3 Secrets to Celgene's Future Success From Q3 Results

Celgene (NASDAQ: CELG  ) did it again.

The big biotech reported its third-quarter results on Thursday. As usual, Celgene announced strong growth. Revenue was up 18% year over year. Adjusted earnings jumped 19%. The company's adjusted diluted earnings per share of $1.56 also beat the average analysts' estimate of $1.54.

Overall, Celgene's third-quarter numbers showed yet another solid performance. These results don't just point out good news from the past, though. They also point to key ways that Celgene is poised to succeed in the days ahead. Here are three "secrets to success" for Celgene gleaned from the third-quarter results.

Source: Celgen. 

1. Rock star Revlimid
Revlimid appears to be unstoppable. This powerhouse drug behind Celgene's ascendance continues to grow. Third-quarter sales for Revlimid came in at $1.09 billion, up 12% over the third quarter of 2012. This comprised almost two-thirds of Celgene's total revenue, maintaining the drug's status as the undisputed rock star in the company's product lineup. There are couple of things to note about Revlimid from Celgene's third-quarter results that bode well for the future.

First, examine the underlying reasons why sales grew so strongly. Some companies achieve sales growth without actually shipping more product. Eli Lilly (NYSE: LLY  ) , for example, just reported good third-quarter numbers with 6% revenue growth. However, that growth primarily stemmed from hiking prices by 5%. Price increases are fine, but sustained growth needs to come from actually selling more product.

Compare Lilly's growth path to Revlimid. Celgene reported that sales for the drug were higher due to increased duration of therapy and gains in market share. Patients are using the drug longer -- and more patients are using it than before. That's the recipe for continued growth.

A second good sign for the future is that Celgene isn't stopping with the current indications for Revlimid. The company plans to submit for regulatory approval in the U.S. and Europe in the first quarter of 2014 for the drug as a treatment for newly diagnosed multiple myeloma. Four other late-stage studies of Revlimid in other indications are either in progress or planned to start enrollment soon.

2. Bench strength
Like any good sports team, Celgene also gets a lot of help from its bench. At the top of that list in terms of growth is Abraxane. Third-quarter sales for the cancer drug surged by 60% year over year to $170 million. Most of that growth is due to use of Abraxane in treating non-small-cell lung cancer. But with its recent U.S. approval in treating pancreatic cancer and possible European approval by the end of the year, sales should pick up even more. 

Pomalyst appears on track to emerge as another big winner for Celgene. Sales for the quarter totaled $90 million -- up 35% over the second quarter (its first full period on the market after U.S. approval in February).

Compare this performance to Kyprolis, the second-line treatment for multiple myeloma marketed by Amgen (NASDAQ: AMGN  ) after its acquisition of Onyx. Third-quarter sales for Kyprolis were $65 million -- well below Pomalyst -- despite having been on the market longer. Granted, Amgen's drug is only approved in the U.S. while Pomalyst is approved on both sides of the Atlantic. But Pomalyst's U.S. sales of $77 million still beat out its rival.

Even Celgene's older drugs, Vidaza and Thalomid, are still contributing nicely. Vidaza's sales were flat year over year after the entrance of generic challengers in the U.S., but $220 million added to the top line isn't bad at all. Long-in-the-tooth drug Thalomid kicked in $60 million in the third quarter.

The impact of apremilast is yet to be felt. Celgene finds out in March if the drug will get a green light in the U.S. for treating psoriatic arthritis. The biotech plans to submit for regulatory approval in the U.S. during the fourth quarter for the psoriasis indication and in Europe for both psoriasis and psoriatic arthritis.

3. The intelligent investor
Technically, Celgene's profits dropped in the third quarter compared to the same period last year on a GAAP basis. The primary factor behind this decline stemmed from higher research and development expenses related to upfront payments for collaborations. Celgene announced a deal in late June to pay MorphoSys $92 million upfront on a new monoclonal antibody targeting treatment of multiple myeloma and other indications.

Why does a decrease in GAAP profit possibly point to future success? It shows that Celgene is continuing to look wherever it can for more innovation. 

Celgene's rising cancer drug, Abraxane, came from an acquisition of Abraxis. The company paid $2.9 billion for the company. With Abraxane poised to become another blockbuster for Celgene in the not-too-distant future, that deal could make Celgene look like a very intelligent investor. And with more than $5.8 billion in cash and marketable securities, it won't be surprising if the biotech seeks other smart investment opportunities to keep the growth engine humming.

Challenges
The path to sustained success isn't without its challenges. Celgene still has several regulatory hurdles to clear. Achieving commercial success with apremilast could be tougher than the company has anticipated. Vidaza sales could slump in the face of generic competition in the U.S.

There's also the issue of high expectations. As a case in point, despite solid third-quarter results that beat analyst estimates, Celgene's shares dropped slightly in early trading. The company's past performance makes for a hard act to follow.

Even with these challenges, though, I think Celgene is one of the best-positioned biotechs around. My hunch is that we'll be talking about successful quarters plenty of more times in the years ahead.

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