Celgene Corporation (CELG): Expanding Labels to Expand Margins

Label expansion won’t only improve the operating margins for these drugmakers, it will also serve to protect revenues in the face of generic competition. Humira and Remicade are teetering on the edge of the patent cliff, with biosimilars threatening to steal market share. By seeking FDA approval for new indications and formulations of approved drugs drugmakers can extend market exclusivity for an additional three years, and supplement declining sales with new revenue sources in unchallenged markets.

The Bottom Line…
…relies heavily on operating margins. While FDA approval for primary indications of new drugs may serve as more explosive catalysts for stock movement, sustainable financial growth is built on optimizing margins to deliver the greatest potential earnings. As a Foolish investor, I look for companies dedicated to expanding indications for approved drugs to provide a stable and smoothly growing revenue base that’s not solely dependent on preclinical development.

Seth Robey has no position in any stocks mentioned. The Motley Fool recommends Celgene and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

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