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Celgene's neurology venture the latest strategy for revenue after Revlimid

After a string of setbacks that hurt its share price, Celgene Corp. is expanding its search for the next blockbuster medicine to new therapy areas.

Cancer therapy Revlimid has driven more than 60% of the company's drug sales over the years, enough to warrant its own breakout sales guidance from the company.

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Generic-drug makers are keen to get a slice of the product's $8.19 billion in annual sales, spawning multiple court cases and raising the specter that certain patents could expire as early as 2022. Investors and analysts are increasingly concerned about Celgene's ability to shift revenue to other streams, particularly after some research and development pitfalls.

RBC Capital analyst Brian Abrahams suggested in a March 14 note that it was time to think about a leveraged buyout, essentially taking the company private to figure out its strategy. The move would be a yearslong process amounting to an approximately $75 billion buyout, Abrahams estimated, but could begin while the company's stock price is low.

Celgene's shares slipped significantly after one potential revenue replacement, GED-0301, failed in a phase 3 trial for Crohn's disease in October 2017.

The company then took another hit in late February, when the U.S. Food and Drug Administration rejected its other pipeline drug for autoimmune diseases, ozanimod, for incomplete information in its multiple sclerosis filing.

Celgene shares were priced $86.91 at market close March 22, compared to similarly sized Biogen Inc.'s $271.89 and Regeneron Pharmaceuticals Inc.'s $327.69 the same day.

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Breaking down the revenue stream

Revlimid accounted for 68.2% of Celgene's 2017 sales revenue, a slight increase from recent years despite other drugs coming to market.

Part of that success was driven by Revlimid's expanded use in blood cancers since its 2005 U.S. approval as it gained access to the relapsed and refractory mantle cell lymphoma market in 2013 and to newly diagnosed multiple myeloma patients in 2015.

Celgene's other cancer drugs have remained comparatively small slices of the business.

Multiple myeloma therapy Pomalyst made $1.6 billion in 2017, just 12.3% of total sales; the Abraxane treatment for solid tumors generated $992 million, accounting for 7.6% of sales; and autoimmune medicine Otezla, launched in 2014 for psoriatic arthritis, made $1.28 billion in the latest year.

There is strong potential in the pipeline with eight therapies that could reach blockbuster status, according to the drugmaker's annual report. These include a chimeric antigen receptor T-cell, or CAR-T cell, therapy in partnership with Bluebird Bio Inc. and another in the portfolio after Celgene's acquisition of Juno Therapeutics earlier this year. CAR-T cell therapies are used for blood cancers.

$15B future potential

On March 20, Celgene announced another partnership, this time on neurodegenerative diseases with Prothena Corp. plc

Although it is too early to assign a significant value to the three partnered experimental medicines, they could bring significant commercial value, Barclays analyst Geoff Meacham said in a note.

"While this is not the exact deal we are looking for, we continue to remain positive on Celgene given multiple potential drug launches (beyond ozanimod) within the next 12-18 months," Meacham wrote.

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Celgene expects ozanimod, which the company will eventually refile for multiple sclerosis and later file for other autoimmune disorders, to eventually hit more than $2 billion in annual sales, joined by CAR-T cell therapies bb2121 and JCAR017, also called liso-cel.

Both therapies, which work by reinfusing a patient with cancer-fighting versions of their own cells, are in phase 2 trials. With its multiple myeloma mutation target, bb2121 could carve out a sizable area in the new and rapidly evolving space. The two approved CAR-T cell therapies — Novartis AG's $475,000 treatment Kymriah and Gilead Sciences Inc.'s $373,000 Yescarta — fight a different target, making them effective against a range of blood cancers but not the mutation in multiple myeloma.

Altogether, Celgene believes its pipeline of experimental treatments could eventually reap up to $15 billion in annual sales.

In the meantime, partnerships such as the recent Prothena deal seem likely: Celgene favors transactions with some risk-sharing component, Meacham noted after a company presentation at the recent Barclays Global Healthcare Conference.