Celgene: With Solid Guidance, 2013 Will be a Profitable Year for Investors

With a gain of more than 27% over the past year, Celgene (NASDAQ:CELG) serves as a solid example of the balance between stability and growth in the biotechnology sector. While Celgene’s days of torrid growth may be behind it, it’s now one of the world’s largest biotechnology companies, a status that affords Celgene a variety of benefits, ranging from a deep pipeline to a solid financial position. And the company’s newly released long-term guidance, plus a number of regulatory/development catalysts in the next twelve months, suggest that 2013 is likely to be a profitable year for Celgene investors. The company will hear from the FDA by February 10^th regarding Pomalyst’s approval for the treatment of multiple myeloma, and will release important survival data for Abraxane in pancreatic cancer at ASCO GU. Add in the opportunity for this large biopharma to deploy cash in the form of stock buybacks, and Celgene shareholders are set up for long-term, positive returns.

Celgene’s Guidance: Clear Skies Ahead

Ahead of JPMorgan’s annual biotechnology conference, Celgene released preliminary results for 2012 and provided guidance for 2013, as well as longer-term guidance for 2015 and 2017.

 Celgene 2012 Results & Forward Guidance

	2012	2013	2015	2017
GAAP EPS	$3.37-$3.39	$4.67-$5.79	N/A	N/A
Pro Forma EPS	$4.90	$5.50-$5.60	$8-$9	$13-$14
Revenue	$5.4 Billion	$6 Billion	$8-$9 Billion	$12 Billion
GAAP Operating Margin	32.8%	40.3%	N/A	N/A
Pro Forma Operating Margin	48.1%	49%	N/A	N/A

2012 revenues grew by around 14%, and EPS grew by over 29% compared to 2011, a testament to the impact of both Celgene’s share buybacks as well as operating margin expansion (2012 pro forma margins expanded by 3% in 2012). Celgene is poised for continued growth in both earnings and sales in the years ahead, with revenue growth set to average 19% between 2013 and 2017, driven by expanding sales of Abraxane, which are forecast to reach between $1.5-$2 billion by 2017. Perhaps more importantly, Celgene’s pro forma earnings per share are set to more than double within the next 5 years; EPS is forecast to rise by 175.51% by the end of 2017 from 2012 levels, as Celgene not only grows revenue, but expands margins as well, due to the growth of Abraxane, which posted revenues of $106 million in Q3 2012 (more on Abraxane’s growth a bit later). Assuming that Celgene’s current multiple of around 23x earnings holds until 2017, and based on the midpoint of its 2017 EPS guidance, Celgene would trade at $310.50, implying a gain of over 268% from current levels over the next 5 years (2013-2017). Celgene has a solid track record of execution, and it has chosen to reaffirm its 2013 targets ahead of JPMorgan’s annual healthcare conference, and I expect that as the company nears 2014, it will also reaffirm its longer-term guidance.

2013: The Year of the Pipeline

Alongside its newly updated earnings and revenue guidance, Celgene also released Phase III data for Apremilast, the company’s experimental psoriasis drug. Celgene’s Phase III ESTEEM trials of 1,250 patients showed statistically significant improvements in psoriasis symptoms versus placebos, no new safety concerns were reported relative to Phase II trials, and safety and efficacy were consistent with Phase III data reported for Celgene’s psoriatic arthritis trials. The company expects to present full data from the ETEEM trials at upcoming medical conferences and plans to file for FDA approval during the first quarter of 2013, and in Europe during the second half of 2013.

In addition, 2013 should see another crucial FDA approval filing from Celgene, that of Abraxane for the treatment of pancreatic cancer, which is one of the most difficult cancers to treat, with just 5.5% of patients living 5 years or longer after being diagnosed. Phase III data from Celgene’s trial of Abraxane in pancreatic cancer showed statistically significant improvements in survival, with full data to be presented at ASCO’s 2013 Gastrointestinal Cancer Symposium later this month. Analysts estimate that Abraxane sales for the treatment of pancreatic cancer alone could reach $500 million (there are sales estimates of $1 billion if survival data is outstanding) Celgene has stated that it expects to file for FDA approval of Abraxane in pancreatic cancer this year, both here in the United States and in Europe, although timing is not yet certain.

Celgene is also set to hear from the FDA and EMA regarding approval of a third major drug, Pomalyst, for the treatment of multiple myeloma (the PDUFA date is February 10). In Phase III trials, Pomalyst (when paired with a low dose of dexamethasone) showed statistically significant improvements in survival, with median survival rising to 3.6 months versus 1.8 months for patients treated with dexamethasone (the Phase III trial of Pomalyst targeted patients that have failed to respond to bortezomib and/or lenalidomide). The response rate was 21% versus 3% for the dexamethasone control arm. The company is set to receive a decision from the FDA regarding the use of Revlimid in treating relapsed/refractory mantle cell myeloma, and will receive decisions from China and other emerging markets regarding the use of Revlimid in the treatment of relapsed/refractory multiple myeloma.

2013 will also be an important year for the company’s early-stage clinical programs. Celgene expects to release Phase Ib data for CC-292 (also known as AVL-292), which Celgene gained control of as a result of its takeover of Avila Therapeutics. CC-292 is a highly selective Bruton’s tyrosine kinase (Btk) inhibitor, which hold promise in for several hematological indications, including non-Hodgkin’s lymphoma and B-cell chronic lymphocytic leukemia, as well as rheumatoid arthritis. Celgene is also set to report Phase I data for CC-11050, which is currently being tested for the treatment of cutaneous lupus. Celgene has 61 different clinical trials underway, giving the company one of the largest and most diverse pipelines in the entire healthcare sector.

Financial Overview & Conclusions: Can Celgene Do More With its Capital?

Celgene’s growing profits and sales are translating into a growing cash pile, which Celgene has been deploying on both acquisitions and buybacks. Based on the company’s latest balance sheet data (Celgene did not release an updated balance sheet alongside preliminary guidance), the company currently has $3.832936 billion in cash & investments, and debt of 43.094208 billion, leaving Celgene with over $700 million in net cash & investments. And while Celgene has deployed over $1.8 billion in capital during the first 9 months of 2012 (primarily on share buybacks), the company can do more. Its debt matures at a very manageable pace, and given the growth that Celgene has seen in 2012, and 2013 anticipated growth, Celgene should take a more aggressive stance with regards to capital deployment. Below is a breakdown of Celgene’s debt maturities (years that are skipped imply that there is no debt maturing that year).

Celgene Debt Maturities

With less than $1 billion in debt maturing by the end of 2017, and earnings per share set to more than double by the end of that year, Celgene has room to be much more aggressive in deploying capital, either on new acquisitions to expand an already diverse pipeline, or more buybacks to boost EPS even further.

2013 should be a profitable year for Celgene investors. The company’s margins are expanding, it’s making progress on a variety of clinical trial programs, and a wide variety of new drugs are under review by regulators. The company’s solid financial position gives it ample room to deploy capital more aggressively, and with earnings set to more than double by the end of 2017, Celgene’s current share price does not reflect the company’s long-term potential.

PropThink covered Abraxane’s initial Ph. III pancreatic data release and did some analysis of overall survival statistics ahead of ASCO GU. That can be seen here.