Has Celgene Become Vulnerable To 'Revenue Concentration Risk'?

Argus' David Toung downgraded shares of Celgene Corporation CELG from Buy to Hold after fully digesting the company's first-quarter earnings report.

Stay Critical, Investors

According to Toung, investors have reason to be "concerned" over the company's revenue concentration from Revlimid, a treatment for multiple myeloma and other conditions. During the recent quarter, sales of Revlimid accounted for 64 percent of total revenue and that proportion is only growing.

Toung also noted Celgene's steep discounting of Otezla, a treatment for plaque psoriasis and psoriatic arthritis, could pressure margins moving forward. The company cited a strategy of lowering the price to boost sales among large institutions and could be a strategy of being placed ahead of biologic drugs as a treatment, which may prove successful but definitely requires close monitoring moving forward.

On the positive side, the analyst is encouraged by Celgene's "formidable" new drug pipeline along with new indications for existing drugs.

Finally, Toung pointed out that shares of Celgene have risen a "strong" 23 percent over the past year and are now trading at a valuation of 14.9x his 2018 earnings per share estimate. This multiple represents a premium above other pharmaceutical stocks that the analyst covers at 13.4x.

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