Streetwise for Friday, May 12, 2017

With alternating tides of enthusiasm and pessimism roiling the financial markets, there is no better time than now to do some bargain hunting. For example, you might want to consider Celgene Corporation (CELG).

The pharmaceutical giant discovers, develops, and commercializes therapies to treat cancer and inflammatory diseases. When I wrote about the company a year ago, my earnings estimate for 2016 was $5.70 per share, with a projected 12-month share price of $135.

So how did the company do? Earnings well exceeded my forecast, coming in at $5.94 per share. However, the shares recently closed at $119.68. So now the question is what doe Celgene’s future look like?

Unfortunately, the recent earnings announcement was a disappointment. While first quarter earnings per share (EPS) of $1.68 exceeded the $1.60 the Street was expecting, revenue fell short, coming in at $2.96 billion, versus Street expectations of $3.04 billion.

However, the company did raise its full-year EPS number from $7.15 to $7.30, due to the strong commercial performance of their current pharmaceuticals and better-than-expected operating leverage. Net product sales grew 18 percent year over year (YOY), and EPS grew 27 percent YOY.

Revlimid, Celgene’s most profitable drug, saw sales increase 20 percent YOY. In the US, Revlimid sales increased 24 percent YOY, while internationally the increase was 13 percent.

More importantly, Revlimid has some unrealized potential in that it received approval from both the FDA and EU to be used in maintenance therapy for post autologous stem cell transplantation. Currently, there are many patients who do not receive Revlimid for this maintenance therapy. At the same time, Revlimid sales show no signs of slowing down in the foreseeable future.

Abraxane and Pomalyst also continue to see growth in YOY sales. Pomalyst sales are up 33 percent YOY, with Abraxane sales growing at a more modest 5 percent YOY.

The key reason Celgene’s revenue miss was Otezla not meeting expectations. Otezla reported $242 million in sales versus an expected $337 million. However, the miss was likely a one-time occurrence. An unexpected contraction within the psoriasis marketplace, along with insufficient inventory levels, led to the miscue.

On a more positive note, Celgene now has three agreements in place that remove the restriction of having to try other treatments before using the more expensive Otezla.

Looking at the company’s pipeline of future offerings, the key Phase 3 candidates include Ozanimod, a drug currently in phase 3 clinical trials for the therapy of relapsing multiple sclerosis and ulcerative colitis. There have been extensive words said about its upside sales potential.

Mongersen, licensed from Nogra after a successful Phase 2 study, is in Phase 3 for Crohn’s and Phase 2 for ulcerative colitis. Celgene is also looking to market this product for inflammatory bowel disease.

CC-486 (oral Vidaza) is not only more convenient than Vidaza, an important product for Celgene before it went generic, it may have some superiority over it.

Otezla is in a new Phase 3 program for the spine disease ankylosing spondylitis and for the rare Behcet’s disease.

The intrinsic value of the shares, using the ValuePro.net free cash flow to the firm model with updated numbers, produces an intrinsic value of $230 per share. My earnings estimate for 2017 is $7.30 per share, with a projected 12-month share price of $140.

Note to Readers: Rudd International has sponsored a Superhero Puppy sculpture to raise funds for Southeastern Guide Dogs. The unveiling will take place on May 24th at The Met on St. Armand’s Circle, 5:30 to 7:00 P.M. If you would like to meet myself, sculptor Scott Moore, along with artists and friends of Southeastern Guide Dogs, please RSVP to Fran Marinaro at frances.marinaro@guidedogs.org or at 941-400-7884. I will be there to solicit votes for our entry, “Happy Returns,” and our artist Louis Pak. You can vote for your favorite sculpture, $1.00 per vote, with all funds going to Southeastern Guide Dogs.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.


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