Celgene Corp. (CELG +0.00%) is generating monstrous levels of growth in terms of its top and bottom-lines. Per its recent fourth-quarter earnings release, for example, the company saw total product sales rise by a staggering 19% year over year, topping $2 billion in quarterly revenue for the first time in its operating history.
Celgene's recent financial performance. Source: Celgene.
The quarterly numbers, though, can't tell the full story of this rising star in the biotech space. To understand Celgene's rocket-like trajectory and its particularly bright future, we need to turn to the company's recent conference call. So here are five key issues Celgene's management wants investors to know about going forward.
Celgene is focused on long-term value creation
One of the biggest problems that plagues the pharmaceutical industry is that companies tend to have a hard time sustaining high levels of growth. In the typical life of a pharma company, double-digit sales growth is driven by a new product launch, which tends to taper off in a few short years.
The handful of companies that have escaped this trend have done so by continually expanding the labels for their flagship products. And that's exactly what Celgene has done with its core cancer franchise, consisting of Revlimid, Abraxane and Pomalyst/Imnovid, as well as its new psoriasis drug Otezla.
While most of this label expansion work has come from internally driven research efforts so far, Celgene's management believes that external collaborations with industry-leading biotechs will become increasingly important sources of growth moving forward.
Peter Kellogg. Source: Celgene.
As CFO Peter Kellogg put it on the call: "Our focus on operational excellence extends beyond delivering near-term financial performance. It also includes making the appropriate investments to optimize the commercial opportunities of our inline product, investing wisely to advance our pipeline with leading technologies, and enhancing our internal programs and capabilities through collaborations with the best biotech partners in the industry."
Digging into these statements a bit further, we find that Kellogg is referring to Celgene's recent collaborative agreements with industry leaders such as Bristol-Myers Squibb as a way to explore potent new uses of their core cancer drugs. Bristol and Celgene, for instance, are currently testing the combo use of Abraxane with the immunotherapy Opdivo in metastatic breast cancer, pancreatic cancer, and non-small-cell lung cancer.
Global commercial launches are driving higher sales volumes
A major theme on Celgene's quarterly call was the importance of the ongoing global commercialization for its lead products in helping to increase sales volumes and, hence, revenues.
Jacqualyn Fouse. Source: Celgene.
Jacqualyn Fouse, president of Global Hematology and Oncology, made this very point on the call, stating: "Our growth was once again broad-based across geographies with market share and duration games driving higher volumes. Quarterly revenues exited the year at a run rate of over $1.32 billion, and we entered 2015 with excellent momentum as we look forward to approvals for newly diagnosed multiple myeloma in the U.S., Europe, and Japan, as well as our ongoing geographic expansion in relaxed refractory multiple myeloma, MDS, and mantle cell lymphoma."
With additional product approvals expected in Brazil and Russia soon, this trend is more than likely to continue going forward.
Cash flows are growing at breakneck pace
Strong cash flows are vital to biotech companies, allowing them to create deep value for shareholders by expanding clinical activities and acquiring game-changing intellectual properties.
The double-digit sales growth of Celgene's lead products led to an astounding uptick in cash flows in the fourth quarter. The CFO brought up this point on the call, saying: "Our global business is dynamic and generated operating cash flow of $2.8 billion a 26% increase over prior year. The strength of our cash flow generation provides significant financial flexibility."
That last point is particularly important for investors to keep in mind. Celgene is building a nice cash position that will probably be used to acquire additional clinical candidates, or perhaps a medium-sized company through a buyout.
Management is predicting double-digit growth to 2020 and beyond
The recent label expansions for Revlimid, Abraxane, and Otezla gave management the confidence to provide a long-term financial outlook during the quarterly call, estimating that sales will grow by more than 18%, on an annualized basis, until at least 2020. The company thus expects total sales to exceed $20 billion by the end of the decade:
Source: Celgene.
Celgene's CFO provided some color on this outlook, saying that "$17 billion of 2020 sales will come from existing products and drivers that are already understood, such as the newly diagnosed multiple myeloma opportunity with Revlimid, [and] the continued global rollout [of] Pomalyst/Imnovid, Otezla, and Abraxane."
What's intriguing is that management didn't rely heavily on future acquisitions or newly signed research partnerships to arrive at this stately growth figure, meaning that it's probably a low-ball estimate.
Otezla's U.S. launch is going well
Source: Celgene.
And perhaps boosting management's confidence in terms of its long-term outlook, the U.S. launch for Otezla has gotten off to a particularly strong start. (See the chart to the left.)
According to Scott Smith, the president of Global Inflammation and Immunology: "Otezla prescriptions accelerated significantly in Q4 following the psoriasis approval and with continued strong progress on the PSA launch. Otezla has obtained a highest initial weekly RX volume of any launch in the I&I space in recent years."
All told, Celgene looks as if it will continue posting sector-leading growth, making it a good stock to keep a close eye on moving forward.
