Image Source: Getty Images
Would you buy a house without inspecting its foundation? No way, and for exactly the same reason, don’t ever buy a biotech stock without inspecting its pipeline. A strong pipeline holds the biotech’s valuation up long-term…just as a foundation holds up a house. Which is exactly why -- given its pipeline -- Celgene Corporation (CELG) current 12% discount from its price a year ago could be a chance to get in on one of the best bets in healthcare.
Celgene’s titanically-sized pipeline has over 50 potential product approvals in over 100 indications pending by 2025. That kind of potential lays the groundwork for continued double-digit growth far into the future. This company’s target is 23% CAGR in earnings per share through 2020, and as the visual shows, Celgene expects its pipeline candidates to keep that earnings growth trajectory going for another decade.
Image source: Celgene presentation
Let’s zero in on five next-generational treatments that could make Celgene cheap at its current price.
Reason 1: Ozanimod
Drum roll, please, for the superstar in Celgene’s pipeline: Ozanimod. The experimental med came from Celgene’s $7.2 billion buyout of Receptos Inc. (NASDAQ: RCPT) and is showing huge promise in late stage trials in the multiple sclerosis (MS) market. Data from its Radiance trial in mid-September looked highly promising, and this med could well see peak annual sales of $4 billion and take on on dominate player Biogen (BIIB -1.57%) in the huge MS market.
Investors should see additional stock-catalysing data in early 2017 with a data release on Ozamod’s Phase III head-to-head trial against Biogen’s multi-billion dollar drug Avonex. Celgene is also in late-stage trials with this drug in ulcerative colitis and Crohn’s disease. If they are successful enough to win FDA approval, notch this drug’s peak annual haul up to $6 billion.
Reason 2: CAR-T therapies
At the heart of Celgene’s $1 billion partnership with Juno Therapeutics (JUNO) are novel treatments that could potentially transform the $100 billion oncology drug market. Celgene as a 10% stake in Juno, as well as rights to sell its Chimeric Antigen Receptor Technology (CAR-T) technologies, which have seen success against some of the most deadly cancers.
While $1 billion is the largest up-front sum for a biotech licensing deal ever—Juno’s most advanced program, JCAR015, is tantalizingly close to an FDA filing. The potential that Wall Street could be missing, however, is that Juno-Celgene follow-on CAR-T programs are even stronger. Last month, experimental therapy JCAR014 showed an stunning 82% overall response rate in advanced lymphoma patients. A somewhat similar therapy (JCAR017) is being tested in blood cancers and is likely headed for $2 billion in annual sales. Both treatments could become front-line therapies for non-Hodkin’s lymphoma and lymphoblastic leukemia, giving Celgene room to harvest big gains for many years to come.
Reason 3: Next-generation CELMods
Celgene recently released very promising early clinical trial results from its next-generation CELMods -- CC-122 and CC-220. In addition, a surprise announcement Celgene made in their Q2 earnings presentation indicated it will start a pivotal lymphoma trial this year with CC-122. That’s a speeding up of the timeline for these drugs, and Celgene has also said it now expects application beyond core targets of cancer and inflammatory diseases. In other words, these drugs’ future could be much, much bigger than the market expects.
While early stage drugs don’t have much of an impact on share price, investors need to pay attention because they help determine a company’s growth in the next decade. The good news is that Celgene’s early stage pipeline has never been more powerful. The company doubled its Investigational New Drug (IND) applications, projecting that 8 – 10 experimental meds will make the jump from lab to clinical trials annually for at least the next four years. Having so many therapies beginning the pathway to becoming new revenue-drivers indicates a further ramp up in Celgene’s growth could be coming.
Image source: Celgene presentation
Reason 4: Near-term myeloid disease drugs
Celgene’s collaboration with Agios Pharmaceuticals (AGIO 2.22%) yielded a potent IDH-mutation targeting oral drug for hematologic malignancies—AG-221. The drug showed 37% response in patients with relapsed acute myeloid leukemia, while 18% of patients showed complete remission. With those kind of results, AG-221 could become the standard-of-care for this indication and potentially reach $1 billion in annual sales. In a recent presentation, Celgene said it plans to file AG-221 for approval in the U.S. by the end of this year.
Reason 5, 6, & 7, Demcizumab, mongersen, and AVL-292
This is no means an exhaustive list. I’ve left out some promising investigational meds because they are getting so much press elsewhere. But I’ll end with a great trio, starting with monoclonal antibody demcizuma. The drug comes from Celgene’s partnership with OncoMed Pharmaceuticals (OMED) and has shown potential as a first-line treatment for non-small cell lung cancer and pancreatic cancer.
Number seven is GED-0301 (mongersen), which could become the preferred therapy in Crohn’s disease based on terrific data it released a few weeks ago. As a pill, mongersen could well steal sales from Humira, the AbbVie (ABBV -0.57%) megablockbuster. The seventh (AVL-292) drug could also threaten AbbVie. Celgene acquired AVL-292 when it nabbed Avila Pharmaceuticals, and it has potentialto go up against AbbVie’s blood cancer blockbuster Imbruvica and snag its market share in lymphoma, leukemia, and macroglobulinemia.
Cracks in the foundation?
Are there risks in Celgene’s pipeline? Yes—investigational drugs all run the risk of faltering in clinical trials, or failing to make it through the FDA gauntlet. But individual failures are to be expected. Unless they exceed a reasonable number, they won’t cause long-term damage. In fact, when you take this pipeline’s total sales potential into account, Celgene’s overall foundation looks strong enough to withstand most any storm.
