It hasn’t been a particularly good year for
Celgene. In late 2017, the company
abandoned a late-stage Crohn’s disease drug, GED-0301, and two clinical trials associated with it. This resulted in a drop in company share prices. The company then slashed its 2020 guidance, citing “certain market dynamics and recent pipeline events.” Then, completely unexpected for a company of Celgene’s size and stature, the U.S.
Food and Drug Administration (FDA) issued a Refusal to File letter regarding its New Drug Application (NDA) for its multiple sclerosis drug ozanimod. Since October 2017, shares have dropped 37 percent.
Keith Speights, writing for The Motley Fool, notes that Celgene’s pipeline, although promising, carries a great deal of risk. “Market research firm EvaluatePharma estimated cumulative sales for pipeline candidates between 2018 and 2024 as a percentage of total revenue for all major drugmakers,” he writes. “Celgene ranked at the top of the list, indicating the highest pipeline risk.”
And as the Refusal to File letter suggests, some of the company’s issues may be management-related. In addition, some of the company’s patents are tangled up in lawsuits, and if the company should lose, significant revenue could be in jeopardy.
None of this sounds like good news for Celgene investors. But Speights writes, “The flip side to Celgene’s pipeline risk is that there are many very promising treatments under development. Celgene expects to launch 10 blockbuster drugs over the next few years. Half of those could generate peak annual sales of $2 billion or more. In total, Celgene could add another $16 billion or more in peak revenue through 2030 just with these 10 pipeline candidates.”
Some of those pipeline compounds look very solid. And the company has made changes to its executive team, with Mark Alles, the company’s chief executive officer, stating there is “a more accountable structure” in place.
In terms of the lawsuits around the company’s Revlimid, Speights writes, “It’s important to know that this isn’t the first time Celgene has fought off a potential generic rival.”
Serge Berger,
writing for
Yahoo! Finance, takes a more technical approach, but comes to similar, though perhaps not quite as optimistic, conclusions. He writes, “On the multiyear weekly chart we see that Celgene stock has been in a sea of hurt over the past twelve months or so. After topping out at a fresh all-time high in September 2017, the stock fell off a cliff and ultimately in the spring of 2018 broke before its multiyear horizontal support line in the low to mid $90s.”
He goes on to say, “Over the past couple of months the stock has managed to claw back higher, but so far it is only getting back near this previous area of horizontal support … which now may or may not become technical resistance.”
A daily chart analysis notes a recent rally, which has brought the company back through intermediate-term moving averages and appears to be working its way over the 200-day moving average. Berger writes, “One could simply buy the stock here in the low $90s for a next upside target close to $97 and using any meaningful one-day bearish reversal as a stop loss signal. Alternatively and a trade with much higher probability of steady success, one could look to sell out of the money put option spreads on Celgene stock, simply making the bet that the stock won’t fall much from here.”
Celgene has projected its revenue will grow at a compound annual growth rate (CAGR) of 14.5 percent through 2020 and predicted earnings-per-share (EPS) of about 19 percent annually. Those are consistent with Wall Street expectations, numbers that should make most investors optimistic.
Speights notes, “As a result of the big sell-off over the past year, Celgene stock now trades at less than 8.7 times expected earnings. Its price-to-earnings-to-growth ratio is a super-low 0.53. You won’t find other biotechs with the revenue and earnings that Celgene generates with stocks so attractively valued.”
