Celgene on Verge of Banner Year; Likely OK of Drugs Excites Analysts

SUMMIT – Imagine staking your company’s future on one of the world’s most infamous drugs: thalidomide, which caused flipperlike limbs and facial deformities in 12,000 babies overseas before being banned in 1962.

Celgene Corp. did just that, tinkering with the compound until it came up with what is now the most popular treatment for the bone cancer multiple myeloma. Sold under the brand name Thalomid, the drug and its steady revenues have since helped Celgene grow into one of the world’s top 10 biotech companies and bankrolled its research on numerous treatments for cancer and inflammatory disorders.

Now, two decades after it was spun off by chemical maker Celanese Corp., for which it is named, Celgene is poised for a breakout year.

Over the next 12 months, analysts expect Celgene to win three new approvals from the Food and Drug Administration, including one for an advanced treatment for attention deficit hyperactivity disorder.

Celgene executives say they hope to get a fourth approval as well, and future sales from those drugs could quickly double or triple current annual revenues of about $400 million.

By then, Celgene will have come full circle, moving hundreds of employees from its cramped headquarters in Warren and its other New Jersey offices and labs back to its former parent’s home in Summit – Celanese’s former 45-acre corporate research center.

"Today, we’re in a wonderful position," said John W. Jackson, Celgene’s chairman and chief executive. "Going forward, we have an incredibly promising future."

As early as the end of May, Celgene could get approval for Focalin XR, an extended-release drug for attention deficit hyperactivity disorder, a $3 billion-a-year market. Celgene manufactures the original, twice-a-day version of Focalin for Swiss pharmaceutical giant Novartis, which created the first ADHD drug, Ritalin, decades ago.

Under what analysts call a unique licensing deal, Celgene collects royalties on 30 percent of all Novartis revenues from Focalin, the original Ritalin and the long-acting form – an arrangement that discourages Novartis from promoting Ritalin over Focalin.

The long-acting drugs are widely preferred because they limit between-dose bursts of impulsiveness, hyperactivity and inattention, and schoolchildren don’t have to go to the nurse for an afternoon pill.

"We are very excited to be introducing a unique product that represents another important advance in the treatment of ADHD," said Dr. Stefan Schwabe, head of U.S. neurological drug research for Novartis, which anticipates FDA approval.

Jackson said Focalin XR, a chemically purer version of Ritalin, is more potent, so a lower dose is needed. It also has less side effects, mainly the symptom rebound common as ADHD drugs wear off, he said.

Last year, Celgene received $33 million in royalties from Novartis for Focalin and the two Ritalin versions. The company expects a slight increase this year, plus a $20 million milestone payment when Focalin XR is approved.

Thalomid, which can only be taken under a strict program Celgene devised to prevent pregnancies and thus birth defects, still provides 90 percent of company revenues.

That’s ironic, given that Celgene is still seeking FDA approval for using Thalomid to treat multiple myeloma. It was turned down for that use as recently as last year, according to biotech analyst Yaron Werber of Smith Barney Citigroup, who said official approval could boost those sales about 10 percent and the Medicare drug benefit could bring additional revenues.

Sales of Thalomid were approved in 1998, to treat leprosy symptoms, so doctors can prescribe it for other uses.

Another Celgene drug, Revlimid, is up for two FDA approvals, including for multiple myeloma, where the company competes with Millennium Pharmaceuticals and Cell Therapeutics.

Jackson said it appears multiple myeloma patients could cycle between Thalomid, Revlimid and a third drug to extend the effectiveness of treatment against the incurable, fatal cancer. The drug did so well in slowing progression of multiple myeloma that the final round of human testing recently was stopped early so patients in a comparison group could be put on Revlimid, too.

"They’ve really developed the world’s best multiple myeloma franchise and what looks to be one of the leading hematology franchises," Werber said of Celgene.

He was partly referring to the second condition for which Revlimid has a pending FDA application, a rare form of the bone marrow disease myelodysplastic syndrome, or MDS, involving a missing chromosome portion. About 5,000 Americans have the condition.

Celgene shares recently passed their pre-recession high after climbing steadily for the past three years, and their price was listed at $39.80 in after-hours trading Tuesday.

Matthew Osborne of C.-E. Unterberg Towbin, which provides investment banking services for biotech companies, thinks that Revlimid eventually could bring the company total annual sales of $500 million to $1 billion. Werber is forecasting annual sales of about $1.2 billion by 2009, but cautions that Celgene needs to develop a marketing team outside this country.

The company is to report first-quarter earnings on Thursday. Analysts surveyed by Thomson Financial expect earnings per share to double and revenues to be up 35 percent to about $112 million.