Is It Time to Buy Celgene Corporation's Stock?

To put it lightly, Celgene's (NASDAQ: CELG  ) stock has been on fire since the recession ended. Since the market bottomed in on March 9, 2009, Celgene shares have returned 376% as of Friday's close.

CELG Chart

CELG data by YCharts

But can Celgene head even higher? That's a question we'll attempt to tackle today.

Before we do, though, it's worth noting that the stock market is a two-way street and stock movements are based on the collective opinions of millions of traders around the world. In other words, regardless of my own personal conclusion of whether Celgene is a buy or not, you should conduct your own analysis and determine if Celgene is right for your unique investing goals.

Celgene by the numbers
Let's start our discussion with a quick comparison of Celgene's important financial metrics relative to some of its peers. Normally financial metrics aren't as important in the biopharmaceutical sector given that so many companies are in the clinical stage of development and burning through cash, but for the handful of companies with established pipelines and strong cash flow like Celgene they can prove meaningful.

Here are some of the important figures you need to know about Celgene and its peers:

Company

Forward P/E Ratio

Projected Five-Year Growth Rate Per Annum

Profit Margin (ttm)

Dividend Yield

Celgene

19.4

26.4%

20.8%

0%

Roche

16.5

6.4%

22.1%

2.5%

AbbVie

14.3

9.2%

21.7%

3.2%

Johnson & Johnson 

16.4

7.1%

21.2%

2.8%

Source: Yahoo! Finance. TTM = trailing 12 months.

As you can see from the data above, some divergences are clearly apparent between Celgene and its peers. If you're curious why I chose these competitors, it's because Celgene's two primary areas of focus are cancer and arthritis, which just so happens to be a huge focus (for at least one of those two categories) for Roche, AbbVie, and Johnson & Johnson.

Celgene is clearly superior to its peers when it comes the company's five-year growth potential, practically tripling its closest competitor AbbVie. However, it has less favorable statistics in the other three categories. Celgene offers no dividend to investors – and we heard during its conference call, the company has no intention of paying one anytime soon – it's forward earnings multiple is noticeably higher than its peers, and its margins are also a bit lower.

UBS Global Life Sciences Conference presentation slide. Source: Celgene.

In terms of the company's higher P/E ratio I'd suggest that's easily forgivable considering its superior growth rate. When looking at its price earnings to growth ratio it's a mere 0.73 according to these figures. Comparatively Roche and Johnson & Johnson sport a PEG ratio well over two. This would imply that Celgene, despite its high P/E, may still be undervalued relative to the other three companies.

With regard to margins, I would suggest the variance lies with Celgene's high costs to roll out new drugs like Otezla, and a comparatively smaller pipeline of products to fall back on compared to a company like Roche or J&J. Roche, for instance, has 16 drugs that it currently derives revenue from in the U.S. Johnson & Johnson's moat is even more impressive, with 29 drugs currently approved for sale in the United States. By comparison, Celgene only has just seven approved therapies in the U.S., which means that it can be relatively costly and time-consuming when launching a new product.

Not to mention, Celgene has been fairly liberal with the collaborative deals it's orchestrated in recent years. One-time and regulatory expenses paid to its partners can certainly weigh on margins over the near-term.

Is Celgene a buy?
Now to answer the original question posed ealrier: Is Celgene stock a buy?

I would opine the answer is "Yes." Now allow me to explain my reasoning beyond the analysis we just finishing looking at.

First and foremost, Celgene's primary product, blood cancer drug Revlimid, has a long history of exclusivity still in front of it. Per the company's CEO Robert Hugin, Revlimid's patents should protect the company against generic competition until at least 2019, with a number of additional patents expiring through 2027. But, Revlimid is also being studied in a number of other indications. If Celgene finds success for Revlimid with these additional labels we could be talking about this drug as a blockbuster for another decade or even longer. Long story short, Revlimid, despite representing an abnormally large share of Celgene's total sales, is a train I believe shareholders can ride with confidence.

