CELG: Setting all time high ahead of ASH.

As I have promised, I will highlight what CELG is presenting during ASH. I will do the same for GENZ and AMGN tomorrow. Ahead of ASH, CELG is hitting all time high today: the stock is now racking up impressive 190% return in one year and a half since our coverage of the stock on 6/28/05 at slightly over $20. Ahead of ASH that starts on Friday, Smithbarney raised the target for CELG shares to $70 from $58. The firm maintains buy rating on the stock. The justification of the target raise was the faster than expected sales of Revlimid for MDS and MM treatment. In addition, the firm sees much slower rate of decrease in Thalomid sales. With this estimate, firm sees the revenue that will exceed 2 billion with EPS in the range of $1.70 for 08 (As we enter 07, 08 estimate will be used for forward PE). So target of $70 implies PE of slightly greater than 40 which is not unreasonable given the fact that the company revenue is ramping with the growth rate greater than 70% through 2008 ( puts PEG ratio well below 0.6).

Again this estimate is based on the Revlimid sales in the targeted MM and MDS market in the Europe and in the US. CELG is waiting for European approval of Revlimid in early next year. So in order to justify the current valuation, European approval must be granted, which I believe it will happen given the safety profile and efficacy of Revlimid. If Revlimid is only targeted for MM and MDS market, then the story for CELG may be nearing its end. But it may be far from the truth.
Revlimid is now being evaluated for CLL and NHL which represents 600 mil and 4 billion markets respectively. These two markets represent more than 2X the revenue opportunity for Revlimid for MDS and MM market. The initial trial data on CLL looks very promising. In fact, some firms are now taking off the label sale of Revlimid into the earning estimate for CLL. NHL data is still in very early stage. We will hear more about the Revlimid indication with respect to CLL/NHL during ASH. If CELG successfully makes in-road in CLL/NHL market, the revenue of the company may be in the range of 5 to 6 billion and at the operating metrics of 30% (standard for large biotech company), the company EPS can bump upto $5 a share. This simply means still large untapped potential for share price appreciation remains. CELG is next AMGN and DNA if Revlimid can continue to penetrate into new applications. This is why investors may remain excited as we head into ASH and wait for favorable trial data.

Another interesting point about CELG is its extensive patents on Stem Cell technology. As Democrats now control the Congress, I believe there will be more push towards investing and developing Stem Cell technology to cure many neurological degenerative diseases. The company such as Geron is now being viewed as a beneficiary of this possible trend in the future (increased government spending in the stem cell research). If this pans out, CELG will also be the beneficiary of this trend. So we have another source of investor enthusiasm that may help to push share price higher in the future.

Now following is the highlight of CELG presentation with each dates specified for different presentation of trial data. Again the source for the next paragraph come from Lehman report published on Nov 29th to preview the ASH meeting.

Revlimid continues to be one of the higher profile products at ASH with a number of Important oral presentations:

Monday 8:15 AM and 8:30 AM, long-term data from MDS phase 2 studies;
Monday 11:30 AM, final data from the phase 1 Revlimid/Velcade combination study in R/R MM; phase 2 studies in 1st line and R/R disease have been initiated based on these phase 1 data;

Monday 12:00 PM and 12:15 PM, single agent activity in R/R CLL, this is an update of data that has been discussed over a couple of years and while CR's are impressive the data to date has been difficult to put into context; CELG is planning a series of pivotal studies in CLL;

Monday 2:00 PM, single agent activity in NHL, like the CLL data these are intriguing and registration studies are being planned to quantify the benefit of Revlimid in NHL;

Tuesday 9:30 AM, initial data from the phase 3 ECOG study comparing high dose
and low dose dex combined with Revlimid in 1st line MM will provide important safety data;

Tuesday 9:45 AM, Phase 1/2 1st line data for Revlimid combined with Memphian
prednisone. Celgene is also expected to present data for Thalid in MM including data comparing Thal/dex to VAD as a pre-transplant induction regimen in the 1st line setting as well as an update from the pivotal 1st line Thal/dex vs dex study.