Will Celgene's $2.9 Billion Bet Pay Off?

When you bet $2.9 billion, you really hope that bet will pay off. Celgene (NASDAQ: CELG  ) wagered that amount in 2010 when it bought Abraxis. What did it get for the money? Abraxis had one drug on the market -- Abraxane, which was approved by the Food and Drug Administration in 2005 for treatment of metastatic breast cancer. The smaller company had consistently lost money, yet Celgene CEO Bob Hugin saw the potential in Abraxane.

In previous articles, we looked at Celgene's top two drugs: Revlimid and Vidaza. Today, we're reviewing Abraxane to see if that big bet made a couple of years ago has begun to pay off.

From flat to fit
It's probably fair to say that Abraxane wasn't setting the world on fire when Celgene acquired Abraxis. Sure, the drug was pulling in solid revenue. However, sales were essentially flat.

Sources: Celgene 10K and 2012 earnings release, Abraxis 10Q.

Note that the sales number shown above for 2010 is only an estimate. Abraxis reported Abraxane sales only for the first six months of the year; Celgene reported sales for the drug only for the 2.5 months at the end of the year after it acquired Abraxis. The trend wasn't impressive back then, but the situation began improving in 2011. What happened?

Celgene's larger resources likely helped. Another factor impacting 2011 was a temporary shortage of generic paclitaxel, which also is used to treat breast cancer.The company also began to launch Abraxane in several international markets, which helped boost sales. 

While all of these activities were under way, Celgene kept moving forward with several clinical studies for Abraxane. None of these made a difference on the company's top line or bottom line, but good things were beginning to happen.

Payoff time
Bob Hugin and the team at Celgene knew that the real potential for Abraxane would be in expanding indications for which the drug was approved. That potential began to be realized in October 2012 when the FDA approved the drug for treatment of advanced non-small-cell lung cancer. The company also filed for approval for the indication in Japan, Australia, and New Zealand, with decisions expected this year. 

Additional confirmation of Abraxane's potential came with positive results from a phase 3 study of the drug in treating pancreatic cancer. The disease has been something of a minefield for pharmaceutical companies in recent history.

Amgen (NASDAQ: AMGN  ) decided to stop its phase 3 trial of ganitumab in August after the drug failed to prove more effective than gemcitabine. Threshold Pharmaceuticals (NASDAQ: THLD  ) also experienced difficulties in September when testing didn't show that its drug TH-302 improved overall survival rates. Celgene, though, now has solid results that enable the company to move ahead with regulatory submissions.

Then there's advanced melanoma. In October, Celgene announced significant improvement in progression-free survival rates for melanoma patients using Abraxane. The company plans to review final data in mid-2013 and will evaluate for possible regulatory filings.

The road ahead
Abraxane appears to have a good chance to be another blockbuster drug for Celgene in the next few years. Sales for the drug in treating breast cancer are growing. The drug can now be marketed in the treatment of lung cancer. Pancreatic cancer and melanoma could be added in the not-too-distant future.

Competing in the lung cancer market will probably prove to be the biggest challenge. Lilly's (NYSE: LLY  ) Alimta and Roche's (NASDAQOTH: RHHBY  ) Tarceva are currently two of the top drugs for treating lung cancer. Ironically, Abraxane's success for the indication could depend largely on how effectively the makers of these drugs hold off generic rivals. Roche already fended off a generic threat last year. Lilly hopes to accomplish the same result with a court decision this year that could enable the company to retain patent protection for Alimta through 2022 instead of 2016. 

Celgene will continue to enjoy patent protection for Abraxane through 2024 in the U.S. and through 2022 in Europe.It's still a little too soon to be 100% certain, but so far it looks like the company's multibillion-dollar bet will ultimately pay off.

Can Celgene continue to soar?
Every in-the-know biotech investor has an eye on Celgene. Shares have skyrocketed this year as the company outlined a plan to almost triple its profits in only a few years. But should you buy the story Celgene is selling? Make sure you understand the key opportunities and risks facing this company by picking up The Motley Fool's brand new premium report on Celgene. To claim your copy today -- along with a free year of updates -- simply click here now.


Read/Post Comments (4) | Recommend This Article (1)

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  • Report this Comment On February 12, 2013, at 2:18 PM, caution1st wrote:

    How many times do you have to be told Threshold's phase two pancreatic trial was designed to show a statistical significant improvement in progression free survival not overall survival. And they hit it out of the park on that one. The study met its primary endpoint by achieving a 63% improvement in PFS in patients treated with TH-302 and Gemzar in comparison to Gemzar alone.

    The current phase three trial Maestro" being run by Threshold's partner Merk KGaA will measure overall survival.

    Try to get your facts straight!

  • Report this Comment On February 12, 2013, at 7:46 PM, TMFFishBiz wrote:

    caution1st -

    You are absolutely correct that the primary endpoint of Threshold's pancreatic cancer study was progression free survival and that the results were very good. However, overall survival was a secondary endpoint. The study did show some improvement in overall survival, but it was not statistically significant. (See http://investor.thresholdpharm.com/releasedetail.cfm?Release...

    In the aftermath of the company's announcement in September about the lack of significant improvement in overall survival rates, Threshold's shares plunged around 20%. They still haven't recovered. The stock is currently down nearly 50% from the day before the updated phase 2b results were announced. I don't think that it's incorrect to say "Threshold experienced difficulties in September" based on the study results, so I have to respectfully disagree with your comment about getting the facts straight.

    Thanks for reading and commenting.

    Keith

  • Report this Comment On February 13, 2013, at 10:12 PM, essiepaul wrote:

    What do you attribute JPM, Baker Brothers and Sutter Hill filing 13G's to Keith??

    How come you did not mention that in your article?? Seems pretty noteworthy to me.

  • Report this Comment On February 13, 2013, at 10:49 PM, TMFFishBiz wrote:

    Hi essiepaul,

    If the article's central focus was THLD, the fact that several big players have added to their stakes in the company or bought new positions would be very relevant -- just as you point out. However, this article was primarily about CELG. The reference to THLD was to underscore that the pancreatic cancer market hasn't been an easy one for new entrants.

    To your first question, though, my interpretation of the recent 13G filings is probably the same as yours. Looks like some big boys think that the prospects for TH-302 are still pretty good and the stock has plenty of potential to move up after being hammered for several months. They're likely right.

    Thanks for reading and for your comments.

    Keith

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