Celgene May Have Lost Positive Sentiment, But Its Growth Thesis Hasn't Gone Anywhere

William Blair said in a note the double hit on Celgene Corporation CELG's Inflammation and Immunology franchise may have reversed positive sentiment, but the company's growth thesis and pipeline optionality remains intact.

The firm reiterated its Outperform rating on the shares of the company, as it believes the sell-off in the shares in reaction to the results is overdone.

After declining 16.37 percent to $99.99 on Thursday in reaction to the company's quarterly results, Celgene stock was seen trading down an incremental 0.44 percent at $99.55 in pre-market trading.

Analyst Andy Hsieh noted that the company reported third-quarter results, which revealed revenues of $3.29 billion, below the consensus estimate of $3.42 billion, with the shortfall attributable to weak U.S. Oetzla sales. However, Hsieh noted that adjusted earnings per share of $1.91 trumped estimates, helped by lower-than-expected operating expenses.

Giving its key takeaways, William Blair said, against the backdrop of mongersen's clinical setback in Crohn's disease, it is particularly disappointed with the Otezla miss. This miss, according to the firm, will intensify investor anxiety concerning the health of the company's I&I franchise.

While noting that the magnitude of downward 2020 guidance revision is only moderate, the firm said the implied over-reliance on the hematology franchise left investors more worried.

Notwithstanding the downward spiral in the stock, the firm continues to estimate a 19.5 percent CAGR for earnings per share until 2020. Additionally, the firm said the management's 2020 guidance may not fully reflect the potential of highly differentiated pipeline compounds, as the wave of new product cycles will begin to play out starting in 2019.

"In the near term, data set from the positive phase III SUNBEAM and RADIANCE studies could provide some reprieve to investor sentiment," the firm said.