January 28, 2015
Celgene Corporation
(CELG – NASDAQ)
$97.21
Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other section of this
report has been updated.
Reason for Report: Flash 4Q15 & 2015 Earnings
Prev. Ed.: Dec 29, 2015; 3Q15 Minor Changes in Estimates (brokers’ material considered till Dec 18)
Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the
Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying
spreadsheet models.
Flash Update
Celgene Misses on Earnings, Reiterates 2016 Guidance – Jan 28
Celgene reported 4Q15 earnings of $1.00 per share (including stock-based compensation expenses),
missing the Zacks Consensus Estimate of $1.02. The company had reported earnings of $0.85 per share in
the year-ago quarter.
Excluding stock-based compensation expenses, Celgene’s earnings surged 17% year over year to $1.18 per
share in the reported quarter.
Total revenue shot up 22.9% to $2.6 billion in 4Q15. Revenues were boosted by the impressive performance
of Revlimid. Revenues were slightly above the Zacks Consensus Estimate of $2.5 billion.
The company’s full-year earnings (including stock-based compensation expense) were $4.01 per share, up
26.4% year over year. Revenues came in at $9.3 billion, up 20.7%.
Quarter in Details
Net product sales climbed 23.6% year over year to $2.5 billion. Currency translation had a negative impact of
1% on net product sales.
Net sales of Revlimid, the key growth driver at Celgene, came in at $1.6 billion, reflecting an increase of 18%
over the year-ago period. The drug did well in both the U.S. (up 19.9%) and international markets (up
15.1%). Market share gains and increased duration of therapy drove sales in the reported quarter.
Net sales of another cancer drug, Abraxane, increased 14.5% year over year to $270 million. Sales of
oncology drug, Pomalyst, came in at $293.8 million, up 45.4%.
Newly approved Otezla reported sales of $183 million in 4Q15, up 31.7% sequentially, benefiting from
market share gains in the U.S. and increased contribution from early-launch countries in Europe.
All other product sales (inclusive of Vidaza, Thalomid, Istodax and an authorized generic version of Vidaza in
the U.S.) came in at $231 million in 4Q15, down 6.9%.
© Copyright 2015 Zacks Investment Research. All Rights Reserved
Research and development expenses (excluding stock-based compensation and other special items)
increased 35.8% to $649 million due to increased investment in the pipeline. Selling, general and
administrative (SG&A) expenses (excluding stock-based compensation and other special items) increased
11.2% to $533 million. Costs associated with the launch of Otezla and Revlimid label expansion pushed up
SG&A expenses.
Outlook for 2016
Celgene has reaffirmed its 2016 earnings guidance. The company anticipates adjusted earnings in the range
of $5.50 to $5.70 per share, up 19%.
Net product sales for 2016 are expected to be $10.5–$11 billon, up 17% year over year. Foreign exchange
translations are projected to impact revenues negatively by $120 million. Net sales of oncology drug,
Revlimid, the key growth driver at Celgene, are projected to be $6.6–$6.7 billion, reflecting a 15% increase.
For 1Q16, adjusted earnings are expected in the range of $1.27 to $1.30 per share.
Details, other news update and broker comments will be provided in the next edition.
Portfolio Manager Executive Summary
Celgene Corporation is a biopharmaceutical company engaged in the discovery, development and
commercialization of drugs and cell-based therapies in the areas of cancer and immune/inflammatory
diseases. The company’s key growth engine is Revlimid (lenalidomide). The product is approved in many
countries across the globe in combination with dexamethasone for treating multiple myeloma (MM) patients
who have received at least one prior therapy. Revlimid is also approved in the U.S. in the relapsed refractory
mantle cell lymphoma indication. Revlimid is also available in many countries for treating transfusiondependent anemia due to low or intermediate-1-risk myelodysplastic syndrome (MDS) associated with a
deletion 5q cytogenetic abnormality (with or without additional cytogenetic irregularities). Celgene is working
on expanding Revlimid’s label into other indications. The other marketed products include Vidaza, Abraxane,
Thalomid and Otezla.
Of the firms covering the stock, 87.50% (14 firms) were positive and 12.50% (2 firms) were neutral. None of
the firms were negative on the stock.
