Image source: NIH Image Gallery via Flickr.
In a year in which the stock market was relatively flat, biotech blue-chip Celgene (CELG) was a noted outperformer, having gained 5.5% over the 12 months. 2015 was yet another strong year of growth for the company, and also a transformative one, with Celgene pulling the trigger on a major deal -- the purchase of Receptos for $7.2 billion -- and forging numerous sizable collaborations.
But the bigger question doesn't concern where Celgene has been so much as where it could be headed in 2016 and beyond. Does Celgene have the tools to deliver its best year yet for investors? Although nothing is for certain, I'd bet on Celgene delivering another year of record revenue and profits.
What's fueling the surge for Celgene in 2016? I believe it'll boil down to organic growth from its four foundation pipeline products and advances from its expanding pipeline.
Image source: Celgene.
Revlimid flies high
When discussing Celgene, we're often talking about the potential for Revlimid. Revlimid is the go-to treatment option for first-line multiple myeloma patients, and it also has a strong holding in the second-line indication. This dominant position lends to strong pricing power, and demand for the product has grown steadily throughout the years. Celgene anticipates Revlimid net sales to rise about 15% in 2016 to $6.6 billion-$6.7 billion.
Additionally, Celgene made waves at the end of 2015 when it announced that it had reached an agreement with generic drugmakers who'd been aiming to bring generic Revlimid capsules to market. Although Revlimid's patents appeared to protect it into 2027, the expectation on the Street had been that Revlimid would see generic competition flooding the market between 2022 and 2025. The deal Celgene struck with Natco Pharma and other generic litigators allows Natco to begin distributing a small amount of generic Revlimid capsules in March 2022, with increases each March through 2025. Still, generics shouldn't amount to more than a third of total production in this span. Full generic entrance will begin in late January 2026. Investors can be confident that Celgene will generate substantial cash flow from its key blockbuster for another decade.
This isn't just a Revlimid story
But this story involves more than just Revlimid: Pomalyst, Abraxane, and Otezla are playing important roles, too.
Image source: Celgene.
Otezla probably has the path of least resistance in 2016. It was launched less than two years ago, and has made big waves in treating plaque psoriasis. Relative to its peers, Otezla has had a considerably quicker launch based on total prescriptions, which is partly due to Celgene's successful marketing campaign, as well as the convenience and efficacy of Otezla. Even more exciting, investors can expect data readouts for midstage studies involving atopic dermatitis and ulcerative colitis in 2016. It's quite possible Otezla sales double in 2016.
Image source: Celgene.
Abraxane will also be looking for growth acceleration in the U.S. after seeing sales retrace a bit toward the end of 2015. The introduction of cancer immunotherapies in indications that Abraxane targets is more than likely the reason why sales growth tapered off. But Abraxane's future still looks bright as a foundation cancer treatment. It's being studied in combination with Roche's atezolizumab, with key data expected to be released in 2017. It's likely that ex-U.S. growth for Abraxane will push it into blockbuster territory in 2016.
Lastly, Celgene is delivering strong growth from Pomalyst (known as Imnovid in overseas markets), another multiple myeloma agent for patients who've progressed on prior therapy. As noted above, demand for multiple myeloma products continues to rise as incidence rates of the disease increase. Pomalyst, like Abraxane and Otezla, should deliver $1 billion-plus in sales in 2016.
Label expansion, pipeline, and collaborative growth opportunities
What also makes this quartet of stocks so exciting is the potential for label expansion.
Revlimid could find additional label inroads in diffuse large B-cell lymphoma as a maintenance therapy and for the ABC subtype indication. In follicular lymphoma it may wind up being an approved therapy for first-line and relapsed/refractory indications. The story is similar with Otezla, which could eventually expand into around a half-dozen new indications before the decade is over.
Beyond just label expansion opportunities, Celgene has more than 30 collaborations ongoing that could yield data and push its shares higher in 2016. One of Celgene's biggest collaborations is with OncoMed Pharmaceuticals (OMED), a developer of anti-cancer stem cell therapies. Much like normal stem cells, cancer stem cells are believed to be responsible for cell differentiation. They may be the cause of cancer recurrence and metastasis, and they're often immune to chemotherapy and radiotherapy.
Celgene and OncoMed have agreed to partner on up to six compounds, the most advanced of which is demcizumab, which is being examined as a first-line metastatic pancreatic cancer treatment in combination with Abraxane. We may also get data from two other early phase 1 partnered candidates, OMP-131R10 and OMP-305B83. OMP-131R10 is of particular interest after demonstrating preclinical activity in several solid tumor types, including colon and lung cancer.
Consider this just a snippet of the collaborative data that could be released in 2016.
Image source: NIH Image Gallery via Flickr.
Celgene's best year yet
Even though Celgene hasn't released its official full-year results for fiscal 2015, at the J.P. Morgan Healthcare Conference earlier this month it released preliminary data suggesting 21% net product sales growth and 140 basis points of operating margin expansion.
Looking ahead to 2016, Celgene is forecasting net sales of $10.5 billion to $11 billion, a roughly 17% increase from 2015, and another 150 basis points of margin expansion. In fact, Celgene's 2020 forecast, which was recently raised, implies that Celgene could grow sales and profits by a double-digit percentage for at least the next five years. If you're looking for a safe-haven investment with all the tools necessary to grow during a challenging investing environment, I believe Celgene should be among your top considerations.
