Shareholders of drug giant Celgene (NASDAQ:CELG) have very little to complain about, even if shares are off 13% on a trailing 12-month basis. If we back out our perspective a bit, Celgene shares are up more than 250% over the trialing five-year period, and that's something long-term shareholders have to be pleased with.
Celgene's formula for success
What's been driving Celgene is a mixture of three components: organic growth, inorganic prospects, and collaborations.
In terms of organic growth, Celgene anticipates that it'll have four blockbusters ($1 billion-plus in annual sales) in its product portfolio in 2016: Revlimid and Pomalyst, which both treat multiple myeloma, Abraxane, a treatment for lung, breast, and pancreatic cancer, and Otezla, a relatively new oral anti-inflammatory.
But make no mistake about it, Revlimid is Celgene's workhorse. Sales for its leading first- and second-line multiple myeloma product rose 18.3% on an operational basis for the full year to $5.8 billion. This represented 63% of Celgene's nearly $9.2 billion in net product sales for 2015. With growth in multiple myeloma, as well as around a half-dozen additional indications that Revlimid could expand into, it's possible Revlimid could generate $10 billion-plus in sales by 2020.
Celgene is also growing inorganically. The company's acquisition of Abraxane from Abraxis BioScience has been genius, with sales of the drug more than tripling since 2009. It also recently acquired Receptos for $7.2 billion. Receptos' lead experiment drug, ozanimod, could become a cornerstone of multiple sclerosis treatment if approved, and it could generate anywhere from $4 billion to $6 billion in peak annual sales.
Finally, Celgene has a smorgasbord of collaborations. Celgene's 30-plus collaborations allow it to throw its cash flow at possible first-in-class treatments in cancer, inflammation, and immunology. Doing so helps to push research and development costs off to its partners, while rewarding only the most successful trials with milestone payments.
New competition rears its head in multiple myeloma
Celgene's Revlimid has done the majority of the heavy lifting for Celgene for years and is expected to be a driving force through the midpoint of the next decade. However, it also appears that tough competition could be on the horizon.
Earlier this week, Janssen Pharmaceuticals, a subsidiary of Johnson & Johnson (NYSE:JNJ), and Genmab, which co-developed Food and Drug Administration-approved multiple myeloma drug Darzalex, announced a collaboration with cancer giant Roche (NASDAQOTH:RHHBY) and its anti-PDL1 cancer immunotherapy atezolizumab.
Under the terms of the collaboration, Johnson & Johnson and Roche will be conducting early stage (phase 1b) studies of Darzalex in combination with atezolizumab for various solid tumor types, as well as multiple myeloma. The good news for Celgene is some of these collaboration are going to include Revlimid or Pomalyst in relapsed and refractory multiple myeloma patients. But the bad news for Celgene is potentially twofold.
First, if one of these combinations involving Johnson & Johnson's and Genmab's Darzalex, Roche's atezolizumab, and one of Celgene's multiple myeloma therapies proves considerably more successful than what's currently on pharmacy shelves, then it could eat into Revlimid's share of disease treatment. If used as a trio treatment, Revlimid could be forced to share revenue with J&J and Roche.
The more worrisome possibility is an additional phase 1b clinical study being conducted by J&J and Roche exclusively examining the combination of Darzalex and atezolizumab. Obviously, it's far too early to speculate how well this combination would work in comparison to Revlimid-based therapies, but the early successes of atezolizumab could indeed raise a few concerns on the part of Celgene shareholders.
Furthermore, Darzalex was particularly effective in exacting a clinical response in third-line-and-up multiple myeloma patients, for which the drug is currently approved. Its late-stage study, which examined patients that had progressed on a median of five prior therapies, showed a response rate of 29%. While that may not sound like a lot, I'll remind you that these patients had progressed on a median of five prior therapies. This study was a clear indication of Darzalex's potential. Combine this potential with an immune-boosting drug like atezolizumab, and Celgene's Revlimid could be forced to face some stiff competition.
Studies are expected to begin enrolling patients later this year and may begin yielding results, based on my best guess, by the second-half of 2017.
Keep your eyes peeled
The important thing Celgene shareholders should keep in mind is that this news isn't worth panicking over, even if the prospect of new competition is on the horizon. Revlimid looks poised to maintain its multiple myeloma dominance (at least for now) as instances of the disease keep rising, and its pricing power continues to be strong. As one of the most trusted and prescribed cancer medications, Revlimid is expected to remain a cash flow king for Celgene.
What Celgene shareholders will instead want to do is keep a close eye on the development of clinical studies involving Darzalex and atezolizumab, paying specific attention to comparable safety profiles, response rates, and survival (if J&J's and Roche's clinical studies progress to that point). It'll be a good 12-to-18 months before we likely have any answers, so it's in investors' best interests to keep this on their radars but not to overreact.