Once-feared drug is Celgene's winner

NEW YORK (CNNMoney.com) -- Celgene, the drug company that's cornered the market for blood cancer treatment, continues to wow investors with its constantly climbing stock price, and analysts expect the good times to keep rolling.

Celgene (down $1.60 to $55.98, Charts) has seen its stock price surge 67 percent year-to-date, and it's climbed at nearly 10 times that rate over the last five years. Analysts, according to a consensus compiled by Thomson Analytics, expects sales to double this year, and grow by another half in 2007. The company ranks No. 21 on Fortune's list of fastest-growing companies for 2006.

"They have something that everyone wants: a drug that is an asset, and lots of growth potential," said James Reddoch, analyst for Friedman, Billings, Ramsey. "The stock is doing well because we've seen lots of additional data for Revlimid."

And we're about to see some more at the annual meeting of the American Society of Hematology, to be held in Orlando this weekend. Celgene is expected to release data that could fuel further sales on its drug Revlimid, which the Food and Drug Administration approved in June as a life-extending treatment for myeloma, a type of blood cancer that kills 12,000 Americans a year.

Other companies, including Sanofi-Aventis (up $0.57 to $45.61, Charts) and Biogen Idec (down $0.35 to $51.54, Charts), are also expected to release data.

"Now that Revlimid is on the market, it has totally changed the way people look at this company," said Reddoch of FBR. "The company has gained a lot of legitimacy in the eyes of investors in the traditional sense."

The Summit, N.J.-based company took a non-traditional route to success, putting itself on the map with a controversial drug that other companies didn't dare touch: Thalomid. If the name sounds familiar, that's because the drug is also known as thalidomide, the pregnancy painkiller that was blamed for horrific birth defects in Europe during the 1950s and 1960s.

Few drugs have achieved such notoriety. But Celgene figured out that Thalomid (its brand moniker, a slight tweaking from the original name) can benefit sufferers of leprosy and - much more beneficial from a sales standpoint - myeloma.

The author Rock Brynner - son of the late actor Yul Brynner - gave thalidomide a fitting title when he made it the subject of a book called "Dark Remedy: The Impact of Thalidomide and Its Revival as a Vital Medicine."

So as not to repeat the horrors of the past, the FDA has banned the drug's use by pregnant women. In some cases, female patients are advised not to be sexually active while taking it.

But despite its market resurrection, opinions are mixed as to Thalomid's future sales performance. Rachel McMinn, analyst for Piper Jaffray, expects annual Thalomid sales to edge up to $540 million in 2010, from an estimated $428 million in 2006. But Reddoch of FBR expects sales to drop to $265 million in 2010.

So why are analysts still backing this stock? That's where Revlimid comes in.

Sales are expected to go gangbusters. McMinn of Piper Jaffray and Reddoch of FBR both project annual Revlimid sales will exceed $2 billion by 2010.

Much of Celgene's pipeline is focused on Revlimid, which is being studied for a multitude of indications beyond its current use. At the hematology conference Monday, the company is expected to release data on the drug as a potential treatment for non-Hodgkin's lymphoma and chronic lymphocytic leukemia, a malignancy of the white blood cells.

If tests show that the drug is successful in treating these diseases, then doctors might prescribe it to patients before Celgene even has a chance to file it with the FDA.

"They have the one drug and then ways to discover other derivatives for that drug, all of which have potential for other diseases," said Reddoch of FBR.

Revlimid - and its potential to grow sales as a multi-indication drug - is why analysts are so bullish on Celgene.

"This a company where the long-term fundamentals are really, really solid," said McMinn of Piper Jaffray.

The analysts quoted here do not own shares of Celgene stock,though Piper Jaffray makes a market in the company and FBR co-managed a public offering of Celgene securities.

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