Thursday, May 28, 2009

Celgene Growth Outlook

2008 and 2009 look like good years for speculators willing to try to sift babes from bathwater. One of the babies, in my opinion, is Celgene, a biotechnology stock.

Celgene (CELG) is one of the few stocks whose price has held up relatively well during the recent meltdown. At the beginning of 2008 it was selling at roughly $47 per share. Today it well over $41 per share. In between it hit a low of $36.90 and a high last August near $77 per share.

Once Celgene was a high-multiple stock, and today it is trading at a P/E of 25.5 excluding special items. Two years ago that was not a high multiple, but in today's market it is. You can argue for buying stocks with lower multiples if they are growing revenue and profits; there are lots of choices out there today. So why buy Celgene at this price?

Celgene's latest quarter reported, the first quarter of 2009, showed revenues of $605 million, up 31% from the year-earlier quarter. Net income was $163 million, compared to a loss year-earlier.

Can that growth be sustained? Q1 2009 did show a 4% sequential revenue decline from Q4 2008. That might be the beginning of the end, but management attributes it to inventory management by pharmacies and a negative currency exchange rate impact.

Stepping back, the curve looks to continue to trend strongly upward. Right now Celgene stands on three legs: Revlimid, Thalomid, and Vidaza. Thalomid for multiple myeloma has some short term growth potential since it is launching in Europe. Revlimid, a newer analog, is approved for treatment of multiple myeloma and some kinds of myelodysplastic sysndrome. It is relatively new on the market, and new clinical data of a positive nature continues to be released. So it is gaining market share and being introduced in new countries.

Vidaza is also for myelosyplastic syndromes, or MDS. Management claims it is the only MDS therapy to show an actual survival advantage. If that claim holds up, Vidaza sales should ramp rather nicely.

For now the currently approved drugs should keep Celgene growing at a good clip. The big potential future value of the company is in its pipeline. Of course, many promising pipeline drugs end up not getting FDA approval, or failing in the market even if approved. Celgene has a variety of therapies undergoing clinical trial.

Apremilast for psoriatic arthritis completed its Phase II study. Results are expected soon. It is also in a Phase II study for psoriasis and is being tested for other inflammatory diseases.

CC-930 for serious fibrotic diseases completed Phase Ib dosing study. Azacitidine for hematologic malignancies initiated Phase I/II study. PDA001 Phase I study for Crohn's Disease is now enrolling. Amrubicin for SCLC is enrolling both Phase I and Phase II trials.

In addition several Revlimid for CLL (chronic lymphocytic leukemia) trials continue.

The worst case scenario would be if all the new therapies fail to get approval and if the current drugs get knocked out of the market by some competitor. I don't think that is very likely, but it is a good idea to consider worst cases before you invest. I already own some Celgene stock, and have no plans to buy or sell at this time.

For a higher level of detail, see my Summary of the Celgene April 30, 2009 analyst conference.

And keep diversified!

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