Positive outlook (14/16 firms): The bullish firms are impressed by the strong oncology portfolio of Celgene
and the company’s ability to deliver operating leverage. They are encouraged by the strong performance of
Revlimid in 3Q15. They believe that Revlimid along with Pomalyst and Otezla will drive growth at Celgene
going forward. The successful launch of Otezla has pleased the firms and boosted confidence in the product.
Many firms are encouraged by the potential label expansion opportunities for Revlimid. With multiple pipeline
events lined up, any positive news about the pipeline should further boost the stock.
Neutral outlook (2/16 firms): The neutral firms expect the stock to remain range-bound until more visibility
is obtained on the company’s pipeline development. Lower-than-expected Abraxane sales due to
competition are a concern as well. Meanwhile, several firms believe that settlement of the Revlimid-related
patent litigation removes a major overhang on Celgene’s shares.
Dec 11, 2015
Overview
New Jersey-based Celgene Corporation is a leading biopharmaceutical company focused on developing
drugs for cancer. The company’s key growth engine is Revlimid. Other marketed products include Vidaza,
Abraxane, Pomalyst and Thalomid. Otezla gained U.S. approval for the treatment of adult patients with
active psoriatic arthritis (Mar 2014) and for the treatment of patients with moderate-to-severe plaque
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psoriasis who are candidates for phototherapy or systemic therapy (Sep 2014). Moreover, the company
possesses a diversified pipeline. The company’s website address is www.celgene.com. The firms have
identified the following investment merits and demerits in the stock:
Key Positive Arguments
The strong oncology portfolio, led by Revlimid,
impresses the firms in the Zacks Digest group.
Moreover, the approvals of Pomalyst/ Imnovid and
Otezla have further boosted the oncology portfolio at
Celgene.
Celgene boasts an interesting and diversified pipeline.
With multiple pipeline events lined up, positive news
should further boost the stock.
Key Negative Arguments
The firms are concerned about generic competition
faced by some of its key products including Vidaza.
Pipeline setbacks like the one suffered in Jul 2014
when Celgene announced disappointing top-line
results from the phase III POSTURE study on Otezla
in the ankylosing spondylitis indication will hurt the
stock.
Note: The company’s financial year coincides with the calendar year.
Dec 11, 2015
Long-Term Growth
Most firms are positive on the long-term outlook of the company. The firms are impressed by the strong
financial position of Celgene. They expect the company’s oncology portfolio, consisting of Revlimid,
Pomalyst and Abraxane, to drive growth in the coming years. Many firms are encouraged by the label
expansion of Revlimid.
Celgene has been making prudent acquisitions and entering into deals to bolster its pipeline. In Oct 2014,
Celgene entered into a strategic collaboration and option deal with Sutro Biopharma, Inc. for the discovery
and development of multispecific antibodies and antibody drug conjugates (ADCs).
Celgene has a diversified pipeline, which on successful development, is expected to strengthen its top line
further. The U.S. approval of Otezla for the treatment of adult patients with active psoriatic arthritis (Mar
2014) and for the treatment of patients with moderate-to-severe plaque psoriasis who are candidates for
phototherapy or systemic therapy (Sep 2014) is a big positive for Celgene. The company has a series of
pipeline events lined up. Most firms believe that the company’s focus will predominantly be on pipeline
development going forward.
In May 2014, Celgene announced a series of organizational changes to expand its leadership team to
improve operational efficiencies. The changes have taken effect from Aug 1.
On Aug 27, 2015, Celgene announced that it has successfully acquired Receptos, Inc. for $232.00 per share
in cash.
Dec 11, 2015
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Target Price/Valuation
Rating Distribution
Positive
Neutral
Negative
Avg. Target Price
High
Low
No. of Analysts with Target
price/Total
87.50%↑
12.50%↓
0.0%
$148.62↓
$175.00
$75.00
13/16
Recent Events
Celgene Settles Revlimid Patent Litigation with Natco − Dec 22
Celgene Corporation announced that it has settled a litigation related to its blockbuster product, Revlimid,
with India-based Natco Pharma Ltd. and its U.S. partner, Arrow International Limited, and Arrow’s parent
company, Allergan plc.
