FundamentalsWritten by Ophir Gottlieb, 12-23-2015
Celgene may simply be the most compelling biotech company in the world and a patent ruling it just received has pushed the stock up 10% overnight adding fully $10B to its market cap.
Celgene's largest drug is Revlimid and while it has been one of the greatest successes ever in biotechnology, it faced a patent lawsuit and decision that hung over the stock. News came out yesterday that an agreement had been reached where Celgene would allow for generic brands to sell starting in 2026.
While that's a full year before the patent expires, we now can now rest assured that Revlimid will have more than another decade to grow and sell without competition.
For those that like to read children's books, borrowing from Roald Dahl, [Celgene is] "The Champion of the World."
Before we get into the details of what does exist, let's look at the incredible pipeline for Celgene relative to all of biotechnology in the United States. In the image below, we have plotted the number of Phase III trials on the y-axis and ranked the largest biotechs on the x-axis.
That's right, Celgene has more products in Phase III than any other biotech, save for AMGN, where it's tied.
Now we can do the same thing with Phase II trials.
There you have it. Celgene has the most Phase II trials and Phase II trials.
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In the last year, CELG has generated just over $8.7 billion in revenue. Here's a chart of Celgene's revenue (TTM) over the last sixteen years.
That mountain of revenue is not only at an all-time high, it has increased consecutively to new all-time highs every quarter for the last ten years. Even given that fantastical streak, revenue is still up 20% year-over-year and 42% over the last two-years. We're talking about absurdly large growth in a mega cap biotech.
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REVLIMID will account for $5.8 billion in sales this year, so we see why that patent agreement was so critical for the firm. Projections next year range around $6.5 billion, so solid growth for an enormous success. Growth is going to come from international markets.
The Motley Fool points out risk that still lingers which is that in total the United States might start adopt a "pay-for-performance" reimbursement option for drugs. That's a legitimate risk for all of biotech, but it's not likely something we will see in 2016, if ever.
But Celgene is not a one hit wonder. Its top five products are (1) Anemia and cancer treatment REVLIMID ($5.8B) (2) Breast, lung and pancreatic cancer treatment ABRAXANE (3) Myeloma drug POMALYST/IMNOVID (4) Bone marrow disorder myelodysplastic syndrome (MDS) drug VIDAZA and (5) Plaque psoriasis treatment OTEZLA.
Here is a chart of Celgene's R&D expense through time.
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SHAKING IT UP
OTEZLA, the last drug we listed in the top five has massive room to grow because of a unique advantage the treatment has. Specifically... the full research is available in CML Pro. This reality could push the drug to potential blockbuster status.
The drug hit nearly $140 million in sales the most recent quarter, which was more than 50% growth. Given it's unique advantage, there's every reason to believe that the growth will continue and OTEZLA has the potential to hit the "blockbuster" threshold of $1 billion in annual sales within a few years.
THE PARTENRSHIP OF A LIFETIME
Celgene and Juno (JUNO) have entered into a ten-year collaboration that could generate a revenue base growth of 50%. Juno Therapeutics is a radical, promising and in the very sense of the word, transformational biotech. It has no revenue, but a market cap that tops $4 billion, and here's why:
The firm is a clinical-stage company developing novel cellular immunotherapies. The company's stated goal is "to revolutionize medicine by re-engaging the body's immune system to treat cancer". And when the firm says "revolutionize," they aren't kidding. Check this out:
Here's how this company works, in English, from The Motley Fool:
"Juno's CAR-T therapeutics require the removal of a cancer patient's immune cells, selection and activation of the cells, and gene transfer to train the cells to attack the patient's tumor. At that point, the cells are grown in an incubator until there are enough to put back into the patient."
That's right, the firm creates personalized cells and then reinserts them into the patient so she can attack the cancer herself. That's an attempt at curing cancer with no side effects. Here's what a recent FBR analyst wrote:
"Investors' discussions focused on the company's products in development for leukemia, lymphoma, and solid tumors but also on the science behind the treatments with questions centering on manufacturing and cell persistence. The company's pipeline is deep with 10 candidates potentially in clinical trials  by early 2016."
Juno and Celgene could revolutionize medicine, and this is yet another potential blockbuster win for Celgene, but not at the $1 billion level, at the multi-billion level.
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The Receptos acquisition did add a wall of debt to Celgene, as we can see in the chart below.
But the careful analyst sees that this is a massive win for the company.
The focal point of the acquisition was a drug called "ozanimod" that presents possible usage for multiple sclerosis and irritable bowel disorders. Upon acquisition of RCPT, Celgene made a bold case that the drug could ultimately yield $4-$6 billion in annual sales (remember, Celgene's total sales in the trailing-twelve-months is $8.7 billion). Yes, the initial forecasts from Celgene was a potential 50% growth in revenue from the acquisition.
But, it gets more bullish if you believe Celgene's management. On the most recent earnings call Celgene stunned everyone when it said... try the full research in CML Pro . This reality reflects a non-trivial possibility that this drug could run as high as Celgene's current total revenue in several years.
With the patent case out of the way, the largest pipeline in the world, growth in it's best selling product, growth in a new product, the partnership of a lifetime with JUNO and the massive monetization capacity of its acquisition, Celgene is very quickly becoming "The Champion of the World," and we just explained why.
The top analysts, asset managers and hedge fund managers are keenly aware of the data that will move markets and if we're not using this data, then we're trading against people that simply have more information then we do (like Phase III and Phase II clinical trial data). This is how the top 1% continue to create wealth at the expense of the rest of us.
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Thanks for reading, friends.