For the biotech superstar, Celgene Corporation (NASDAQ:CELG), the last few months have not been too kind. CELG stock has hit a rough patch on several different fronts. That included it stopping phase 3 clinical trials for a potential blockbuster for Crohn’s disease as well as reducing forward earnings forecasts based on that stoppage and the fact that Revolve won’t be coming to market.
That’s a big problem as the biotech firm is facing a pretty large brick wall with the end of patents for its cancer drug and huge money-maker Revlimid.
So, the pressure is on for Celgene to perform and do well in this upcoming earnings report. And that pressure will be coming from its planned and speculated big-time buyouts.
Patent Pressure for CELG Stock
There’s no denying that CELG won’t make money this quarter. That’s a given — especially since it preannounced unaudited results two weeks ago. Celgene is one of the better run biotech drug producers and we shouldn’t be seeing any surprise loses here. However, the concern is just how top-heavy its results are.
During their prelim report, Revlimid is still running the show and it is estimated to have brought in more than $8 billion in sales for CELG. Celgene’s next biggest drug — Pomalyst/Imnovid — only brought in about $1.6 billion in sales for all of 2017. With prescriptions for Revlimid growing like weeds, the problem for Celgene is only getting worse.
The risk is that CELG and its stock valuation is still riding too high on its chief cancer drug.
Celgene loses patent protection by 2022 for the multiple myeloma drug. The hope is that we can see enough growth in its other medications to help reduce the crutch that Revlimid is causing. That’s why CELG stock tanked when it abandoned its trials for the Crohn’s disease-fighting Revolve. It’s also why, investors weren’t too happy with the prelim results and CELG’s less-than-expected revenue growth from Otezla.
CELG Tries to Fill the Gap
For Celgene, it’s not about earnings per se — it’ll have them. But it’s about how it’s going to fill the potential revenue gap come 2022 when Revlimid goes off patent. So, either medications like Otelzla need to show some better results or it needs to expand its pipeline by a lot.
And we may just get the latter when CELG reports.
When CELG reported its preliminary results, it also announced that it was buying privately held Impact Biomedicines for roughly $7 billion. The deal fits Celgene’s oncology focus as Impact’s main product/development is a potential treatment for myelofibrosis — a type of blood cancer. But what it really does is flesh-out the biotech’s pipeline and potentially adds another big-time future money maker to its arsenal.
But the real boom in M&A for CELG could come from a speculated deal. Reports have been swirling that Celgene will buy Juno Therapeutics Inc (NASDAQ:JUNO). Snagging Juno would be a huge win for CELG. Like Impact, JUNO focuses on oncology/cancer medicines. Currently, JUNO has 11 different drugs in phase 1 or 2 clinical trials. Talk about a pipeline boost.
Adding JUNO to its arsenal would certainly help build-up its pipeline and build-out enough in future revenue streams to overcome the Revlimid shortfall. An official account announcement of a JUNO buyout would be welcome news for investors.
As would be any news from CELG’s multitude of joint ventures, partnerships, and its already decent-sized pipeline. A recent cancer drug joint venture with Jounce Therapeutics Inc (NASDAQ:JNCE) should begin phase 3 trials during the first few weeks of 2018. Any update on this front or additional JV’s should be positive news.
Pipeline Will Be the Focus for CELG Traders
The mantra for CELG’s earnings report is “pipeline, pipeline and more pipeline.” Actual earnings probably won’t even matter. Whether investors are impressed will have to do with the firm’s plans to replace Revlimid. And that can come from its buyout plans or increasing revenues from its other medicines through trials.
So, where does that leave investors?
Over the long-term, CELG seems like a steal. It does have an impressive resume of drugs that are growing and that patent-cliff for its leading cancer drug won’t happen for another four years. There should be plenty of profits to be had for patient investors. If Celgene is able to announce a big deal or better pipeline results, CELG stock should spike hard.
If not, we could see it fall a bit more.
And if it does, that might be a prime time to snag-up some shares or to increase a position in CELG stock. The reality is, Celgene still has plenty of time to build-out its pipeline before the cliff hits. It’ll get there. But investors are looking for it to happen today. If they get that, it’s off to the races for CELG stock.
As of this writing, Aaron Levitt was long CELG.