As per the terms of the settlement agreement, Celgene will allow entry of generic Revlimid before the
expiration of the last-to-expire patent listed in the Orange Book in Apr 2027. Celgene has agreed to provide
Natco with a license to its patents required to manufacture and sell an unlimited quantity of its generic
version of Revlimid in the U.S. from Jan 31, 2026.
In addition, Natco will receive a volume-limited (mid-single-digit percentage of total Revlimid capsules
dispensed in the U.S. during the first full year of entry) license to sell its generic version of Revlimid in the
U.S. from Mar 2022. The volume limitation is expected to increase gradually each year till Mar 2025,
subject to a maximum of one-third of the total Revlimid capsules dispensed in the U.S. in the final year of
the volume-limited license under this agreement.
Revenue
Revenues in 3Q15 came in at $2.3 billion, reflecting an increase of 17.8% y/y. Strong sales of Revlimid,
boosted revenues in 3Q15. According to the Zacks Digest model, total revenue in 3Q15 was in line with the
company’s report.
2015 Outlook: Net product sales for 2015 are expected to be approximately $9–$9.5 billion, up 22.3% y/y.
2020 product sales outlook: The company projects net product sales to exceed $21 billion (previous
guidance: $20 billion) for 2020. The increased guidance reflects an estimated rise in inflammation &
immunology franchise sales. Hematology, Oncology and Inflammation & Immunology franchises are
expected to generate revenues exceeding $14.8 billion, $2.2 billion and $4 billion (previous guidance: $3
billion), respectively.
Revenue ($ in
million)
3Q14A
2014A
1Q15A
2Q15A
3Q15A
4Q15E
2015E
2016E
2017E
Digest Low
$1,982.2
$1,982.0
$7,670.7
$7,669.9
$2,080.8
$2,080.4
$2,277.8
$2,277.7
$2,334.1
$2,334.1
$2,577.4↓
$2,531.6↓
$9,269.7↓
$9,224.3↓
$11,398.1↓
$11,169.6↓
$13,596.9↓
$13,596.9↓
Digest Average
$1,982.2
$7,670.4
$2,080.8
$2,277.8
$2,334.1
$2,554.5↓
$9,247.0↓
$11,283.8↓
$13,596.9
Digest High
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Specific Products
Recent changes are in bold.
Revlimid (lenalidomide)
Indication: Revlimid is approved in the U.S. and many other countries (in combination with dexamethasone)
for treating patients suffering from multiple myeloma. The patients have been treated at least once before for
the disease. In Feb 2015, the FDA expanded the existing indication for Revlimid in combination with
dexamethasone to include patients newly diagnosed with multiple myeloma. The drug is also approved in the
U.S., Canada, Switzerland, Sweden and some other countries for treating transfusion-dependent anemia
patients due to low- or intermediate-1-risk myelodysplastic syndromes (MDS) associated with a deletion 5q
cytogenetic abnormality irrespective of the presence of additional cytogenetic abnormalities. The drug was
cleared in Europe for previously untreated multiple myeloma patients who are not eligible for transplant. The
drug is also approved for the MDS indication and relapsed refractory mantle cell lymphoma (MCL) indication.
Product Life Cycle Status: Marketed
Sales: As per the company, Revlimid’s net sales amounted to $1.5 billion in 3Q15, up 12% y/y driven by
market share gains, volume growth and longer duration of therapy. U.S. sales grew 17.8% y/y to $895.2
million. International sales increased 3.4% y/y to $558.3 million. Revenues were lower than the expectations
of some firms. The Zacks Digest average Revlimid sales in 3Q15 were in line with the company’s report.
2015 Outlook: Net sales of oncology drug, Revlimid, are now expected to be approximately $5.8 billion
(previous guidance: $5.6–$5.7 billion).
Generics: Celgene has agreed to provide Natco with a license to its patents required to manufacture and
sell an unlimited quantity of its generic version of Revlimid in the U.S. from Jan 31, 2026. Several firms
believe that settlement of the Revlimid-related patent litigation removes a major overhang on Celgene’s
shares.
