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From The Survey: Celgene Corporation
Celgene Corporation (CELG), is a large biotech company and a leader in the oncology drug market that has had an outstanding run. It was spun off from Celanese Corp. (CE) in 1986, and entered the Value Line Investment Survey in early 2001. Though the company started as a small player in the biotech field, its growth has been notable thanks to the development of new drugs and timely acquisitions. It has since grown from a market cap of $2 billion, into a $65 billion stock market behemoth and a notable player in the industry, earning it a spot in the S&P 500 Index. And, revenues have grown to 48 times their 2001 level. The company no longer relies as heavily on its Ritalin licensing agreement, and sales from its previous blockbuster, Thalomid, but has new products, which should lead it higher on the proper scale.
This company started its meteoric rise from a low base. Early revenues came from a licensing agreement deal for its intellectual property on Focalin, the active ingredient in Ritalin, with Novartis (NVS), allowing the former to further research and develop of new products. Indeed, a high portion of the top line went to that initiative in the early days, topping 65% of revenues in some years. The licensing strategy allowed Celgene to establish new drugs with higher sales potential.
The first significant blockbuster was Thalomid, which is used in multiple myeloma treatments and in leprosy management. Sales of this drug reached high levels at the firm, and continue to be decent, though its importance is declining. This product’s sales are thought to be cannibalized by Celgene’s newest high end drug, Revlimid.
Revlimid is now the company’s major product, and sales continue to exhibit high growth levels. The growth can be attributed to its further acceptance in new markets and its high efficacies on multiple indications. It has grown into a market leader in multiple myeloma treatments and is expected to reach $4 billion in annual sales in 2013. The fate of the company is most closely tied to this drug, which will likely mean continued strength.
Acquisitions have played an important role in Celgene’s growth strategy as many of its secondary drugs have been brought on board through purchases. In 2009, the company bought Pharmion Corporation for $2.9 billlion, giving it the rights to Vidaza. This diversified the revenue streams, while enhancing the company’s oncology and hematology leadership position. In January of 2010, the company purchased Gloucester Pharmaceuticals for $340 million, which provided it with Istodax, a drug that is used for non-Hodgkin’s T-Cell lymphomas. Too, it purchased Abraxis BioScience for $2.9 billion, which advanced the oncology portfolio even further. These moves have helped shape the company as a leader in oncology treatments.
The pipeline remains solid. Pomalyst has recently entered the U.S. market and was recently approved by the European Medicines Agency. It is currently being marketed under the name IMNOVID in the European Union. Apremalist will look to make its market debut in 2014 after it is reviewed by regulatory agencies, though any process could take some time for approval. Too, the company has several drugs in development with many compounds currently in testing.
Celgene benefits from a diversified product mix and clientele. Only one customer eclipses 10% of sales and the company benefits from a strong fiscal position as well. Though the company does not pay a dividend, it continues to feature an ambitious share-repurchase program, having decreased the total share count by near 60 million in the past three years. The board recently announced a $3 billion, share-repurchase plan expansion, which should further the decrease in the total share count. Ultimately, these buybacks are positive for the bottom line, and continue to aid the strong share price growth.
Competition in the biotechnical space is quite intense, however. Many other biotech firms have strengths in research, and strong financial positions. Companies such as AbbVie Inc. (ABBV), Amgen Inc. (AMGN), AstraZeneca (AZN), Biogen Idec Inc. (BIIB), Bristol-Myers Squibb Company (BMY), Eisai Co. (ESALY), Johnson & Johnson (JNJ – Free J&J Stock Report), Merck & Co. Inc. (MRK – Free Merck Stock Report), Novartis, Pfizer Inc. (PFE – Free Pfizer Stock Report), Sanofi (SNY), and Takeda (TKPYY) all compete in the oncology and inflammation markets spaces. Too, they could develop drugs that would hurt Celgene’s bottom line, should their treatments prove more effective. Also, the company has to worry about generic competition. Management expects that a Vidaza generic will increase competitive forces in the United States, and should be ready within a year.
Still, the company is in great shape and should continue to grow for some time. The balance sheet is strong and management appears ready for the longer term. Finally, acquisitions have provided powerful new drugs and therapies, and higher revenues. The combination of these positive fundamentals should provide for good profit growth going forward.
At the time of this article’s writing, the author had positions in: PFE, MRK, JNJ