Celgene's Pipeline Offers Catalysts Into 2013

| About: Celgene Corporation (CELG)
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I last updated my thoughts on Celgene (NASDAQ:CELG) in June, writing how the sell-off tied to the FDA approval of competitor Onyx Pharmaceuticals (NASDAQ:ONXX) Krypolis was overdone.

Celgene shares have marched 27% higher since and with shares challenging all time highs near $80, it's time to revisit the company and see whether it makes sense to book profits.

If you got in back in June, take a little off the table.

Stocks never travel in a straight line and biotech stocks are particularly prone to jaw dropping moves. So, taking some profit off the table makes sense.

But, liquidating your entire stake may not be the right move as Celgene's pipeline offers plenty of market moving catalysts over the coming year.

One of those catalysts is Abraxane.

Abraxane, which is approved for the treatment of breast cancer, should see approval for non small cell lung cancer this month.

The drug is already generating strong sales. In Q1 revenue rose 41% to $104 million and sales advanced an additional 5% sequentially to $110 million in Q2.

The FDA is slated to make its decision on non small cell lung cancer by October 12th. If approved, Abraxane sales could rise significantly as non small cell lung cancer accounts for 85% of all lung cancer cases and roughly 150,000 deaths each year.

But Abraxane's opportunity stretches beyond breast cancer and non-small cell lung cancer.

Data from its Phase III trial for use in treating metastatic melanoma met its primary progression free survival goal. This is another big market in need of additional treatment options.

The 5-year survival rate for patients with Stage III-B and IV lung cancer is less than 10% and some 132,000 new cases are diagnosed each year worldwide, including 76,000 here in the United States.

If the drug eventually gains approval for metastatic melanoma, it will compete with Bristol-Myers (NYSE:BMY) Yervoy and Roche's (OTCQX:RHHBY) Zelboraf.

Yervoy, which costs $120k for a full treatment course, was approved in March 2011 and generated $162 million in Q2 sales, up 71% year-over year. Zelboraf produced 92 million Swiss francs in second quarter sales too. Combined the two drugs control two thirds of the market, suggesting the indication is a billion dollar market.

Abraxane may also have upside as a treatment for pancreatic cancer, with an ongoing phase III trial.

In Phase II trials Abraxane demonstrated median survival of 12.2 months, much better than the 6 month survival rate from the current standard of treatment, Gemcitabine, which was sold by Eli Lilly (NYSE:LLY) as Gemzar and generated over $1 billion in annual sales before losing patent protection.

If trial results, which are expected later this year, confirm Phase II, Abraxane could very well see its sales double.

Apremilast is another Celgene catalyst.

In its Phase III study, Apremilast its primary endpoint as a treatment for psoriatic arthritis. As a result, Celgene plans to seek FDA and EU approval in 2013.

Roughly 30% of those with psoriasis develop psoriatic arthritis, suggesting the market for the drug could be as high as a million people in the U.S. and Europe.

Apremilast also reached its primary endpoint in treating Behcet's disease, a rare inflammatory indication, in Phase II. Behcet's has orphan status here in the U.S., however is most often diagnosed in the Middle East and Japan. Since there aren't any approved oral therapies, the drug could meet a specific niche need and command a premium price tag.

Celgene is also studying Apremilast in a Phase III trial for psoriasis, with results expected before year end. If all goes well Celgene will file a sNDA later next year.

Apremilast is also in Phase III trials as a treatment for ankylosing spondylitis, which affects 1.5 million in the U.S. and Europe.

Additionally, Apremilast may have an opportunity in rheumatoid arthritis. A recent study combining Apremilast with methotrexate failed to achieve its endpoint. But, a monotherapy study will give the company more guidance later this year.

Pomalidomide has also been filed with decisions coming next year.

The company filed Pomalidomide with both the EMA and the FDA, with the FDA expected to announce its decision in February 2013. If approved, Celgene will market the drug as an alternative therapy to Onyx's Kyprolis in relapsed and refractory myeloma.

The drug is in the same class as Celgene's current blockbuster Revlimid and is also being developed as a new treatment for myelofibrosis, a bone marrow disorder.

The drug appears particularly attractive in myeloma patients who have been previously treated and are resistant to Revlimid and Johnson & Johnson's (NYSE:JNJ) Velcade. In those patients, the Pomalidomide plus low dose Dexa treatment garnered a 30% response rate. This is an important finding, especially since survival for refractory patients is approximately nine months.

Celgene offers plenty of sales and profit growth already.

In Q2, Celgene sales rose 16% to $1.37 billion, generating earnings per share of $1.22, up 37%. Sales of its blockbuster Revlimid rose 17% to $934 million, which was up 8.5% from Q1.

The strong sales generated nearly a billion of net cash in the first two quarters, which has been used to buy smaller biotech companies to boost its pipeline and for buybacks. Exiting Q2, Celgene had $3 billion remaining on its buyback authorization.

The performance drove Celgene to boost its guidance $4.80-$4.85 per share for 2012, up from its prior $4.70-$4.80 forecast. And, despite the pipeline opportunity and higher guidance shares are trading at only 14.2x 2013 estimates, which is near its 5 year PE low.

With news catalysts likely to move the stock from now through early 2013, shareholders will likely find themselves rewarded for keeping some of their shares. And, for those who didn't buy the last time shares fell, any weakness over the coming weeks could provide an excellent entry.

Disclosure: I am long CELG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.