$ in million
2014 A
2015E
2016E
Revlimid Sales
$4,979.9
$5,800.1
$6,792.6
2017E
2018E
Est. Growth (14-’17)
Vidaza (azacitidine)
Indication: MDS; in Europe, the drug is marketed for MDS and acute myeloid leukemia (AML)
Product Life Cycle Status: Marketed; the drug went off patent in the U.S. in May 2011.
Partners: Vidaza is in-licensed from Pharmion (now a part of Pfizer).
Sales: According to the company, Vidaza sales were $147.6 million in 3Q15, down 6.5% y/y. Sales in the
U.S. plummeted 49.5% y/y to $4.9 million due to generic competition. Ex-U.S. sales decreased 3.6% y/y to
$142.7 million. The Zacks Digest average 3Q15 Vidaza sales were in line with the company’s report.
$ in million
Vidaza Sales
2014 A
2015E
2016E
$612.0
$595.3
$652.0
2017E
2018E
Est. Growth (14-’17)
Abraxane
Indication: Metastatic breast cancer, advanced pancreatic cancer, non-small cell lung cancer (NSCLC). The
drug was added to Celgene’s portfolio through the acquisition of Abraxis BioScience in Oct 2010.
Product Life Cycle Status: Marketed
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Sales: The company reported net sales of $229.9 million in 3Q15, up 8.3% y/y. U.S. sales fell 4.2% y/y to
$145.2 million. Sales in international markets grew 39.8% y/y to $84.7 million. Abraxane revenues missed
expectations of most firms. The Zacks Digest average Abraxane sales in 3Q15 were in line with the
company’s report.
2015 Outlook: Abraxane sales are expected to be $950–$1.0 billion, lower than the previously guided range
of $1.0–1.25 billion.
$ in million
Abraxane Sales
2014 A
2015E
2016E
$848.2
$957.3
$1,027.8
2017E
2018E
Est. Growth (14-’17)
Pomalyst/ Imnovid
Indications: Relapsed and refractory multiple myeloma (MM)
Stage of Development: Marketed
Sales: Pomalyst U.S. sales were $256.5 million in 3Q15, up 41.6% y/y. Sales of the drug in international
markets were $106.4 million in 3Q15, up 69.4% y/y. The Zacks Digest average Pomalyst/Imnovid sales in
3Q15 were in line with the company’s report.
$ in million
Pomalyst Sales
2014 A
2015E
2016E
$679.7
$942.0↓
$1,285.0↑
2017E
2018E
Est. Growth (14-’17)
Thalomid (thalidomide)
Indication: Approved by the FDA as a first-line therapy for treating MM patients and for the acute treatment
of the cutaneous manifestations of moderate-to-severe erythema nodosum leprosum (ENL). Additionally, the
drug is approved as a maintenance therapy for the prevention and suppression of the cutaneous
manifestation of ENL recurrence.
Product Life Cycle Status: Marketed.
Sales: According to the company, Thalomid net sales were $45.1 million in 3Q15, down 13.1% y/y. The
Zacks Digest average Thalomid sales in 3Q15 were in line with the company’s report.
Competitors: The drug faces competition from Takeda's Velcade.
$ in million
Thalomid Sales
2014 A
2015E
2016E
$221.3
$174.8↓
$110.0↓
2017E
2018E
Est. Growth (14-’17)
-
Otezla (apremilast)
Indications: Active psoriatic arthritis and moderate-to-severe plaque psoriasis in patients who are
candidates for phototherapy or systemic therapy
Product Life Cycle Status: Marketed.
Sales: According to the company, Otezla net sales were $138.7 million in 3Q15, compared with $89.7 million
in the preceding quarter. The Zacks Digest average Otezla sales in 3Q15 were in line with the company’s
report.
$ in million
2014 A
2015E
2016E
Otezla Sales
$69.8
$525.0↑
$1,014.0↑
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2017E
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2018E
Est. Growth (14-’17)
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Pipeline
GED-0301: The company reported encouraging data from a phase II study, which evaluated the use of GED0301 in patients suffering from moderate-to-severe Crohn's disease with documented inflammatory lesions in
the terminal ileum and/or right colon. A phase III study evaluating the candidate for Crohn's disease during
has also been initiated. Moreover, the company plans to initiate a second phase III study in the first half of
2016.