Secondly, I really like what Celgene is doing on the collaboration front. Whereas a majority of larger biopharmaceutical companies wait until they have concrete clinical data before agreeing to licensing deals, Celgene hasn't been afraid to partner up with small, innovative biotech companies in the early stages of development.


Shareholder meeting investor presentation slide. Source: Celgene.

Obviously this has its risks, as Celgene could lose the bulk of its upfront payment. However, it could also lead to advantageous licensing deals that might see Celgene garner a higher percentage of total sales than it would have otherwise received if it had waited until after late-stage data or FDA approval.

Lastly, it's all about how the company is growing. Even with its many collaborations, Celgene's projections that it'll bring in $13 billion to $14 billion in revenue in fiscal 2017, along with $7.50 in EPS, are all based on internal, organic growth. This is growth derived from product launches, such as psoriatic arthritis drug Otezla, label expansion from products like Abraxane and Revlimid, and existing drug growth, such as Pomalyst in the advanced multiple myeloma setting. If Celgene can continue to control its own destiny rather than rely on the need to buy other businesses, then there's little reason to believe the company can't hit on its aggressive growth targets.

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  • Report this Comment On September 03, 2014, at 11:23 AM, biotech101invest wrote:

    Yes - Celgene has more near term catalysts than any company in the S&P 500

    Celgene Upcoming Milestones

    Event Timing - Milestone

    Sept – Many healthcare conferences – RBC sees these as catalysts with CELG management as positive as it has been being able to give incremental updates including these two already announced:

    September 4 (tomorrow Thursday) - CEO/Chairman Bob Hugin presents at the 9th Annual Citi Biotech Conference in Boston at 10 a.m. ET

    September 9 - Scott Smith (President, Global Inflammation and Immunology {I & I} ) presents at the Morgan Stanley Global Healthcare Conference in New York at 12:55 p.m. ET

    H2:14 Obtain broad EU reimbursement for Imnovid (pomalidomide) – Reimbursement is country by country – by H2 we should have all major countries with pricing approval

    September 23, 2014 -Otezla approval (PDUFA) date for psoriasis

    Sept – Oct - Publication of Data from the 166-patient Phase II trial of GED-0301 in Crohn’s Disease (Celgene has said publication of data may even come before the oral presentation)

    October 8-12 , 2014 – European Academy of Dermatology and Venereology (EADV – the largest European dermatology meeting of the yr) – Amsterdam – 9 abstracts and 2 oral presentations on Otezla in difficult to treat Psoriasis patients.

    http://www.eadvamsterdam2014.org//

    October 21, 2014 – Oral Presentation at the United European Gastroenterology Week (UEGW) meeting on in Vienna of Data from the 166-patient Phase II induction trial of GED-0301 in Crohn’s Disease (Celgene clearly excited about this data & says people will understand why they bought this when they see it…ISI says this could be a $5 billion drug).

    http://www.ueg.eu/week/programme/scientific-programme/

    October 23, 2014 - Q3 earnings release and conference call - likely another beat and raise with many important operational disclosures.

    November 14 – 19, 2014 – American Academy or Rheumatology (ACR) 2014 Annual Meeting in Boston, Massachusetts. 19 Otezla abstracts have been submitted including the very Important 2 yr Phase 3 Otezla Palace-1 data. Celgene was outwardly excited about this data on Q2 call – efficacy improves with time vs biologics where it declines (safety should be fine vs increased infection/lymphoma/leukemia risk with time on biologics):

    http://www.acrannualmeeting.org/

    H2:14 – Initial Ph 1/Ph 2 trial - Revlimid + CC-292 in CLL

    H2:14 - Phase II Sotatercept (ACE-011) data in MDS – Accelron (XLRN) drug

    H2:14 - Phase II Sotatercept (ACE-011) data in Renal Anemia - Accelron (XLRN) drug

    H2:14 - Phase II data on ACE-536 in MDS and beta thalassemia - Accelron (XLRN) drug

    H2:14 - Phase 2 trial initiation using Celgene/Epizyme partnered drug EPZ-5676 in MLL-r and MLL-PTD

