Celgene Beats on First-Quarter Earnings: What's Next?

Celgene narrowly beat consensus estimates on earnings this morning. Will biotechs shrug off the recent downturn?

Apr 24, 2014 at 2:30PM
Revlimid

Source: www.fiercepharma.com.

Celgene Corporation (NASDAQ:CELG) is the second-largest component of the iShares Nasdaq Biotech Index (NASDAQ:IBB). As such, its 14% plus nosedive year to date has undoubtedly played a role in driving this key biotech index lower for the year, and perhaps, sour investor sentiment on biotechs in general.

The problem began in January when the company missed fourth-quarter earnings estimates and subsequently gave an anemic 2014 forecast. Consequently, investors have been waiting anxiously to see if this negative trend would continue with Celgene's first-quarter earnings released this morning. 

Turning to the tale of the tape, Celgene reported non-GAAP first-quarter earnings per share of $1.67 on revenue of $1.73 billion. Consensus heading into this release was $1.65 per share and $1.77 billion in revenue. So, Celgene narrowly beat consensus on earnings but missed on revenue by about $40 million. 

How did Celgene's top drugs perform during the quarter?
Celgene's flagship cancer drug Revlimid saw sales increase by 14% to $1.14 billion for the quarter compared to a year ago. The company said this double-digit sales growth was the result of an increase in the average treatment duration and increasing use of the drug in ex-U.S. markets. Specifically, U.S. sales for Revlimid came in at $642 million, compared to $502 million in international sales for the quarter. This represents a 13% increase in U.S. sales and a 16% increase in international sales, compared to a year ago.

Sales of Celgene's broad-based cancer drug, Abraxane, increased 51% year over year to $185 million globally. Management attributed most of this growth to Abraxane's recent label expansion as a treatment for pancreatic cancer. 

Pomalyst/Imnovid sales came in at $136 million for the quarter, representing a noteworthy 365% increase year over year. 

As expected, the company's bone cancer drug Vidaza saw sales drop 27% year over year due to generic competition in the U.S. The one bright spot is that sales in both Europe and Japan increased substantially, helping to compensate, at least partially, for lost revenue from U.S. markets. 

Celgene didn't provide much color on the commercialization of the company's newly approved drug Otezla, indicated as a treatment for psoriatic arthritis. However, the drug is expected to help shore up overall revenue growth for Celgene in the face of falling sales for Vidaza going forward. 

Buybacks and a noteworthy cash position
During the quarter, Celgene reported buying back $10.7 million shares, costing the company roughly $1.66 billion. If that trend continues, Celgene will easily outpace fellow top biotech Gilead Sciences (NASDAQ:GILD), which is expected to complete $5 billion in share repurchases this year. You should also pay close attention to Celgene's mounting cash position. Per the report, it now has over $5 billion in cash and cash equivalents. Although Celgene already has a strong clinical pipeline and growing revenues from its commercial products, the recent downturn among biotechs may prove too tempting for cash-rich companies like Celgene not to make a deal. Put simply, valuations for biotechs have fallen across the board, and companies with large cash positions could be on the hunt to make an acquisition. 

Foolish wrap-up
Biotech investors were somewhat dismayed by Gilead's weak performance post-earnings yesterday, and indeed, most of the industry failed to react to Gilead's tremendous quarter. My view is that the market was waiting for other top names like Alexion Pharmaceuticals (NASDAQ:ALXN) and Celgene to report this week to see if there was a general trend emerging in terms of earnings. What's noteworthy is that Alexion, Celgene, and Gilead all had decent earnings beats this week. Yet Alexion was the only one to significantly raise annual guidance, and that may be a problem moving forward.

Because Celgene and Gilead continue to give conservative annual guidance, they may have not done enough as leaders in the field to change the negative sentiment surrounding biotechs. And Amgen's earnings miss earlier this week probably won't help matters much. Overall, I am leery of how this particularly moody market will react to what looks like good news. So, stay tuned!

 

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George Budwell owns shares of Gilead Sciences. The Motley Fool recommends Celgene and Gilead Sciences. 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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