Thursday, September 6, 2012

Celgene Benefits from Psoriatic Arthritis Trial Data

Celgene (CELG) stock closed up $3.53 or 5% today to $74.49. This was not just from the general enthusiasm for the ECB plans to save the Euro, although a week Euro has been hurting Celgene's revenues and earnings as Europe is its second largest market after the United States. CELG's 52 week high was $80.42 on April 4 and the 52 week low was $56.79 on September 6, 2011.

When I last wrote about Celgene, on April 27, I said: "Celgene (CELG), a biopharmaceutical company therapy company, provides a double dose of growth potential: further revenue growth with its currently approved therapies and a rich pipeline with some therapies closing in on FDA approval and commercialization." See the whole article at Disappointed by Celgene's Q1?

Today Celgene announced that Phase III results from three studies. I believe those results were strong enough that Apremilast is likely to be approved for the treatment of psoriatic arthritis. Of course we won't know for sure until the final FDA vote, and even the actual submission to the FDA will not be made until Q1 2013. Apremilast is an inflammation modulator that could be usefull in other diseases caused by inflammation.

Given that Q2 numbers, reported back in late July, were pretty solid, I think that the focus will shift again to the potential value of Celgene's pipeline. Revenue was $1.37 billion, up 8% sequentially from $1.27 million and up 16% from $1.18 billion year-earlier. GAAP net income was $367.4 million, down 8% sequentially from $401.5 million but up 32% from $279.2 million year-earlier. EPS (earnings per share) were $0.82, down 9% sequentially from $0.90, but up 39% from $0.59 year-earlier.

Celgene raised its full year guidance for non-GAAP EPS to $4.80 to $4.85, up $0.05 from prior guidance.

Celgene has many therapies in its pipeline, from pre-clinical through Phases I, II, and III, but I can only cover a few specific examples that are likely to greatly increase the value of Celgene in the 2012 to 2015 timeframe. I'll focus on Abraxane and Pomalidomide, since I already covered the Apremilast news.

Abraxane is an improved formulation based on paclitaxel, which is already approved in the U.S. and Europe for breast cancer. It competes with generic paclitaxel. Revenues in Q1 were $104 million. It gave good data in trials for non-small cell lung cancer (NSCLC), and now has an application pending with the FDA, with decision due in October. In addition two Phase III trials are now fully enrolled with patients. One, in combination with gemcitabine is for pancreatic cancer, the other is for metastatic melanoma (skin cancer). Approval by the FDA would greatly increase the use of, and revenue from, Abraxane.

Pomalidomide data for relapsed and refractory multiple myeloma has been submitted to the FDA for marketing approval. It is also in a Phase III trial for myelofibrosis. Again, approval in either indication could eventually generate hundreds of millions in revenue.

Against the healthy growth in revenue from older therapies and the potential for new approvals, the current trailing price to earnings (P/E) ratio of 21.6 seems to fail to capture the train of future profits that appears to be coming down the track.

I don't see any substantial short-term down side risk for Celgene, other than normal market fluctuations. I see a number of new therapies that could be approved. If even one is approved the company would become significantly more valuable. If a number of them are approved there are going to be some really big numbers floating around for Celgene by 2015.

Keep diversified!

See also my notes on the Celgene Q2 2012 analyst call

Disclaimer: I am long (own stock in) Celgene. I will not buy or sell Celgene for at least one week after this is published.

No comments:

Post a Comment