5 Things Celgene Corporation's Management Wants You to Know

A little more than two weeks ago biotech giant Celgene (NASDAQ: CELG  ) delivered another smashing success of a quarter, at least along the lines of what the initial numbers entailed.

For the quarter, Celgene, which has been expanding the indications of existing medications in its product portfolio while also advancing its pipeline and introducing new therapies to pharmacy shelves, reported a 17% increase in total revenue to $1.87 billion from $1.6 billion in the year-ago period, while adjusted earnings per share increased 18% to $0.90 from $0.76.

Source: Kiran Foster, Flickr

But to fully understand how well or poorly a company is truly performing we need to be able to dig deeper than these surface numbers and look at what management has to say about the state of the business and where it's headed.

Here are five quotes from Celgene's second-quarter conference call that you need to know as a current or prospective investor which could shed better light on Celgene's future prospects. 

Sales growth, the organic way

Of the 18% product sales growth, 14 percentage points, or about 80% was volume driven.... We expect the full-year global net impact of price across our portfolio to be close to neutral.

-- Jacqualyn Fouse, President of Hematology & Oncology

Jacqualyn Fouse hits the nail on the head here with Celgene's Q2 results by showing investors that Celgene's growth is going to be volume, not price dependent. This isn't to say that Celgene doesn't possess the ability to boost pricing as needed, but growth in the biotech sector is a lot easier to come by when companies are relying on prescription growth, the approval of new drugs, and expanding indications for existing drugs to do the bulk of the work. And management, as noted in the graphic below, only expects growth to accelerate, with a 26% CAGR in adjusted EPS from 2013 to 2017.


Celgene investor presentation, Source: Celgene

Our lead drug is even better than we thought!

I think we are just now beginning to realize the full clinical and commercial potential of Revlimid. In the second quarter, our global commercial teams generated record quarterly sales of $1.214 billion, growth of 15% year-on-year and 6% quarter-on-quarter, and we are preparing for the future.

-- Mark Alles, President and COO

Revlimid is an important component to Celgene's future success. If Celgene meets its current forecast of $4.95 billion in full-year Revlimid sales, that would present a sizable 16% bump year-over-year for the drug that represented 66% of Celgene's total sales thus far in 2014.

Revlimid's growth prospects include a number of possible clinical expansions into a number of new indications, including nondeletion 5q and lower-risk myelodysplastic syndromes, as well as newly diagnosed multiple myeloma and more than a half-dozen potential blood-cancer indications. In addition to what's been steady double-digit organic growth, as Jacqualyn Fouse also noted during the conference call, "Revlimid's future growth from the non-Hodgkin's lymphoma indications or others beyond multiple myeloma particularly...all of that growth would be coming beyond 2017."

In other words, Revlimid could still have significant additional growth potential, which is great news for long-term Celgene investors.

New products will play a key role

We are very encouraged by the launch trajectory of Otezla over the first 15 weeks. There are already over 4,000 patients on Otezla and the IMS data shows the strongest initial prescription performance of any recent single indication launch in this therapeutic space. Additionally, sales are accelerating, and we expect revenues in July to meet or exceed total revenues from Q2.

-- Scott Smith, President of Inflammation & Immunology

Celgene is focused on diversifying its pipeline beyond Revlimid and anticipates its inflammation and immunology division will play a key role in that success.

Source: Celgene

Celgene's management team pounded the table on the early results from newly approved Otezla, a treatment for psoriatic arthritis that also holds a lot of potential promise as a psoriasis treatment. Otezla is currently under review by the FDA for this additional indication.

Otezla's appeal in the psoriatic arthritis market lies with its improved delivery (it's an oral medicine as opposed to an injection) and safety profile next to AbbVie's blockbuster treatment Humira. This is a potential blockbuster, with annual peak sales expectations hovering around $1.2 billion by 2017 according to EvaluatePharma.

We can go it alone and still outperform

That being said, our business model has always been designed as one to have tremendous leverage capabilities....So adding late-stage assets or approved assets does give leverage to the model, but we don't see a need to change our strategy in any way, shape or form. We're very comfortable with where we are.

-- Robert Hugin, Chairman and CEO

In response to a question regarding Celgene's possible appetite for late-stage acquisitions, CEO Robert Hugin makes a key point that Celgene isn't necessarily looking to buy its way to growth.

This isn't to say that Celgene hasn't made a number of key moves in recent years where it's seen unique opportunities present themselves -- just look at the graphic below for the large list of external collaborators Celgene works with. And Celgene isn't afraid to spend the big bucks to get its hands on exciting technology. In December, for example, Celgene forged a mammoth collaboration with anti-cancer-stem-cell drug developer OncoMed Pharmaceuticals that could be worth more than $3 billion for OncoMed. Celgene ponied up $177.3 million upfront for access to six of OncoMed's promising experimental drugs.


Celgene investor presentation, Source: Celgene

With partnerships like these, Celgene's CEO wants shareholders to understand that large buyouts won't be necessary to achieve success. Considering Celgene's double-digit top-line growth and recent outlook boost it's hard to argue against this assessment.

You want a dividend? It could be a while!

One of the key things that would drive our decision on that, though, would be the diversification in the revenue stream...we expect Revlimid to come down from kind of two-thirds or so percent of the total revenue pie to closer to 50%, and hopefully over time even maybe go a little bit below that.... So it's not something we forget about, but it's a ways out.

-- Jacqualyn Fouse

In response to a question from Michael Yee of RBC Capital Markets, Jacqualyn Fouse was quick to point out that while paying shareholders a dividend has been considered, the idea simply isn't prudent until the company's revenue stream is less reliant on Revlimid as a percentage of total sales.

This might be viewed as a disappointment to some investors, but it's actually a positive for two reasons.

First, Celgene is still in the rapid growth phase of its development. Though investors would probably prefer to see a dividend it makes a lot more sense for the company to reinvest its cash flow back into research and development in order to fuel innovation and continue growing by a double-digit percentage.

Also, citing Revlimid's disproportionate share of its current revenue as a primary reason why it has no immediate plans to pay a dividend demonstrates that Celgene is likely to devote itself to diversification. This will be important down the road when Revlimid is butting up against its patent expirations, reducing the sting of its eventual patent loss.

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  • Report this Comment On August 11, 2014, at 3:40 PM, biotech101invest wrote:

    Also with Dr Fouse fully in charge of hem/onc now - I suspect Celgene accelerates some of these dates - I expect 3 to 4 Phase 3's including partner programs to start before yr end. There is no biotech with this many near term catalysts....Round out your CELG position in August....many catalysts are coming. Of course,the biggest settlement would be a settlement on patent case which could come in the coming months and that would add $20 to $25 to CELG stock over the next month IMO. Here is a list of the near term catalysts:

    http://bit.ly/V1KVzq

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