Celgene Beats and Raises, but It's All About the Pipeline

Celgene (CELG) continues to post solid revenue gains from its current drugs, but with generics of top-selling Revlimid slated to hit the market starting in 2022, progress for the biotech's pipeline is equally as important as the quarterly numbers.

Celgene results: The raw numbers

Data source: Celgene.

What happened with Celgene this quarter?

• Sales of Revlimid increased 18%, driven by increases in the time patients take the blood cancer drug in the U.S., where sales were up 22% year over year.
• Pomalyst sales were up 23% on the back of 33% year-over-year growth in the U.S. as the drug gets used in combination with other blood cancer medications.
• On the solid tumor front, sales of Abraxane were up 15% year over year, but most of that was due to customer buying patterns; Celgene estimates the underlying growth was closer to 5%.
• Sales of anti-inflammatory Otezla were up a whopping 40% year over year. Some of the growth came from a buildup of inventory, but there was also a large purchase by Russia in the third quarter of last year that didn't occur this year.
• Income from operations was boosted by lower research and development costs, but that's just because the year-ago quarter had a large up-front payment to a collaborator that needs to be accounted for on a GAAP basis.
• Celgene bought back 24 million shares in an accelerated share repurchase program that started in the second quarter, which helped boost the earnings-per-share line.
• The biotech got a handful of recent wins on the clinical trial front: Revlimid passed a phase 2/3 study in smoldering myeloma, Abraxane plus Roche's Tecentriq helped patients with metastatic triple-negative breast cancer and non–small-cell lung cancer in a pair of phase 3 trials, and Otezla passed a phase 3 trial in scalp psoriasis.

Image source: Getty Images.

What management had to say

To deal with the pending patent cliff for Revlimid, chairman and CEO Mark Alles outlined a plan to launch five drugs -- ozanimod, fedratinib, liso-cel, luspatercept, and bb2121 -- through 2020: "The combined peak revenues of those five, as we look at them, largely offset what would be the complete loss of Revlimid's revenue. So not just a peak in a given year, but over time it would replace most of what Revlimid contributes in a year."

Chief Financial Officer David Elkins highlighted how the company is thinking about the use of the cash Celgene is generating ($1.9 billion from operations in the most recent quarter):

So [external deals are] a very important part because we're agnostic on where the science comes from. We're just looking for the best science. At the same time, however, we're not looking to build up excess cash reserves. And if opportunities aren't present, then we'd look to return that cash to our shareholders through the form of share repurchases. Today, we still believe that it's the most efficient way for us to return cash to shareholders. And currently, we have no intention of beginning a dividend.

Looking forward

Management raised 2018 revenue guidance to approximately $15.2 billion from previous guidance of $15 billion, boosted by Otezla sales. The adjusted earnings per share are also expected to come in higher than previously expected, with management guiding for ending 2018 with earnings of $8.75 to $8.80 per share, up from a previous range of $8.70 to $8.75 per share. The company also reaffirmed its longer-term 2020 guidance.

Looking into 2019, Celgene plans to announce guidance at the J.P. Morgan Conference in January, but unlike it usually does, the company won't pre-announce 2018 earnings at the conference because J.P. Morgan is a little earlier than usual this year, which doesn't leave enough time for the bean counters to crunch the numbers after the calendar flips over.

Before then, investors will get a good look at Celgene's pipeline of drugs for blood cancers and diseases at the American Society of Hematology meeting in December with presentations of clinical trial data for multiple drugs, including luspatercept and liso-cel, two of the five aforementioned drugs that Celgene is expecting will help replace Revlimid.