Celgene Might Be Trouble for Millennium

Both companies post earnings Thursday, but a bigger battle, over cancer drugs, is about to heat up.
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In some regards, biotechnology companies

Millennium Pharmaceuticals

(MLNM)

and

Celgene

(CELG) - Get Report

could be considered both partners and competitors.

Each has a drug being used to fight blood cancer. When one is ineffective in a patient, the other comes in to get the job done. Sometimes, doctors call for a double-team.

Leerink Swann biotech analyst Howard Liang estimates that Millennium's signature drug Velcade, which is approved in the U.S. to treat a blood cancer called multiple myeloma, had sales of $55.2 million in the first quarter. The trouble for Millennium is that, to at least some extent, Celgene's Revlimid has made inroads into Velcade's territory.

Celgene is applying for marketing clearance to sell Revlimid for multiple myeloma, but for now the drug is only officially approved for treating myelodysplastic syndromes, a group of disorders in which the body's bone marrow doesn't produce enough blood cells.

However, doctors are allowed by law to prescribe a drug as they see fit, once it has been given the green light for any one use. As such, Revlimid has already been given to some multiple myeloma patients.

Liang increased his sales estimate for Revlimid to $28 million from $23 million for the first quarter and to $255 million from $197 million for the full year. Consensus estimates peg Revlimid sales at $23.1 million for the quarter.

JMP Securities analyst Charles Duncan isn't as optimistic for the near term, saying he expects Revlimid's sales to come in at about $20 million in the first quarter. He's also projecting that Celgene's other product sales will total around $15.9 million -- a figure that's well below the $30 million consensus.

Still, Duncan believes Celgene's sales will strengthen. He expects Revlimid to get approval as a multiple myeloma treatment by the end of June, leading to a "swift ramp" in the drug's sales in the second half of the year. Should it get clearance from the Food and Drug Administration, Duncan believes Revlimid will be a significant threat to Velcade and probably cannibalize sales of Thalomid, a Celgene leprosy drug that's sometimes used off-label for multiple myeloma.

Celgene has asked the FDA to let Thalomid be marketed as a myeloma treatment, and it was given conditional approval last November.

Duncan believes Thalomid's first-quarter sales probably fell 10% to $95 million, while the average estimate is $102 million. "Although Thalomid could be formally approved in front-line

multiple myeloma at the end of May," Duncan wrote in a research note, "we expect Thalomid sales to continue decelerating for the remainder of '06" as Revlimid further penetrates the market.

Overall for the quarter, analysts are expecting Celgene to earn 6 cents a share on sales of $163 million. The company will issue its results Thursday morning.

Citigroup Smith Barney biotech analyst Yaron Werber also believes Revlimid could deal a blow to Velcade, but he says sales of Thalomid could be hurt even more.

Thalomid currently dominates the multiple myeloma market despite only being FDA-approved to treat leprosy. But once Revlimid is approved for the new use, it should gain the top spot, leaving Thalomid and Velcade to battle for second place, Werber says.

On Thursday, after Millennium reports its earnings, Werber expects the company to discuss its strategy to keep its Velcade sales growing in the second half of the year and beyond, despite competition from Revlimid.

Even with a padded salesforce, Werber is skeptical about how the company can keep up its Velcade growth with no new usage approvals for the drug on the horizon and a huge competitor hitting the market.

Werber says Millennium is pushing a marketing message that physicians should treat patients with eight cycles of the drug, based on recent safety and efficacy data, as opposed to the more commonly used regimen of five-and-a-half cycles. Doctors, he says, have been reluctant to change their current treatment methods, possibly because of toxicity concerns.

He's looking for Millennium to report flattish Velcade sales for the third quarter in a row and a loss of 4 cents a share, compared with the average Wall Street estimate of a 3-cent loss. Werber also sees the drugmaker reporting lower-than-expected revenue of $108 million, about $8.5 million below the consensus forecast.

"I'm not expecting an eventful quarter from them. I'm not expecting pipeline news," he says. "It's just a question of what gives them confidence that they'll grow their market share."