Celgene Short and Long Views
by William P. Meyers
April 27, 2012
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.
However, Celgene executives admitted that Q1 disappointed them a bit. Of course it disappointed momentum players who were hoping for better-than-expected results. After the Celgene press release and analyst call on Thursday (April 26) the stock dropped from $77.91 to $72.92. On the other hand the stock has been on a long-term uptrend since it was at $38.01 on April 20, 2009, and is still well up off a 52-week low of $51.70 on August 10, 2011.
Celgene maintained its full year guidance of $4.70 to $4.80 non-GAAP earnings per share. If that outlook proves good, and the price ends the year at today's level of $73.38, it would have a (non-GAAP) P/E of about 15.5, which means the level of risk at this price is low enough for conservative investors looking for growth.
The secret to doing well with Celgene is not in this quarter's numbers. It is in the Celgene pipeline. Winning on that bet takes a long-term view.
Short term Celgene should be fine. Q1 numbers would have been impressive if it were not for higher expectations. Revenue was $1.27 million, down 1% sequentially from $1.28 billion but up 13% from $1.13 million in the year-earlier quarter. GAAP net income was $401.5 million, down 2% sequentially from $410.2 million but up 57% from $255.6 million year-earlier. GAAP EPS (earnings per share) were $0.90, down 1% sequentially from $0.91, but up 67% from $0.54 year-earlier.
Non-GAAP EPS, which is the measure used in guidance (and excludes stock-based compensation expense, acquisitions expenses, and one-time items) was $1.08. Obviously to reach guidance Celgene will have to do better than that in each of the three upcoming quarters.
Most of Celgene's revenue currently comes from REVLIMID, which is approved in combination with dexamethasone for treatment of multiple myeloma patients who have had at least one prior therapy (second-line MM). It is also approved for treating myelodysplastic syndromes (MDS) associated with a deletion 5q genetic abnormality. Revlimid has ramped up sales over the years as it has proven itself to doctors and patients and received regulatory approval around the world. In Q1 Revlimid revenues were $861 million, up 1% sequentially from $855 million and up 17% y/y. It is currently in three Phase III trials, one each for CLL (chronic lymphocytic leukemia), NHL (non-Hodgkin lymphomas), and expanding its MDS indication. Success in any one trial would greatly expand revenues once it is commercialized.
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, Pomalidomide, and Apremilast.
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.
Apremilast is in Phase III trials for psoriasis and psoriatic arthritis. Data should be in from the trials in 2012. Positive data could mean FDA approval in 2013.
While there is always a potential down side to stocks, especially short term risk due to economic and market conditions, I don't see substantial down side risk for Celgene. I see a large 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.
See also my notes on the Celgene Q1 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.
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