Celgene: Headwinds For Otezla Could Weigh

Celgene (CELG) delivered Q4 revenue of $3.5 billion and non-GAAP eps of $2.00. Revenue was up 6% sequentially and 17% Y/Y. I had the following takeaways on the report:

Is Otezla’s Growth Sustainable?

Heading into the quarter Celenge appeared to be on the ropes and at risk of losing its image as a growth company. Slowing growth for Revlimid and Otezla and weak forward guidance caused CELG to fall by double digits in Q3. Q4 results were impressive with total revenue up by high double-digits Y/Y. However, the CELG could stall if the market questions the quality of the company’s revenue and earnings.

Blockbuster cancer treatment Revlimid is 63% of Celgene’s total revenue. As Revlimid goes so goes the company. That’s why Celgene’srecent 20% price hikes for Revlimid and Pomalyst (13% of revenue) gave me pause. My interpretation was that the company was trying to mask a potential slow down in these drugs’ revenue growth, or offset a potential demise of psoriasis treatment Otezla. It may have been the latter.

Any time a company has to hike prices 20% for its top drugs just to meet revenue guidance it could smack of desperation. Otezla’s Q3 revenue was up 12% Y/Y, but down 14% sequentially. Management had to offer discounts in the managed care market to move the product. Revenue bounced back in Q4, up 20% sequentially and 22% Y/Y. However, competition in the psoriasis market is stiff and the market is becoming more crowded.

Novartis’s (NVS) Cosentyx and Johnson & Johnson’s (JNJ) Stelara have been gaining out-sized share in the psoriasis market. Both brands grew by double digits in Q3 amid Otezla’s pull back. Cosentyx grew 11% sequentially in Q4 from $556 million to $615 million. If you back out rebates, Stelara’s Q4 sequential growth was relatively flat. JNJ launched Tremfya in Q3 2017, and the drug generated $47 million in revenue in Q4:

To conclude Immunology, we are very pleased with the uptake of TREMFYA launched for moderately severe to severe psoriasis in the third quarter of 2017. Sales totaled $47 million in the fourth quarter and the product is already the new to brand share leader when accounting for both IMS Claims Data and internal data on samples.