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This Best Biotech Is Cheaper Than You Think

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It seems I shouldn't have thrown out Celgene (Nasdaq: CELG  ) because of its lofty price-to-earnings ratio in my best midsized biotech article. The cancer-drug specialist justified its valuation quite effectively today with a stellar second-quarter performance.

Revenue was up 36% on the back of top-selling Revlimid, which jumped 48%. Vidaza also had a nice showing, up 43% year over year. It's hard to argue with that kind of growth.

Some of Revlimid's growth is coming from doctors using the drug in a maintenance phase. The data presented at the American Society of Clinical Oncology earlier this year clearly worked as a nice little advertisement for increasing Revlimid's use. Longer use equals more revenue per patient; it doesn't get any simpler than that.

Profit growth was even more impressive. Earnings -- backing out acquisition charges but including stock-based compensation -- increased 55%. Ironically, Celgene's beaten-down price must be taking a toll on the employee's stock options because the stock-based compensation only increased by $0.01 year over year. If you do back out stock options, adjusted earnings increased by only 50%.

The strong quarter led Celgene to raise guidance for the second quarter in a row. It's not all that surprising, as Celgene's management is typically conservative, but the increased guidance also includes a $0.05 reduction in earnings for the acquisition of Abraxis BioScience (Nasdaq: ABII  ) , which Celgene thinks will close in the fourth quarter.

At one time, Celgene seemed like it could do no wrong. Having better-than-a-10-bagger from mid-2002 through mid-2007 will do that to investors. But the company proved mortal, and investors knocked the stock down over the past couple years, even further than they did for other midsized biotechs Biogen Idec (Nasdaq: BIIB  ) , Amgen (Nasdaq: AMGN  ) , and Gilead Sciences (Nasdaq: GILD  ) , especially during the market crash in late 2008 / early 2009. But since April 2009, Celgene has come back further than the others. Based on this quarter, it looks like investors' confidence in that comeback was justified.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

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  • Report this Comment On July 29, 2010, at 4:59 PM, biotechsaves wrote:

    The buried treasure in this tremendous PR is the 10 cent base business guidance raise bringing EPS growth to 32.2% excl ABII on top of the 33% EPS growth last yr. This makes our PEG ratio laughable.


    1) This confirms that maintenance sales accelerated after ASCO which makes perfect sense. (I confirmed with one analyst that covers CELG that maintenance sales did start moving nicely after ASCO). But remember for Q2 that is only say 1 or 2 wks by the time Drs get back to office and see patients.But this news is HUGE for Q3 - Q4.

    2) Normal seasonality of revenues in Q3 and Q4 being 26% and 29% respectively of total yr sales based upon Revlimid sales historically.

    3) Japan coming a little earlier than expected and more importantly at a 40% pricing premium to US pricing and even more than that vs. analyst conservative models. This combined with maintenance data and more mature EU rollout will help Q3 and it will make Q4 a Revlimid blowout like we have never seen.

    Q2 Revlimid numbers are very important and will be good but the real news is what they mean for Q3-Q4 with maintnenance acceleration in both Q3-Q4 for 3 months vs. 1-2 wks in Q2 and Japan in partially for Q3 now and all of Q4 at 40% premium.

    Setting up for one of the old time multi-quarter runs IMO long timers remember

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