I bought into CELG first at a split adjusted $53, a little less than two years ago. I kept buying up until about $79 (when I stopped because my position was getting too big), and it’s now about $112 and my third biggest position at 12.2%. That makes it up roughly 110% since my first purchases. I’m more likely to trim a little now and then to keep it from getting too big.
I first was introduced to CELG by the Mar 2013 MF RB recommendation. Here are a few excerpts with some paraphrasing and cutting:
In the late 1950s, a “wonder drug” called thalidomide was introduced across much of the world. As you probably know, it was soon found to cause horrific birth defects, and by 1962, it was banned around the globe. That seems an unlikely starting place for the birth of a blue-chip biotech company, but it turns out thalidomide actually is a wonder drug of sorts. It hung around in obscurity for decades as a therapy for leprosy until academic researchers realized that it blocked the formation of new blood vessels, effectively choking off tumor growth in certain cancers. In 1992, the rights to thalidomide were licensed by Celgene. The treatment possibilities unlocked by Celgene helped make the stock one of the top performers of the past decade, with a tenfold rise in market cap. But this growth story is far from over — the drugs and catalysts Celgene still has ahead of it should reward new shareholders and new patients alike.
Today, thalidomide brings in about $300 million annually for the treatment of leprosy, making it perhaps Celgene’s least interesting product. However, it inspired a chemical analog called Revlimid that was approved in 2006 as a treatment for the blood cancer multiple myeloma. Revlimid has since become a massive blockbuster, topping $3 billion in revenue last year. It is also being constantly approved for more and more indications which will keep its sales climbing. Revlimid has patent protection through 2027, and we feel it’s safe for at least that long. The FDA never approved thalidomide back in the 1950s or 1960s, and Celgene spent a long time working with the agency on a risk mitigation plan to make sure the drug doesn’t get into the wrong hands. The chance of the FDA approving a generic manufacturer seems small.
Celgene has much more coming down the pipeline. Abraxane, a drug the company acquired in 2010, brought in $427 million last year, mostly for its use as a second-line treatment in breast cancer. A recent approval in non-small-cell lung cancer will boost sales. Better still, the drug has produced compelling Phase 3 results in pancreatic cancer, a disease with an extremely poor prognosis and few options.
The company’s newest drug, Pomalyst, was approved just this month for multiple myeloma patients who have failed prior courses of treatment. Its market is estimated to be worth at least $750 million, and additional indications would bump that figure up.
Perhaps the biggest wild card is Apremilast, in Phase 3 for psoriatic arthritis and psoriasis. This is a relatively safe pill that will be substantially cheaper than the biologics currently used in psoriatic arthritis, and this niche alone should mean solid sales. But a strong signal in psoriasis could set up another blockbuster.
All the things the recommendation predicted have turned out, pretty much. And Celgene has partnered with dozens of small biotechs. When they have a early stage drug that seems promising, CELG funds its development and testing in exchange for the rights to market it. This gives them a huge long-range pipeline.
I have their revenues for 15 quarters now, and they have never had a quarter down year over year. Here are some of them (in billions).
2012: 1.25 1.37 1.42 1.42 = 5.5
2013: 1.46 1.56 1.64 1.76 = 6.5
2014: 1.73 1.84 1.98
As you can see, it’s nothing exceptional, but just a steady rise. Estimates for 2014 are 7.6
Let’s look now at earnings. Since they had a 2:1 stock split, some will be in half cents so I’ll round up for consistency. These are big numbers so a half-cent won’t change anything.
2012: 54 61 65 66 = 2.46
2013: 68 76 78 76 = 2.98
2014: 84 90 97
Estimates for 2014 are for about $3.70. The company has also had the guts to estimate for 2015 at $4.50 to $4.75, and believe it or not, for 2017 at $7.50. At the end of 2014, with earnings of $3.70, their PE is 30, which is a little high, but not out of line for a company with prospects like that. I have no plans to sell out of this stock and will just keep riding it for the indefinite future.