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Celgene’s Widespread Diversification Strategy

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Strategy specifics

To reduce its over-reliance on competition in the global MM (multiple myeloma) market, Celgene Corporation (CELG) has entered other cancer drug markets, including the anti-inflammatory niche, which involves drugs for psoriatic arthritis and psoriasis.

The above graph shows that Abraxane and Otezla have registered a healthy revenue growth from 2012 to 1H15.

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Other cancer niches

Through its acquisition of Abraxis BioScience in 2010, Celgene moved into the lung and pancreatic cancer drug markets. In October 2012, the FDA (Food and Drug Administration) approved Abraxane, obtained from the Abraxis acquisition, as a first-line treatment for NSCLC (non-small cell lung cancer). According to Cancer.org, about 85% to 90% of the lung cancer patients suffer from NSCLC. This cancer is mainly associated with cells that form airway linings in the lungs, as well as with cells that secrete mucus. NSCLC also affects patients suffering from large cell carcinoma, a type of cancer that can develop in any part of the lung.

According to the research and advisory firm Decision Resources, the global NSCLC drug market is expected to reach about $6.5 billion by 2019. This market potential thus offers a substantial growth opportunity to Celgene’s Abraxane, which is projected to earn revenues of between $1.5 billion and $2.0 billion in 2017.

Abraxane has also been approved for the treatment of pancreatic cancer. The National Cancer Institute projects that 48,960 people in the US will be diagnosed with pancreatic cancer in 2015, while 40,560 will die of the disease. Currently, Celgene not only accounts for 50% of the total pancreatic market share in the US, but also is also expected to offer successful therapies in other markets. In one such market, cutaneous T-cell lymphoma (a cancer of the immune system), Istodax has already proven itself as a modest success for Celgene.

Anti-inflammatory drugs

Celgene entered the anti-inflammatory segment through its drug Otezla, which targets psoriatic arthritis and psoriasis. According to WebMd, psoriatic arthritis causes “inflammation in your joints … because your immune system is overactive” and affects “mostly people who have psoriasis, a skin disease that’s also related to the immune system.”

The company projects that in 2017 Otezla will earn between $1.5 billion to $2.0 billion. Despite tough competition from Johnson & Johnson’s (JNJ) Stelara, AbbVie’s (ABBV) Humira, and Amgen’s (AMGN) and Pfizer’s (PFE) Enbrel, Otezla managed to earn $150 million in 1H15 and is being increasingly prescribed by physicians in the US.

Celgene also earns royalty revenues from Novartis for Focalin and Ritalin. Both these drugs help treat attention deficit hyperactivity disorder, as well as other hyperactivity-related ailments.

Investors can get exposure to Celgene’s diversified drug portfolio while avoiding unique company risks by investing in the iShares NASDAQ Biotechnology ETF (IBB). Celgene makes up 8.66% of IBB’s total holdings.

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