    H2:14 - Complete enrollment in Revlimid’s CONTINUUM trial in CLL maintenance

    H2:14 – Ph 1 / 2 read-out in ovarian cancer (TBD) and Ph 2 pancreatic cancer trial initiation for OncoMed/Celgene partner drug Demcizumab

    Q4:14 CHMP opinion on Otezla for PsA and psoriasis in EU

    December 6-9 Expect over 200 ASH related presentations/abstracts at this yrs ASH (Moscone Center, San Francisco) plus important partner data - Including:

    December 6-9 Full Phase III Revlimid data in non-del 5q MDS (MDS-005) at ASH

    December 6-9 Full Phase II Revlimid data from MCL-002 study in r/r mantle cell lymphoma

    December 6-9 – Additional Phase 1 dose escalation study data in solid tumor and hematologic malignancies with IDH2 mutations in AML for Celgene partner AGIO on their partnered AG-221 drug that Celgene mgt was publicly very excited about on Q2 earnings call in July (Maximum tolerated dose has not been reached & not all mutations have been identified, Leerink believes there is a $1Billion+ blockbuster opportunity here).

    December 6-9 – Phase 1 / 2 top-line data in Multiple Myeloma of Celgene/MorphoSys partnered drug MOR202 at ASH – Phase 2 / 3 starts in late 2014/early 2015 – analysts and CELG very excited about this

    December 6-9 Detailed oral data presentation of AMGN’s ASPIRE trial which analysts believe will increase Revlimid duration significantly over time (Deutsche Bank says this alone will be worth $24 to $32 incremental to Celgene stock price over time).

    By year end 2014 P3 initiation of GED-031 trial – potential blockbuster multi-billion Crohn’s drug acquired from Nogra

    By year end 2014 Select one of 2 XLRN drugs P3 start in beta thal by YE14

    By year end 2014 Complete enrollment in Revlimid’s RELEVANCE trial in untreated follicular lymphoma

    YE 2014/ early 2015 XLRN/CELG Phase 3 initiation in MDS likely by YE 2014/early 2015

    H2:14/H1:15 IFM 2005-02 post-transplant maintenance mature OS data

    H2:14/H1:15 CALBG 100104 post-transplant maintenance mature OS data

    January 11, 2015 – Updated guidance for Celgene at JP Morgan Healthcare Conference in San Fran – On Q2 call Celgene Chairman/CEO Bob Hugin indicated Post-2017 guidance (perhaps 2020) could be coming…

    "...clarity over the next couple of quarters will give you and us the ability to really articulate more clearly what is the incredible opportunity for us that we see, say, in 2020...".

    Early 2015 - EMA decision on Otezla for PsA and psoriasis

    February 22, 2015 Revlimid PDUFA date for label expansion in NDMM in the US

    Q1 or Q2 2015 – EU (EMA) front line Revlimid approval

    2015 – Celgene/AGIO partnered drug AG-120 Ph 1 data in solid and heme tumors

    TBD 2014-2015 – Readout of VentiRx / CELG partnered heme/onc drug VTX-2337 (motolimod - VentiRx's lead investigational agent)

    TBD 2014-2015 BLUE/CELG Ph 1 initiation CAR t cells in Heme/Onc

    TBD 2014-2015 Forma drug TBD Ph 1 initiation

    TBD 2014-2015 GlobeImmune Ph 2 readout - GI-6300 program- GI-6301

    TBD 2014-2015 Acetylon/Celgene drug ACY-1215 Hem/Onc Ph 1 / 2 readout

    Ongoing – Continuing launches and international expansion of Pomalyst, Abraxane pancreatic and Otezla psoriatic arthritis (plus psoriasis starting Sept 23rd or sooner)

    Ongoing – Updates on the Revlimid patent case, update on the unclean hands defense, scheduling of the trial and other dates, possible disclosure of settlement talks, possible settlement out of nowhere (Bernstein thinks limited concessions with likely outcome generic barred until 2025/2026 adding $30 billion to $40 billion in sales to current analyst models at 90%+ margins).

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