4 Questions to Ask Ahead of Celgene's Q3 Report

By Sean WilliamsFool.com

Image source: U.S. Food and Drug Administration.

Biotech juggernaut Celgene has been a savior for investors over the past five years, returning around 300% and lending plenty of hope that it has ample room to run even higher.

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Of course, the road to a higher valuation often begins with a healthy foundation. This foundation is laid out by Celgene's quarterly earnings reports, which give us a glimpse of how the company performed over the three-month period in the prior quarter. Celgene is expected to report is Q3 results on Thursday, Nov. 5, 2015.

Based on Wall Street's estimates, Celgene is projected to generate $2.4 billion in sales, up from the roughly $2 billion generated in the year-ago period, while its EPS is forecast to jump to $1.21 from $0.97 in the prior-year quarter. With the lone exception of Q4 2013, Celgene has topped the Street's profit expectations in each of the past 12 quarters.

Questions to ask ahead of Celgene's Q3 report Although Celgene's sales and profits are important, and it's likely to be what Wall Street initially hones in on, I believe you'll find considerably more value looking beyond the numbers to understand how Celgene achieved them in the first place. Thus, instead of getting too wrapped up in Celgene's headline numbers, I'd suggest asking these questions ahead of Celgene's third-quarter earnings report and seeing how the company responds via its report and conference call.

Image source: Amgen.

1. Is Revlimid standing its ground against Kyprolis? Perhaps the question on the minds of all Celgene investors is exactly how multiple myeloma blockbuster drug Revlimid is performing in comparison to Amgen's Kyprolis, which as a reminder had its supplemental new drug application approved in July for the treatment of second-line multiple myeloma. Previously, Kyprolis was only used in a third-line or later setting.

In Celgene's prior conference call, the company had mentioned that Revlimid was holding its own against Kyprolis in the second-line setting, although investors and Celgene's management team had less than two weeks of sales data to work with. After a full quarter of sales, we should have a better idea of whether or not the second-line indication has opened up enough to allow both therapies to grow meaningfully, or if Revlimid could be ceding market share to Kyprolis. If Revlimid's share remains fairly constant, I'd consider it a big win for Celgene and its shareholders.

2. Any new update on acquisition strategy and new acquisition incorporation? One of the biggest selling points of Celgene has been its ability to grow organically. Celgene has eight ongoing expansion trials for Revlimid, around a half-dozen for anti-inflammatory Otezla, and an important label expansion trial for cancer drug Abraxane.

Image source: Flickr user thetaxhaven.

However, expanding via acquisition has been a tool that Celgene's turned to from time to time. Buying Abraxis BioScience in 2010 worked out like a charm, as Abraxane has paid dividends many times over. The big question now is after its $7.2 billion purchase of Receptos to get its hands on multiple sclerosis drug hopeful ozanimod, what's next?

In June, Celgene announced a $4 billion share-repurchase program, and it's put the potential for dividends on the back burner, so investors should be curious to see what, if any, acquisition plans might be in Celgene's intermediate future.

Additionally, it would be nice to get an update from Celgene on how well the integration of Receptos is moving along. Between the buyout and numerous collaborations undertaken over the past two years, Celgene has spent an awful lot of its free cash on future growth prospects. Shareholders should expect an update on when Receptos and other important collaborative efforts are expected to begin paying dividends and helping Celgene's bottom line.

Image source: Celgene.

3. Is Otezla gaining market share? Aside from growing its top and bottom line, it's important for Celgene to work toward a more diversified portfolio that isn't so heavily reliant on Revlimid (Revlimid accounted for nearly two-thirds of Celgene's revenue in Q2 2015). Despite Revlimid's insanely strong double-digit percentage growth year in and year out, eventually its patents are going to expire (albeit still a long way off). This means Celgene needs to be prepared with a bounty of additional therapies ready to take its place.

One of those "replacements" can be found in anti-inflammatory drug Otezla, which was first approved last year. Celgene anticipates that Otezla can crank out $1.5 billion to $2 billion in sales by 2017, which is a fairly aggressive target for roughly three years on the market. What investors will want to pay close attention to is whether Otezla is gaining market share in its two approved indications -- psoriatic arthritis and plaque psoriasis -- or if price increases are handling the bulk of its growth. Preferably, we'd like to see the former, as demand-driven growth is much more sustainable, and it would entail that Otezla has a decent shot of hitting $1.5 billion in annual sales by 2017.

Image source: U.S. Food and Drug Administration.

4. What's the next big thing in Celgene's pipeline? Celgene's management team tends to be a pretty open book, and it'll also be incredibly important to discover what's up next in its pipeline.

Obviously, ozanimod is showing a lot of promise and could easily become a blockbuster drug if approved. However, we've also been seeing promising data from AG-221, an advanced leukemia drug that's demonstrated strong remission rates in clinical studies. AG-221 is a collaborative effort on the part of Celgene and Agios Pharmaceuticals, and the 40% overall response rate for this IDH2-mutant inhibitor in various blood cancers, including acute myeloid leukemia, could very well translate into a new standard of care.

Celgene will probably highlight a number of promising compounds in its earnings report and conference call, but its management team won't be shy about tipping its cap toward the one to three most promising compounds. Pay close attention to these catalysts and add them to your radar.

What's an investor to do?With Celgene slated to report its results in the coming days, you might be a bit skittish as to what to do with your investment. I'm here to say the smartest thing you can do is more than likely nothing.

Although Celgene's earnings report could cause some temporary volatility in its stock, the important focus is whether or not Celgene's long-term growth outlook is still intact. As long as your investing thesis is still intact (and I frankly see little chance that it will change before Nov. 5), there's probably no reason for you to consider selling your position at this time.

In the meantime, sit back, relax, and circle your calendars, because Celgene's important day is quickly approaching.

The article 4 Questions to Ask Ahead of Celgene's Q3 Report originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of and recommends Celgene. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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