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3 Reasons Celgene Corporation's Stock Could Rise

CELG Chart

It's been an incredible three years for Celgene , as evidenced by its better-than-tripling in share price and noticeable top-line and bottom-line growth.

CELG data by YCharts

We saw this growth carry over into its recently reported second-quarter results, wherein it delivered sales of $1.85 billion, up 18% from the year-ago quarter , while adjusted profit jumped to $748 million, a rise of 15% from last year's comparable period. As CEO Bob Hugin noted, "Strong second quarter operating and financial results demonstrate the significant momentum of our portfolio and support raising our 2014 guidance."

But, like most earnings reports, Celgene's just hints at the real growth drivers behind its business. So let's have a deeper look at the three big catalysts that could cause Celgene's stock to head higher.

Before we do so, I should warn readers that even if a bullish thesis might look perfect on paper, there's no guarantee of success. Competition, external factors beyond Celgene's control, unsuccessful drug launches, and a number of other factors could easily send Celgene's stock lower. So keep the idea that the stock market is a two-way street in your head as you read this optimistic analysis of Celgene stock.

Expanded labeling of existing products

Perhaps the biggest catalyst for Celgene, and the most apparent reason its share price could head higher, is the potential for the company to expand drugs already approved by the Food and Drug Administration to additional indications.

If you recall, Celgene announced in January that it anticipates $13 billion to $14 billion in revenue and adjusted earnings of $7.50 per share by 2017 (adjusted for its recent split), and that it expects to get to these figures primarily through organic growth. By comparison, for fiscal 2014 Celgene expects to report revenue of at least $7.6 billion and adjusted EPS of $3.60-$3.65. In other words, in just three years and change Celgene's top and bottom lines could nearly double!

Specifically, I would point to Revlimid, Abraxane, and the recently approved Otezla as the three drugs whose label expansion could most help Celgene meet its lofty guidance.

Revlimid is already on pace to top $5 billion in annual sales either this year or next year. It's been a staple for treating various types of blood-borne cancers for years, and has a real opportunity to grow sales substantially by expanding into a number of first-line indications, including newly diagnosed multiple myeloma, first-line follicular lymphoma, and first-line diffuse large B-cell lymphoma (ABC-subtype).

Celgene Q2 investor presentation. Source: Celgene.

Cancer drug Abraxane could be in line for a of its approved indications. With Abraxane already approved to treat metastatic breast cancer, as well as first-line advanced pancreatic cancer and first-line non-small cell lung cancer, Celgene is rapidly moving to expand its indications, including for first-line triple negative breast cancer.

Celgene Q2 investor presentation. Source: Celgene.

Cancer drug Abraxane could be in line for a significant expansion of its approved indications. With Abraxane already approved to treat metastatic breast cancer, as well as first-line advanced pancreatic cancer and first-line non-small cell lung cancer, Celgene is rapidly moving to expand its indications, including for first-line triple negative breast cancer.

Finally, Otezla's potential in the inflammation market -- first with its recently approved psoriatic arthritis indication, and potentially with psoriasis and rheumatoid arthritis, which are currently under review by the FDA and in phase 2 studies, respectively -- could add some pep to Celgene's step.

External growth from collaborations

Make no mistake about it; Celgene wants to grow from within. But the company isn't turning a blind eye to intriguing external growth opportunities , either.

A recent Celgene presentation lists more than two dozen external collaborative partnerships, which could result in a number of new therapies being discovered that may lead to big gains in Celgene's stock.

Celgene Q2 investor presentation. Source: Celgene.

Through the first 15 weeks Otezla has impressed, but its continued maturation provides yet another opportunity for Celgene to demonstrate how its cohesive management team can introduce a new product and exceed Wall Street and investors' expectations. But thinking even longer term, there are also the variety of other drugs from partnerships (as mentioned above) and internal sourcing that Celgene will be hopefully ushering to market over the next several years. If management does a good job of commercialization, the company's growth ramp could continue.

Tying things together

Celgene clearly has a lot for growth-seeking investors in the biotech sector to like, including a deep pipeline with plenty of expanded label opportunities, as well as more than two dozen key collaborations. Based on management's estimated growth trajectory at the midpoint, Celgene is on pace to grow its top line by 78% between 2014 and 2017 despite trading at less than 19 times forward earnings. That's a very attractive proposition, and one that should have investors digging more deeply into the story behind this company.

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The article 3 Reasons Celgene Corporation's Stock Could Rise originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool recommends Celgene. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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