Celgene (NASDAQ: CELG) had a horrible, rotten, no-good, lousy year in 2017. At least that's how some people look at it.
In reality, the big biotech saw net product sales grow 16% year over year and adjusted diluted earnings per share jump 25% higher. But Celgene's share price did wind up down nearly 10% in 2017, when it had been up more than 25% at one point. That made for a very disappointing year for investors.
Continue Reading Below
What does the future hold for Celgene? The company's CFO, Peter Kellogg, and Corporate Vice President of Investor Relations Patrick Flannigan spoke and fielded questions at the Leerink healthcare conference on Thursday. Here are five things you need to know about what they said concerning Celgene's future.
1. Good results from Q4 should continue into 2018
Celgene missed Wall Street revenue estimates in the third quarter, cut its guidance for full-year 2017, and lowered its outlook through 2020. That triple-whammy caused the stock to crumble toward the end of last year. However, the biotech came back in Q4 with great results. Peter Kellogg said at the Leerink conference that the momentum from the fourth quarter should continue into 2018.
It's important to remember why Celgene stumbled in the third quarter. Sales for psoriasis and psoriatic arthritis drug Otezla were lower than expected. There were two primary factors behind the shortfall. First, growth in the U.S. psoriasis market slowed down. Second, Celgene felt the impact of gross-to-net adjustments from managed care contracts implemented earlier in the year.
But both of those issues appear to be largely in the past. Kellogg said that Otezla could enjoy better patient access now that contracts with payers representing roughly 80% of patients have been finalized, especially since patients won't have "step edits" that require patients to take biologics first before progressing to Otezla.
2. No need to worry about Revlimid
You might wonder how Celgene stock can trade for less than 9.4 times expected earnings. The answer, at least in part, is that many investors are worried about the biotech's prospects after Revlimid loses exclusivity. Revlimid was the second best-selling drug in the world last year, and it still generates 63% of Celgene's total revenue.
Several generic-drug companies are challenging Revlimid's patents. If one or more of these companies succeed in their challenges, Celgene will be in trouble. Kellogg, however, noted that Celgene has already settled with one company, Natco Pharma. The deal allows Natco to market a generic version of Revlimid in the U.S. at limited volumes beginning in March 2022, with no volume restrictions after Jan. 31, 2026.
Kellogg acknowledged that investors would probably love to see Celgene settle with other parties like it has already done with Natco. He said, though, that it was "a lengthy process" to come to terms with Natco. Other challengers will need to "see the strength" of Celgene's intellectual property before further settlements are likely. Kellogg didn't appear to be concerned about Revlimid losing exclusivity earlier than 2022, though, probably because the biotech expects other generic-drug makers to eventually agree to terms similar to the Natco deal.
3. High revenue growth and margins won't go away
Celgene projects annual revenue growth between 14% and 15% through 2020. The company reported an operating margin of 58% in 2017. Can Celgene continue to achieve that kind of revenue growth and operating margins into the next decade? Kellogg thinks it can.
He noted that the acquisition of Juno Therapeutics (NASDAQ: JUNO), expected to close in March, would drag down operating margin a little. And the higher costs associated with more complex products on the way, including cell therapies and biologics, could negatively affect margins as well. Still, Kellogg didn't think "dramatic" changes in margins would be in store.
As for revenue growth, Celgene expects to launch 10 new potential blockbusters over the next five years. These drugs could create combined peak annual sales topping $16 billion. To put that into perspective, Celgene's total revenue in 2017 was only $13 billion. And some of those candidates, notably ozanimod and bb2121, could be bigger winners than Celgene's forecast projects.
4. Several early-stage candidates have huge potential
What about Celgene's future beyond the drugs expected to launch over the next five years? Kellogg said the company is advancing eight new programs into early-stage clinical studies. He specifically highlighted three of those programs.
Next-generation CEL-MoD (cereblon modulator) CC-92480 is moving into a phase 1 study targeting multiple myeloma. Kellogg stated that it's "an asset you're going to hear a lot about going forward." CC-93269, which is also advancing to a phase 1 study for treatment of multiple myeloma, is another early-stage candidate that he said had high potential. Kellogg also liked the prospects for CC-90010, a BET inhibitor that's being evaluated in a phase 1 study for treating solid tumors.
5. More acquisitions to come
Celgene has announced two acquisitions already this year: Impact Biosciences and Juno. When asked if the company was going to take a breather from mergers and acquisitions (M&A) activity, Kellogg replied, "it's not in our DNA."
What kinds of deals could Celgene make? Kellogg said the biotech will continue to look at outright acquisitions of companies and assets as well as licensing deals. He said Celgene would like to get late-stage assets, although they're sometimes expensive. However, Kellogg added that if the assets are "in areas of science we think are important and have potential, we're happy to do an M&A deal."
You could dismiss everything Celgene's executives said about the company's future as just spin. I think that would be misguided, though.
In my view, Celgene is in a great position for the future. I think fears about losing exclusivity for Revlimid are overblown, and I like the prospects for the biotech's pipeline candidates. Celgene's plunge in late 2017 was overdone, in my opinion, making this biotech stock one of the best buys on the market right now.
10 stocks we like better than CelgeneWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Celgene wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 5, 2018