Durvalumab
Indication: Blood cancers like non-Hodgkin’s lymphoma (NHL), myelodysplastic syndromes (MDS) and
multiple myeloma
Partners: AstraZeneca
Per the terms of Celgene’s agreement with AstraZeneca, the former made an upfront payment of $450
million to the latter related to durvalumab. Celgene will be responsible for the development of all studies
within the collaboration as well as global commercialization of approved treatments.
In addition, all research and development costs will be borne by Celgene until the end of 2016, after which it
will take on 75% of these costs. AstraZeneca, on the other hand, will be responsible for manufacturing,
booking sales on durvalumab and paying a royalty to Celgene on global sales in hematological indications.
The royalty rate will start at 70% and decrease to about half the sales of durvalumab in hematological
indications over a period of four years.
Phase III Program: The FUSION program comprises four studies – MM-001 (a phase Ib study to determine
the recommended dose and regimen of durvalumab as a monotherapy or in combination with pomalidomide,
with or without low-dose dexamethasone, in patients with relapsed/refractory multiple myeloma); CC-486MDS-006 (a phase II study to evaluate the efficacy and safety of CC-486 alone or in combination with
durvalumab in patients with MDS, who fail to achieve an objective response to treatment with azacitidine for
injection or decitabine); MEDI4736 -NHL-001 (a phase I/II study to assess the safety and tolerability of
durvalumab as a monotherapy as well as a combination therapy in patients with lymphoma or chronic
lymphocytic leukemia); and MEDI4736-MDS-001 (a phase II study to evaluate the efficacy and safety of
azacitidine subcutaneous in combination with durvalumab in previously untreated patients with higher-risk
myelodysplastic syndromes or in elderly acute myeloid leukemia subjects, who are not eligible for
hematopoietic stem cell transplantation).
Collaborations and Acquisitions
On Aug 27, 2015, Celgene Corporation announced that it has completed the acquisition of Receptos, Inc. for
$232.00 per share in cash. The transaction is valued at approximately $7.2 billion.
The acquisition added ozanimod to Celgene’s inflammation & immunology portfolio. Ozanimod is being
evaluated for the treatment of ulcerative colitis (phase III TRUE NORTH study ongoing – data expected in
2018) and relapsing multiple sclerosis (phase III RADIANCE and SUNBEAM RMS studies ongoing – data
expected in the first half of 2017). Celgene expects the candidate to accelerate growth from 2019 and be a
significant driver beyond 2020. The company expects ozanimod to generate peak annual sales of $4 billion
to $6 billion.
In Jun 2015, Celgene and Juno Therapeutics, Inc. announced an agreement covering the global
development and commercialization of immunotherapies. The collaboration will see the companies
leveraging T cell therapeutic strategies to develop treatments for patients with cancer and autoimmune
diseases. The initial focus will be on chimeric antigen receptor technology (CAR-T) and T cell receptor (TCR)
technology.
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The deal, which does not cover B-cell maturation antigen (BCMA), provides Celgene with the option to
partner Juno on the commercialization of its oncology and cell therapy auto-immune pipeline candidates,
including Juno’s CD19 and CD22 directed CAR-T pipeline candidates.
For candidates originating from Juno’s pipeline, Juno will be responsible for research and development in
North America and will retain commercialization rights in those territories. Celgene will have development
and commercialization rights in the rest of the world, and Juno will receive a royalty on sales in those
territories.
Meanwhile, Celgene has certain co-promotion options under which it can initially chose two programs
(excluding CD19 and CD22). For these programs, worldwide expenses and profits will be shared equally,
except in China. Celgene also has the option to select a third program.
As far as Juno is concerned, the company has the option to enter into a co-development and cocommercialization agreement for certain Celgene-originated pipeline candidates that target T cells. Global
costs and profits related to these programs will be shared on a 70:30 basis (Celgene:Juno). Worldwide
development and commercialization responsibilities lie with Celgene though Juno has an option to copromote in the U.S. and certain EU territories.
