Celgene Remains Promising Despite Significant Setback

What happened?

On Feb. 28, the Food and Drug Administration dealt a major blow to Celgene (NASDAQ:CELG) by delivering a “Refusal to File” letter for a potential blockbuster drug known as Ozanimod for the treatment of Relapsing Multiple Sclerosis. The reason for this was because the “nonclinical and clinical pharmacology sections in the NDA (New Drug Application) were insufficient to permit a complete review.” As a result, shares slipped 9%, a price point not seen since late 2014. Ozanimod was acquired by Celgene in July 2015 when Receptos Inc was acquired for $7.2 Billion.

Now what?

Without a doubt, this is a setback for Celgene. Ozanimod, however, is far from being outright rejected and could still be a blockbuster in due time. Although this does put back a potential approval at least several months, Celgene has been quick to act and said that it will “work with the FDA to expeditiously address all outstanding items and bring this important medicine to patients.”

What do the financials for Celgene look like?

All things considered, the fundamentals for Celgene are very good (for now). Revenue, Ebitda and income have all consistently gone up over the past five years, driven primarily by Revlimid®, a drug used for the treatment for multiple myeloma, mantle cell lymphoma and myelodysplastic syndromes.

These strong fundamentals, however, are due in part to increasing the price of Revlimid® and Pomalyst®. In fact, since Revlimid’s launch in 2010, the price has “nearly doubled” and gone from $9,853 for a 28-count bottle to $18,546. This increase in Revlimid’s price is helping drive top-line performance for Celgene, as it remains thec ompany's best-selling drug by far, contributing to nearly 63% of Celgene’s total sales. A breakdown of sales for REVLIMID®, POMALYST®/IMNOVID®, OTEZLA® and ABRAXANE® for fourth quarter 2017 and IDHIFA®, THALOMID®, ISTODAX®, VIDAZA® for third quarter 2017 is provided below:

What is worth noting is that in 2022 to 2025, Celgene will face a steep patent cliff for Revlmid® as it becomes generic. It is therefore essential that if Celgene wants to maintain the growth it has accomplished so far, it bolsters its portfolio to secure future revenues. Many believed that a drug known as “Mongersen” would be able to accomplish this. Mongersen was purchased in April 2014 for $710 million cash but failed in phase 3 clinical trials to treat Crohn’s Disease, sending Celgene’s shares down nearly 10%. A more recent acquisition by Celgene was that of Juno Therapeutics for approximately $9 billion with hopes to launch Juno’s lead candidate known as JCAR017 for the treatment of relapsed and/or refractory diffuse large B-cell lymphoma in 2019. Global peak sales for JCAR017 are projected to be $3 billion.

What is the significance of Ozanimod in the market?

At the moment, the drugs that are approved to treat multiple sclerosis and pull in the most revenue belong to Biogen (NASDAQ:BIIB) and Roche. Currently, Biogen has six drugs approved to treat multiple sclerosis and made $9.1 billion in revenues for 2017. Roche’s drug Ocrevus, which was approved in March 2017, has already secured over $320 million in third quarter 2017, with up to 24% of royalties also going to Biogen.

Another major competitor in this space is Novartis (NYSE:NVS), which sells Gilenya and recently made $3.1 billion in annual sales.

When Celgene acquired Ozanimod, the goal was to compete in this market with “best-in-class safety.” The multiple sclerosis market is noted to be the second most valuable at approximately $17 billion and is projected to reach $20 billion by 2024. Even with stiff competition, Celgene is hoping to secure between $4 billion and $6 billion in revenue annually with Ozanimod.

Disclosure: I do not have positions in the stocks mentioned.