celgene is working hard to expand the uses for Revlimid, and this is key to the company's future growth. Its application to expand Revlimid to multiple myeloma use in Europe is pending before the EMA (European Medicines Agency) and it is widely expected that Celgene will file with the FDA sometime in 2012. On the third quarter conference call, management expressed confidence that it will receive approval from the EMA in the first 3-4 months of 2012. Revlimid sales grew 24% in the third quarter to $820 million, and the drug has 52% market share in the myeloma market in the United States, and growth will accelerate as new uses for the drug are approved, both here in the US and abroad.
  2. Abraxane: This was a breakthrough cancer drug developed by Abraxis BioScience, and was the main driver behind Celgene's decision to acquire the company. We think that going forward, Abraxane has the potential to eclipse even Revlimid as Celgene's growth driver, for oncology is probably the fastest-growing drug market in the world. Sales of Abraxane increased by 20% last quarter, to $114 million, and we are confident that growth will accelerate as reimbursements for the drug grow and new markets are opened. Abraxane is the first drug to use nanoparticle aluminum bound technology, and is currently approved for treating breast cancer, and Celgene is working to expand its uses. The company is filing with the FDA to have Abraxane approved for lung cancer treatment, and the drug is currently in Phase III trials for pancreatic cancer, and Phase II trials for bladder and ovarian cancer. The Abraxis BioScience acquisition was a very smart financial move by Celgene, and the fruits of that deal are beginning to show.
  3. Apremilast: Apremilast, unlike the above 2 drugs, is a compound still in development. This drug, currently in Phase II and Phase III trials, is designed to treat psoriasis and several types of arthritis. Over the past year, management has become increasingly confident in the prospects for this drug, and more data should be available throughout 2012. Trial results for rheumatoid arthritis should be available in the first half of 2012, and data on psoriasis will be available in the second half of 2012. The drug has an attractive side-effect profile, and Celgene CEO Robert Hugin has stated that the market research Celgene has done indicates that there is great demand for this drug in the market. Of the many drugs in development at Celgene, this will be the one we will be watching most closely

Celgene is expecting non-GAAP EPS of between $1.04 and $1.06 in the fourth quarter of 2011, and 2012 should shape up to be an even better year. The consensus on Wall Street is that Celgene will earn have non-GAAP EPS of $4.50 in 2012, representing growth of over 18% from 2011. While the Reuters consensus price target of $74.46 represents upside of just 10.15% from current levels, we think that analyst targets and estimates will be raised as clinical data is released throughout 2012 and Celgene's markets expand. We do not think that Celgene's current share price reflects the opportunities that lie ahead. Celgene has helped millions of patients across the world with its therapies, and has rewarded shareholders since going public, advancing almost 6,600%. We think that in 2012, and the years beyond, Celgene will continue to both help patients and reward its shareholders.

Disclosure: I am long CELG , ALXN , AMGN , BIIB , GILD , HGSI .

Additional disclosure: We hold CELG on its own, and are long HGSI, ALXN, BIIB, GILD, and AMGN via the First Trust NYSE Arca Biotechnology Index Fund and the PowerShares Dynamic Pharmaceuitcals Portfolio. In addition, a mutual fund we own gives ALXN a weighting of 1.19%

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