Celgene Corporation (CELG): Expanding Labels to Expand Margins

Page 1 of 2

In an industry where buyouts are commonplace and small-cap biotechs burn through cash rapidly, optimizing operating cash flow can be essential to a company’s financial health. Is cash being applied efficiently to maximize sales while minimizing the cost of R&D? Perhaps the most powerful way to maximize revenue potential and minimize cost is through label expansion.

Companies with nascent revenue streams must appropriately limit costs while fostering newfound revenue. By selectively searching for new indications, or approved uses, for drugs, pharma can bypass the costly process of novel drug discovery, enhance manufacturing and commercialization margins by extending the utility of fixed costs, and grow revenue by exposing the drug to patients in new markets. The industry is teeming with drugs for which companies have cut margins by expanding drug labels.

Below we will look at a few exemplary cases in which label expansion has improved the growth prospects of drugmakers in two sectors.

Oncology

The oncology space provides biotech or pharmaceutical companies with a great opportunity to expand labels. FDA approval for cancer drugs can be specific to cancer type and treatment regimen (primary treatment vs secondary or co-treatment). Yet the diversity of cancer types with common molecular underpinnings makes some drugs widely applicable, providing an opportunity to expand the market without the costs of complete drug development.

Celgene Corporation (NASDAQ:CELG)Celgene Corporation (NASDAQ:CELG) is a wonderful example of a company pursuing label expansion. Celgene has six approved drugs on the market for treatment of cancer. Of those six, five of them are in additional clinical trials or are under FDA review for use in new indications. Eleven Phase III trials are currently listed on Celgene’s website, investigating the use of approved drugs in additional indications. Contrast this with the four Phase III trials underway for new drug candidates, and it is clear that Celgene’s short-term revenue growth will come from label expansion, providing ample capital to be invested in preclinical drug discovery.

Celgene Corporation (NASDAQ:CELG)’s leading revenue generator, Revlimid, is currently approved to treat two types of blood cancer – including as a secondary treatment multiple myeloma and relapsing or treatment-resistant mantle cell lymphoma – and for diseases of the bone marrow called myelodysplastic syndromes. Revlimid brought in $3.7 billion in 2012, yet Celgene continues to exploit the drug’s widespread utility with clinical trials for twelve additional indications (eight are in Phase III). The recent success of Revlimid as a primary treatment for multiple myeloma in a Phase III trial suggests that this strategy might pay off, sending the stock to new all-time highs.

Celgene Corporation (NASDAQ:CELG)’s multiple myeloma competitor Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is another example of a company using label expansion to limit costs. While annual operating expenses did increase from 2011 to 2012, Onyx’s 10-K suggests that this is in large part due to costs incurred from label expansion of its only wholly owned drug, Kyprolis. Kyprolis was approved in 2013 as a third-line treatment for multiple myeloma. It is now in three additional Phase 3 trials for other multiple myeloma treatment courses. Amgen, Inc. (NASDAQ:AMGN)‘s rumored $10 billion acquisition offer to Onyx suggests that they, too, appreciate Onyx’ commitment to label expansion. Onyx has rebuffed that offer, but it will certainly be interesting to see which suitor also values Onyx’ approach to drug development.

Autoimmune Disease

Like cancer, autoimmune disorders come in many varieties and flavors, yet often times the underlying molecular causes are similar enough that one drug can treat myriad illnesses. This is particularly the case for diseases of chronic inflammation.

A specific chemical pathway in most cells called the Tumor Necrosis Factor, or TNF, pathway can be activated by the immune system to cause ‘programmed’ cell death. In healthy subjects, this pathway helps to keep potentially dangerous tumor cells from spreading. In other cases, hyperactivity of the pathway can cause inflammation and tissue damage, among other things. This pathway can therefore be blocked to treat diverse ailments associated with auto-immune diseases and inflammation. Four companies have cashed in big time with blockbuster drugs targeting TNF signaling.

AbbVie’s Humira, Amgen, Inc. (NASDAQ:AMGN)‘s and Pfizer Inc. (NYSE:PFE)’s Enbrel, and Johnson & Johnson (NYSE:JNJ)’s Remicade combined for $23 billion in 2012. Treating diseases as diverse as rheumatoid arthritis, to Crohn’s Disease, to psoriasis, these drugs have thrived in large part because of their expansive labels. AbbVie is currently pursuing five additional indications (in the US) for further label expansion of Humira – currently the best selling drug in the world.

Drug 2012 Revenue
Approved Indications*
Humira $9.27 billion 7
Enbrel $7.97 billion 5
Remicade $6.14 billion 8

Source: Full Prescribing Information on drug website. Only in US.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!