Vailshire’s Hedge fund manager, Jeff Ross, MD, recently published an article on SeekingAlpha.com:
Summary
- CELG is the top large cap biotech stock pick for Vailshire.com.
- REVLIMID sales have incredible momentum and sales are actually accelerating in the U.S. and internationally.
- CELMoDs may provide life beyond REVLIMID’s loss of patent protection in the 2020s.
It is no secret that Celgene (NASDAQ:CELG) is thriving while improving the lives of patients with cancer and autoimmune diseases in the United States and around the world.
Celgene’s recent outstanding performance has primarily been on the back of its workhorse, REVLIMID (lenalidomide), used for treating newly diagnosed and relapsed/refractory multiple myeloma – a deadly cancer of plasma cells – and lymphoma.
For the recently reported (October 27, 2016) third quarter, REVLIMID revenues were up 30% year over year (yoy) to almost $1.9 billion. U.S. REVLIMID sales were nearly $1.2 billion (up 29%) and international sales were $738 million (up 32%). These are impressive figures.
What’s more, during the recent quarterly earnings conference call, Celgene’s management said they feel that sales are at an “inflection point,” meaning that not only is this fantastic growth sustainable, but it should accelerate in the coming quarters and years.
Other 3rd quarter highlights included POMALYST/IMNOVID (pomalidomide) sales of $341 million (a 33% yoy increase) and OTEZLA (apremilast) sales of $275 million (up 98% yoy).
As a company, net product sales rose to nearly $3.0 billion in Q3, up 28% yoy. Net income, based on U.S. GAAP measures, was $171 million, or $0.21 per diluted share. Meanwhile, adjusted net income (a non-GAAP measure) was nearly $1.3 billion, or $1.58 per diluted share – increased from $1.0 billion and $1.23 per diluted share in Q3 2015.
Guidance for 2017 was equally encouraging
CELG expects total net product sales to be “at the high end of the range of $12.7 billion to $13.0 billion.” REVLIMID sales should exceed $8.0 billion in 2017 and adjusted diluted EPS is “expected to be at the high end of the range of $6.75 to $7.00.”
Clearly, Celgene is currently firing on all cylinders, which makes it a short-to-mid term (1 to 5 years) strong buy by Vailshire.com standards.
But… (and here’s the but)… what about life after REVLIMID? How can CELG expect to remain best in class in the treatment of blood cancers after REVLIMID’s patents expire in the early- and mid-2020s? This is where Celgene’s covert ops enter.
Celgene 2.0 – Life after REVLIMID: CELMoDs for the 2020s
Akin to Bigfoot or the Loch Ness Monster, CELMoDs (Cereblon E3 Ligase Modulation Drugs) are suspected by many to exist, but have been seen by few.
Lesser still actually know or understand what CELMoDs are or why they are important.
While there is very little written about CELMoDs in the literature, there are two very nice, thoroughly-written pieces by Seeking Alpha’s own DoctoRx. I recommend that you take the time to read and understand his work on Celgene and CELMoDs here and here.
Being more simple-minded than DoctoRx, I want to attempt to whittle the complexity and mysteriousness of CELMoDs down to two simple questions for the common investors among us:
- What do CELMoDs have to do with REVLIMID and POMALYST/IMNOVID?
- Why do CELMoDs matter to long-term Celgene investors?
Let’s take these questions one at a time:
What do CELMoDs have to do with REVLIMID and POMALYST/IMNOVID?
Image source: ResearchOncology.com (here).
For the non-science-minded, this can be a confusing cartoon to look at. So here is what I think you should take away from it.
Cereblon (“CRBN” in the upper left portion of the image) is a protein that is found in many cells in our body. Fortuitously, it is found in highest levels within T cells, B cells and other (similar) cells within our immune systems.
REVLIMID (lenalidomide) and POMALYST (pomalidomide) bind to cereblon in immune cells and cause a cascade of effects that lead to stimulation of T cells and Natural Killer cells – a.k.a. “the good guys” – and subsequent death of malignant B cells – a.k.a. “the bad guys.”
Here’s another cool image of the proposed mechanism of action:
Image source: ResearchOncology.com (here).
CELMoDs are developed in-house by Celgene and – though slightly structurally different than lenalidomide and pomalidomide – also target the cereblon protein found within many immune cells.
Celgene is diligently studying these molecules in hopes that they will produce similar (or better) anti-cancer effects than their predecessors. They also may be beneficial in the treatment of autoimmune diseases, such as systemic lupus erythematosus. For example, agent CC-220, a CELMoD, is currently in Phase 2 trials for the treatment of lupus.
In a nutshell, CELMoDs are Celgene’s proprietary molecules that are structurally similar to lenalidomide and pomalidomide and demonstrate similar intracellular (i.e., inside the cell) effects.
Keep these things in mind as we move on to our second question.
2. Why do CELMoDs matter to long-term Celgene investors?
As you now know, CELMoDs have similar mechanisms of action to Celgene’s current blockbuster drugs. While REVLIMID will likely remain a superstar for CELG into the early 2020s, at some point, its patents will expire. When this happens, a flood of competitors will jump into the blood cancer treatment space with their alternatives, which will drive down the volume, price and margins of REVLIMID and POMALYST/IMNOVID.
When this occurs, Celgene is hoping to be ready with a new arsenal of in-house, patent-protected CELMoDs that act in similar (or better) fashion to their current line of compounds. Doing so will allow CELG to maintain or increase market share in blood cancer and autoimmune therapies.
While nothing is guaranteed, I would wager that Celgene’s exceptional management team, scientists and support staff will remain at the forefront of immuno-oncology and autoimmune diseases for the next 5, 10 and 15 years.
And this is why I expect Celgene to remain a top tier biotech stock holding for the next 10-15 years.
In conclusion
Even after the recent run up in CELG’s price since the U.S. presidential election, I see much, much more room to run over the ensuing years. Therefore, I rate CELG as a strong buy at current levels for the long-term investor.
The CELMoD story is at its early stages, and Celgene investors should benefit significantly as this “covert ops” story plays out. Invest accordingly.
Disclosure: I am/we are long CELG.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.