A series of setbacks have taken a toll on Celgene's (CELG +0.00%) share price, but new drugs in development may put the drugmaker back on track soon. Is this biotech's future bright, or are its best days behind it?
In this segment from The Motley Fool's Industry Focus: Healthcare podcast, analyst Shannon Jones and Fool.com contributor Todd Campbell discuss what derailed Celgene this past year and how it can mount a comeback.
A full transcript follows the video.
This video was recorded on Nov. 28, 2018.
Shannon Jones: Turning our attention to the last stock, this has been one of my favorites. It's rare, Todd, to have a large-cap biotech player go on sale. One of my favorites is Celgene, ticker CELG. Many large-cap biotech companies right now are ridiculously cheap. Celgene is actually down 33% on the year, for some reasons which are very much warranted. [laughs] It's currently sitting at $69 a share. It's lost half of its value since about a year ago. It's trading at about 7X forward earnings, but when you compare that to the other major players, you're looking at 11X for Biogen, 9X for Gilead, and 13X for Amgen. It actually makes Celgene look that much more attractive.
Todd Campbell: Yeah. Listeners, if you own Celgene and you've suffered through that loss, I feel your pain. [laughs] This is a core holding in the healthcare portion of my own personal portfolio. I've been riding this one lower. It's a long-term holding for me. I agree with you, it's rare to see a company -- I'm going to take this one step further. It's rare to see a company that's growing by double-digits that is trading at such a discount vs. where it was a year ago. You said, there are some good reasons for that, but I think that those reasons are pretty temporary. I don't know if you agree.
Jones: I totally agree. Digging into that, a little over a year ago, they had the big Phase III disastrous failure for GD301. It certainly took a huge hit to the stock. Even worse, and probably more embarrassing for the company, was the refuse to file notice that they received from the FDA for one of the most widely watched, most anticipated assets, and that was Ozanimod for multiple sclerosis. For our listeners who aren't aware, it's one thing to get a complete response letter where the FDA says, "No, we're not going to approve this even after we've reviewed the application." It's a whole 'nother thing when the FDA says, "I'm not even going to look at this because it's not complete." Todd, this is something you expect from a rookie biotech that just sprung off the side of the streets of San Francisco, right? [laughs]
Campbell: Certainly not a company that has four blockbuster drugs on the market! [laughs] You would not expect to have that. I think they moved fast. It was an acquisition, they spent billions of dollars on it a few years ago when they bought Receptos to get Ozanimod. They just moved too quick. Now, they're going back, they're going through everything, they're trying to get all their ducks in a row. I think they plan on refiling that early next year. But I think you're right. That was egg on the face for Celgene, no question.
Jones: And it certainly doesn't stop there. To bring it more in terms of what's happening now and what the concerns are moving forward, it comes down to Revlimid. Right now, Revlimid makes up about 63% of Celgene's revenue. A huge moneymaker for the company, but they are going to be facing generic competition as soon as 2022, and there are multiple generic competitors. They were able to actually stave off Natco Pharma a couple of years ago. Basically, they structured an agreement where Natco would limit its volume, which basically means that they have no incentive to offer discounts. That's great for Celgene. But now, you've got companies like Mylan, you've also got Dr. Reddy's Laboratories that are going to have generics. I'm hopeful, cautiously optimistic, that they'll be able to structure similar agreements with these companies. But that is a huge cloud hanging over Celgene right now.
Campbell: We have to put that a little bit in perspective. I thought that we would see these brand name drugs lose a lot more of their market share early on, the biologics, when biosimilars were approved, than they have. What you're seeing is, these companies are getting increasingly smarter in figuring out ways to control the decline so that it's a slower pace than maybe you would otherwise expect. That's going to buy Celgene some important time.
One of the things -- and you're probably going to hit on this in a second -- that I think is interesting about talking about Celgene today is that they've got some big news potentially coming very soon at ASH. One of those news items that'll be coming at ASH is going to be insight into what could become a successor drug to Revlimid, bb21217, which is the second generation version of those CAR-Ts for multiple myeloma.
Jones: ASH is actually coming up next week. For our listeners who aren't familiar, it's the American Society of Hematology. It's a huge conference. Both scientists and investors and companies come and present data. bluebird bio, who Celgene has partnered with on bb2121, will be presenting data. All eyes will definitely be on that.
To your point, Todd, they've got a lot of things right now that have been working against them, but for things that I think could work in their favor, they're looking to launch at least five new drugs over the next couple of years. Potentially bb2121 and the others, but also Ozanimod, as we've talked about, they're actually expecting to submit for U.S. and European approvals in the first quarter of 2019 after the delay with the RTF. That's a drug that could reach $1 billion annually just on the MS indication. Like many MS drugs, they're also going for the GI indications like ulcerative colitis. That could be another big moneymaker.
They've also got Fedratinib. Celgene plans to file for a U.S. approval of blood disease drug Fedratinib in treating myelofibrosis by the end of this year for European submission. If it wins, this drug could compete against Incyte's billion-dollar blockbuster Jakafi. They've got a number of different drugs in the pipeline. Luspatercept is another drug on the blood disorder spectrum. This is partnered with Acceleron Pharma. Celgene thinks it could have $2 billion in peak sales there. We talked a little bit about it on the cell therapy side, they've also got liso-cel, the company's gene therapy for non-Hodgkin's lymphoma.
You've got a really rich pipeline. Evaluate Pharma actually has it as the No. 3 best pipeline in the entire industry. This could more than make up for any decline that we may see on Revlimid sales.
Campbell: I totally agree. That's one of the reasons that I'm so confident about holding onto this as a core holding. Obviously, like we said at the top of the segment, we've taken it on the chin, investors, with our Celgene shares. But they've got a lot of irons in the fire, and a lot of these could be very large drugs. You talked about them. These are blockbusters in the making, potentially. We still obviously have to get those filings done and have them go smoothly, and we have to have the FDA weigh in with approvals on these things. But I see a path for them to get to that $20 billion in revenue and beyond over the course of the next decade. And that's even in the face of the threats to Revlimid.
Jones: Absolutely. The company has been raising their full-year guidance every quarter. Right now, they just raised it in Q3 to $15.2 billion up from $14.8 at the start of the year. Growth is definitely happening. Don't write off Celgene because of where the stock is trading. It has lots of shots on goal here. Right now, it's literally trading at its all-time lows. If there was ever a time to get in on this stock, I would say that time is now.
Campbell: Second the motion! Listen, you're never going to pick the bottom. In my view, there's a difference between catching a falling knife, which is going out and buying shares in a company that has fallen on tough times, the shares continue to fall. If the company is not working on disruptive things, if their sales are falling, if their profit is falling, then yeah, wait until it bottoms, wait until it settles out. Don't try and catch that falling knife. But that's not the case with Celgene. They're still growing their top line, they're still growing their bottom line. As you put it, they have all these shots on goal.