Once the deal closes, Juno will get an upfront payment of about $150 million. Moreover, Celgene will
purchase 9.1 million shares of Juno’s common stock at $93 per share. Celgene will have the right to
nominate a member to Juno’s board and, during the tenure of the 10-year deal, Celgene has contingent
rights to purchase up to 30% of Juno common stock.
In Apr 2015, Celgene Corporation entered into a definitive share purchase agreement to acquire privately
held company, Quanticel Pharmaceuticals, Inc.
Celgene will make an upfront payment of $100 million in cash to Quanticel apart from up to $385 million in
contingent payments to be achieved upon the achievement of research, development and regulatory
milestones related to Quanticel’s research and development platform.
According to the terms of the agreement, Celgene will gain full access to the lead programs at Quanticel and
its proprietary platform for single-cell genomic analysis of human cancer. Several candidates in Quanticel’s
pipeline are expected to enter clinical development in early 2016.
Celgene expects that the acquisition will not affect its adjusted diluted earnings guidance for 2015.
Please refer to the Zacks Research Digest spreadsheet on CELG for further details on revenue.
Margins
In 3Q15, R&D expenses climbed 16.5% y/y to $488 million. The increase was due to Celgene’s efforts to
develop its pipeline. Selling, general and administrative (SG&A) expenses increased 7.5% y/y to $474 million
in 3Q15. Costs associated with the launch of Otezla and Revlimid’s label expansion pushed up SG&A
expenses.
3Q14A
2014A
1Q15A
2Q15A
3Q15A
4Q15E
2015E
2016E
2017E
Gross
95.0%
95.3%
95.3%
95.9%
95.6%↑
95.7%
95.6%↓
95.4%↑
95.5%
Operating
50.3%
50.6%
52.4%
51.3%
51.2%↓
51.9%
51.7%↓
53.6%↑
55.7%
Pre-tax
47.5%
48.1%
50.8%
53.7%
50.3%↑
50.6%
51.3%↓
52.4%↓
54.5%
Net
39.9%
40.4%
42.8%
44.7%
42.4%
42.7%
43.1%↓
43.8%↓
45.6%
Margins
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Note: As per the Zacks Digest model, adjusted cost of goods sold (COGS) is expected to increase 22.4%
y/y in 2015 and 24.5% y/y in 2016, as against revenue increase of 20.2% y/y in 2015 and 24.4% y/y in 2016.
Further, adjusted SG&A expenses are expected to increase 12.2% y/y in 2015 and 20.5% y/y in 2016 and
adjusted R&D expenses are expected to increase 18.6% y/y in 2015 and 14.2% y/y in 2016 respectively.
Please refer to the Zacks Research Digest spreadsheet on CELG for further details on margins.
Earnings per Share
Celgene’s earnings (excluding stock-based compensation expense and special items) in 3Q15 were $1.23
per share, up 26.8% y/y. Higher revenues drove earnings in the reported quarter. According to the Zacks
Digest model, adjusted earnings in 3Q15 were in line with the company’s report.
EPS
Digest High
Digest Low
Digest Average
3Q14A
2014A
1Q15A
2Q15A
3Q15A
4Q15E
2015E
2016E
2017E
$0.97
$0.97
$0.97
$3.71
$3.71
$3.71
$1.07
$1.06
$1.07
$1.23
$1.23
$1.23
$1.23
$1.23
$1.23
$1.32↓
$1.25↓
$1.29↓
$4.84↓
$4.78↓
$4.81↓
$6.08↓
$5.04↓
$5.56↓
$7.60↓
$7.60↓
$7.60↓
2015 Outlook: Celgene raised its 2015 earnings guidance. The company expects adjusted earnings for
2015 in the range of $4.75 to $4.85 per share (previous guidance: $4.60 to $4.75) excluding stock-based
compensation expenses.
2020 Outlook: Adjusted earnings per share for 2020 are expected to be approximately $13, up from the
previous guidance of $12.50.
Please refer to the Zacks Research Digest spreadsheet on CELG for further details on EPS.
Analyst
QCA
Last Updated By
Ananya Ghosh
Arpita Dutt
Lopamudra
Bhattacharya
Ananya Ghosh
Editor
Sayantani Sinharoy
Reason for Update
Flash
Lead Analyst
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