New drug is good news for cancer patients, but not for its maker's stock

New Jersey–based drug company Celgene (CELG) on Monday reported highly anticipated data for Revlimid, its multiple myeloma cancer pill. And it didn't disappoint: at the annual American Society of Hematology meeting, Celgene showed that Revlimid reduced the risk of progression by 50% among newly diagnosed patients who used the drug and chemotherapy, followed by maintenance therapy, compared with those who only used chemotherapy. Patients who used Revlimid longer saw a 75% risk reduction, and 92% were alive after one year.
$3 Billion in Sales?

Speaking on CNBC, Celgene CEO Sol Barer called the study the first step to transforming a fatal blood cancer into a chronic condition. Revlimid, he said, is unique because it doesn't have a cumulative toxicity, so the patient can be treated for a long time. The study could help get Revlimid approval for first-line use and keep patients on the drug longer as maintenance therapy, which would cost users $4,000 to $5,000 a month -- and which, analysts say, could lift sales of Revlimid by $500 million to $700 million a year for first-time and maintenance uses.

Revlimid generated $1.3 billion in sales last year and is expected to reach more than $3 billion within three years. Some analysts say that if Revlimid emerges as a first-line treatment for myeloma, pushing aside Johnson & Johnson's (JNJ) drug Velcade, its sales will triple.

Stock Price Falls

All this sounds like great news. So why did Celgene stock fall more than 5% following the news? Some analysts argued that the results didn't show that taking Revlimid and basic therapy was more beneficial than basic therapy alone -- suggesting that patients could do as well without Revlimid in the early stages of their treatment, requiring less Revlimid overall. Another worrisome point is the overall survival data.

Clearly, though, since Celgene trades at roughly 21 times earnings estimates -- a considerable premium to its peers -- some investors got spooked, thinking the expected growth rate, and multiple, may not be warranted

Thalidomide Risks

In 2006, the Food and Drug Administration approved Revlimid for patients who do not respond to other drugs. Revlimid, derived from thalidomide, kills cancer cells and stalls tumor reproduction, outweighing the risks of thalidomide side effects. Multiple myeloma, affects about 20,000 in the U.S., usually age 65 and older; only one third of the disease's patients live beyond five years with it.

On Monday, Celgene also announced it will buy Gloucester Pharmaceuticals, a private company based in Cambridge, Massachusetts, for $640 million. The purchase gives Celgene access to more key cancer drugs.


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