Several years ago, I started to look seriously at investing in Celgene (CELG) stock. Someone I knew told me that I probably shouldn't get too excited about the biotech. I'm glad I didn't listen to the person's advice.
Celgene is a much bigger and much more successful company now than it was then. However, there are still some who doubt the biotech's ability to achieve its goals. They question if its pipeline candidates will be as good as Celgene thinks they'll be.
Some of these doubts were raised during a conversation with Celgene CEO Mark Alles at the Morgan Stanley healthcare conference a few days ago. I thought Alles addressed those doubts pretty well. I also think many investors are still underestimating Celgene. Here's why that's a huge mistake.
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Dominating the blood cancer market
In May, one analyst downgraded Celgene because the biotech was too dependent on Revlimid. While the blood cancer drug does generate over 60% of the company's total revenue, I thought that downgrade was dumb. Sales for Revlimid continue to soar. It's projected to be the top-selling cancer drug in the world within the next few years. With Revlimid, Celgene dominates and will keep on dominating the blood cancer market. (By the way, a few months later, the same analyst upgraded Celgene.)
Alles was asked a question about Johnson & Johnson's (JNJ 0.29%) multiple myeloma drug, Darzalex. Some might think J&J has a contender that could dethrone Revlimid in the future. Alles' response was telling: "We don't see Darzalex as a competitor." His answer stemmed from Celgene's belief that combination therapies are key for improving treatment of myeloma -- and those combos will be built on the back of one of the biotech's drugs.
Looking ahead, Celgene's pipeline targeting blood cancer indications looks very promising. Alles said Celgene was "increasingly bullish on BCMA CAR-T," referring to chimeric antigen receptor T cells (CAR-T) that target B-cell maturation antigens (BCMA). He was enthusiastic about Celgene's partnership with bluebird bio (BLUE 1.78%). The two companies' lead BCMA CAR-T candidate is bb2121. Celgene thinks the experimental drug could win approval in 2020 and have blockbuster sales potential.
Disrupting the immunology market
Alles stated unequivocally that Celgene was "trying to disrupt biologic dominance" in the autoimmune-disease market. Otezla was only the beginning salvo of that attempted disruption. The biotech has two other late-stage candidates that could win regulatory approval in the next couple of years.
Both GED-0301 and ozanimod target Crohn's disease and ulcerative colitis. Alles thinks the drugs will be complementary, as they target different subsets of patients in those indications. He acknowledged that biologics currently "define the branded market for ulcerative colitis like they do for Crohn's." However, he thinks that Celgene will have "a very attractive alternative to the standard of care."
That belief rests on two premises. First, there's the possibility that late-stage results from ozanimod in ulcerative colitis could show a superior response rate than biologics. Second, Alles thinks the drug could provide a better safety profile than biologics. Celgene expects similar advantages for GED-0301.
Developing an anchor position in the neurology market
Ozanimod's first approval could be for another indication -- multiple sclerosis (MS). Responding to a statement that many investors were less excited about the prospects for the drug in MS, Alles said he "understood the concerns and criticisms." However, he stated that the data that will be presented soon meets what Celgene hoped for when it acquired Receptos in 2015 to get ozanimod.
Alles noted that the global MS market is somewhere between $20 billion and $25 billion. He hinted that Celgene wants to get 10% of that market, which would give ozanimod $2 billion in annual sales from the MS indication. The company has bigger plans than just that, though.
Ozanimod, according to Alles, gives Celgene "an anchor position" in the neurological market. He said the biotech wants to build another franchise to go along with its franchise in blood cancer and immunology. Ozanimod gives Celgene an entree into a larger market for neurogenerative diseases.
Delivering for investors
Could Alles just be giving a positive spin on his company's prospects? Maybe, but I don't think so. Five years ago, there were plenty of skeptics about Celgene. Since then, the stock has outperformed every other large biotech. Celgene also grew its earnings during that period by nearly 25% annually.
It's hard to sustain that kind of growth rate. Celgene, though, seems likely to come close to doing so. The consensus among Wall Street analysts is that the biotech will increase earnings by roughly 22% annually over the next five years. That's right in line with what Celgene thinks it will achieve. Is that overly optimistic? I wouldn't make the huge mistake of underestimating Celgene.
