Celgene: Value in Cancer Treatments

07/18/2017 2:51 am EST

Focus: HEALTHCARE

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Biopharmaceutical firm Celgene Corp. (CELG) focuses on various cancers including multiple myeloma and myelodysplastic syndromes, chronic lymphocyte leukemia and non-Hodgkin’s lymphoma, and ovarian, pancreatic and prostate cancers, notes Roy Ward, editor of Cabot Benjamin Graham Value Investor.

Revlimid, Celgene’s leading drug, comprises 62% of the company’s total sales, but new drugs are providing considerable diversification. Revlimid is an oral cancer drug used to treat multiple myeloma.

The drug works against cancer cells partly by impacting the functioning of the immune system. Revlimid sales should continue to rise, bolstered by expanded uses and market share gains. Celgene has patent protection for Revlimid through the end of 2026.

Revlimid lists for more than $100,000 per year for patients and could be scrutinized further by Federal authorities, but President Trump has avoided going after companies producing high-priced drugs. The company has raised the price of Revlimid by an average of 8% a year since 2010.

Celgene has developed 35 partnerships with small biotech companies developing next-generation cancer drugs.

In addition, Celgene continues to purchase small development companies with promising research activities.

Celgene entered into an agreement to collaborate with BeiGene Ltd. (BGNE) of Beijing, China. The collaboration is two-fold.

1) With worldwide rights to BeiGene’s PD-1 inhibitor, Celgene will accelerate its immuno-oncology strategy in solid tumors. The agreement maximizes potential for PD-1-based immuno-oncology and for Celgene’s innovative pipeline assets and global oncology expertise.

2) BeiGene will acquire Celgene’s commercial operations in China and exclusive license to Celgene’s China cancer commercial portfolio, including Abraxane, Revlimid, and Vidaza.

BeiGene will receive $263 million in upfront license fees and $150 million equity investment. The deal is scheduled to close before the end of September 2017 and could become notably successful for both companies.

Sales will likely double between now and 2020, based on the company’s robust drug pipeline. Celgene recorded solid sales and earnings results for the quarter ended March 31. Sales climbed 18% and EPS soared 27%.

Celgene’s main drugs for multiple myeloma, Pomalyst and Imnovid, grew 33%. Cancer drugs Revlimid and Abraxane grew 20% and 5%, respectively.

Otezla, a drug for psoriasis and psoriatic arthritis, failed to meet analysts’ forecasts. Management predicted the positive momentum will continue during the remainder of 2017 and raised its earnings forecast a tad.

Celgene is among the fastest growing companies in the biotech sector. The company does not pay a dividend, but the balance sheet is strong with $9.0 billion in cash and manageable debt.

I expect the stock price to climb 31% to reach my minimum sell price of $173.41 within one to two years. Buy at $127.75 or below.

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