There has been a fair amount of new data analysis coming from Celgene (CELG) in the past two weeks. All of it reinforces the case for the continued growth of Celgene revenues. Before looking at the results, a review of Celgene's financials are in order.
At the latest quarter results and analyst conference (See my Summary of the May 8, 2008 Celgene analyst conference and Q1 2008 results), Celgene reported revenue was $462.6 million, up 12% sequentially from $414.6 million and up 58% from $293.4 million year-earlier.
GAAP net income was negative $1.64 billion, down sequentially from positive $75.3 million and down from positive $57 million year-earlier. However, the GAAP loss was due to Celgene's acquisition of Pharmion. Non-GAAP net income was $159.3 million; EPS was $0.36.
Even if Celgene pauses in revenue and earnings growth, Q1 results annualize to $637 million of non-GAAP net income. At market close on Friday (6/13/2008) Celgene's market capitalization was $22.6 billion. Using those numbers for forward Price to earnings, you get a PE ratio of 35.5. That sounds pretty pricey in today's illiquid stock market.
The case for the stock valuation is one of proven rapid revenue growth and its likely continuation. Since the global market of Celgene's major products, Revlimid and Thalomid, are still expanding on a country by country basis, and since Revlimid's revenues almost doubled between Q1 2007 and Q1 2008, this is not an unwarranted assumption. But at some point there will be market saturation. To grow beyond that either one or more of the currently approved therapies has to by approved for treating another disease (or variation of a disease) or new drugs will have to be brought to market. Celgene already is reporting revenue of Alkeran, Focalin, Ritalin, and Vidaza in addition to the blockbuster drugs. Vidaza, which was picked up in the Pharmion acquisition, is believed to have potential revenues of over $200 million this year.
In that context the three recent data announcements are go-go indicators for investors.
Vidaza (azacitidine) was reported to provide "a significant overall survival benefit for patients with higher-risk myelodysplastic syndromes (MDS) regardless of whether patients were treated with low-dose Ara-C or best supportive care in the control arm. In aggregate, the survival benefit for VIDAZA across all countries was 24.4 months versus 15.3 months (hazard ratio 0.36) (95% Cl: 0.20-0.65) (p=0.0006)) compared to the other treatment arms." Vidaza is already approved in the U.S. for treating MDS. This is the kind of data that convinces doctors to use it rather than, or in addition to, other therapies. If you look at the Celgene product pipeline page, you will see that Vidaza is also in trials for treatment of solid tumors and AML (Acute Myeloid Leukemia).
The Amrubicin announcement was probably the most exciting. Two different Phase II clinical studies of amrubicin in patients with extensive-disease small-cell lung cancer (SCLC) either sensitive to platinum-based first-line therapy or refractory (non-responsive) to platinum-based first-line therapy. Results of the studies demonstrated improved overall response rates that compare favorably with topotecan, as well as no evidence of anthracycline-induced cardiotoxicity.
In the first study, the primary endpoint was response rate, and secondary endpoints were time to disease progression, progression-free survival, overall survival and safety. This was met with patients receiving amrubicin demonstrating an overall response rate of 34 percent, compared to 3.8 percent of patients receiving topotecan and the median progression-free survival time for amrubicin patients is 138 days compared to 106 days for topotecan. In the second multi-center international study, patients with SCLC who were refractory to first-line platinum based chemotherapy were treated with IV amrubicin . The primary endpoint was response rate, and secondary endpoints were time to disease progression, progression-free survival, overall survival and safety. The overall response rate for the study was 17.4 percent with one complete response, which compares favorably with those seen historically with topotecan. Additionally, median progression-free survival is 97 days. Amrubicin is generally well tolerated in both studies.
Of course, this is only Phase II data; Amrubicin is already in a Phase III trial, and often drugs that do well in Phase II fail in Phase III. With that warning in mind, the announced results are bullish, but actual approval and revenues from the drug are out in the post 2010 domain.
Finally, more proof came in of the efficacy of Revlimid came in. A pooled study presented at the 13th European Hematology Association (EHA) congress showed "multiple myeloma patients taking REVLIMID(R) (lenalidomide) plus dexamethasone significantly increased their survival rates. A lifetime simulation yielded an estimated mean survival of 5.6 life-years with REVLIMID in combination with dexamethasone (2.2 life-years with dexamethasone alone) for patients with one prior therapy, and 4.2 life-years (1.5 life-years for dexamethasone alone) for patients with multiple prior therapies."
Again, this just pushes doctors to get Revlimid going as a therapy earlier, rather than trying it only as a second or third line defense.
It takes time for knowledge to spread among the medical community, and of course it sometimes seems to take forever to get a new drug approved. Celgene is in the enviable position of having several approved drugs in the marketplace, a couple growing revenues very rapidly, as well as a variety of promising drugs in its pipeline. As biotechnology companies go, it is a relatively safe bet on growth.
I own a bit of Celgene stock.
More data: www.celgene.com