In June of 2010, Celgene (CELG) reached an agreement to acquire Abraxis BioScience, in a deal believed to be worth around $2.9 billion. The deal was seen as an opportunity for Celgene to enter the very competitive oncology therapeutical area, mainly due to the already approved Abraxane.
More than 2 years have gone by since the acquisition, and it's time to get a first glance on how bright, or not, this move was.
Abraxane is an Injectable Suspension (paclitaxel protein-bound particles for injectable suspension) which is currently indicated for the treatment of breast cancer after failure of combination chemotherapy for metastatic disease or relapse within 6 months of adjuvant chemotherapy. Since last Friday, it is also approved for first-line treatment of non-small cell lung cancer (NSCLC) in combination with the chemotherapy drug carboplatin.
Until now, Abraxane represented around $185 million in net profit on Celgene's balance sheet. That equates to revenues of $71 million in 2010, almost $386 million in 2011 and of $214 million in the first half of this year (3rd quarter numbers will come out on October 25th).
As of 2011, Abraxene only represented 8.2% of Celgene's revenues, while in the first half of this year it already represents... 8.2%!
So, we are not seeing any particular increase in the weight of this drug on the company's revenue structure, something that may lead us to ask what can one expect from this particular drug and, therefore, of the Abraxis acquisition itself?
Beyond the current indication for breast cancer treatment (and the very recent NSCLC approval) Abraxane is on the verge of possibly obtaining some new indications that can further expand its ability to provide new revenue. The next chart shows the status of the Abraxene pipeline.
Regarding NSCLC, last friday's news and subsequent stock performance clearly indicated that despite the good news, this therapeutical area won't have that much of an impact on Celgene's total revenues. Competition from Eli Lilly's (LLY) Alimta and Roche's (RHHBY) Tarceva is quite strong. These two companies clearly dominate the market and analysts are skeptical about Abraxene's ability to conquer much of their market share.
New results were recently presented stating that Abraxene met primary endpoint of progression-free survival -PPS- in Phase III chemotherapy-naive patients with metastatic melanoma -MM. Even if no specific PPS numbers were presented and despite some analysts thinking that this number will have to be around 5 months to improve the chances of an FDA approval, this trial results show that there is room for optimism regarding the therapeutical skills of Abraxane. The MM market is huge and despite the fierce competition in it, one can expect future Abraxene-related revenues of nearly $400 million in the coming years.
According to a Piper Jaffray analysis, the treatment costs will be lower with Abraxene when compared to its closest competitors, which are Zelboraf from Roche and Yervoy from Bristol-Myers Squibb (BMY). If approval comes, this can be a determinant factor regarding physicians' adoption and market share gain.
Finally, the therapeutical area where most of the bets are being placed is on the pancreatic cancer front. Last June, at the American Society of Clinical Oncology (ASCO), results were presented indicating that the combination of Abraxene with gemcitabine showed some positive effects. However, full Phase III data is yet to be presented in the 4th quarter. Only then a more precise analysis can be made about the approval potential (later in 2013).
With a current P/E of 22.8 (on par with the biotech industry) and a PEG ratio of 0.8, Celgene is not overvalued.
In 2011, EPS was of $2.89, which was already a 52% increase over 2010 numbers. The Street forecasts 2012 EPS of $4.62, which is again a 50% plus increase. Much of this increase is due to the continued growth of Revlimid sales and geographic penetration as well as Vidaza's, both in the hematology area.
With a 5 year growth forecast consensus of more than 17%, one can expect that this growth will be superior to the sector itself, not considering new approvals that can further expand this number.
Celgene's stock has been trading in a long-term ascending channel and it's currently testing an all-time high around $80. Potential downside is of around $20, which may be reached if the upper channel resistance isn't crossed. This resistance has already been tested at least 3 times since the beginning of the year and in my opinion, if next month's Society for Melanoma Research meeting presents positive results regarding Abraxane's MM study, I expect that the $80 mark could be crossed. If this happens, the stock may be trading within the $100 mark at the beginning of 2013.
From a general standpoint, Celgene is a company that has made all the right moves in 2012. The FDA has been kind with this company. And, with its interesting pipeline, it's expected that this will remain the case in 2013. For sure there are risks, especially with the fierce competition and with the possibility of new generic options, namely in the Vidaza case. However, I expect that new pipeline superstars like Apremilast (psoriatic arthritis and psoriasis) and Pomalidomide (multiple melanoma) can keep revenues increasing.
Finally, to answer the question about Abraxis, I believe that it's still early to reach a final conclusion. Abraxene already weighs 8% in the company's revenues. If new indications are approved, it can turn into a billion dollar drug in the next few years. However, much of this depends on the FDA opinion and it's still to be seen if competitors aren't in a better market position. Pancreatic cancer developments should be the decisive focus to answer the question of whether this acquisition made sense or if it was simply too expensive.