Celgene Tops, Lifts View - Analyst Blog

Celgene Corporation's (CELG) third quarter 2010 earnings (excluding special items but including stock-based compensation expense) of 65 cents per share was above the Zacks Consensus Estimate by 1 cent and the year-ago earnings by 17 cents. On a reported basis (including special items), the company earned 60 cents as opposed to 46 cents in the year-ago quarter.

The impressive showing was due to strong sales of Celgene's lead product, Revlimid. Revlimid boosted Celgene's third quarter 2010 revenues 30.9% to $910.1 million. Revenue for the quarter handsomely beat the Zacks Consensus revenue Estimate of $878 million.

Revlimid net sales came in at $641 million, reflecting an increase of 43% over the year ago period. Vidaza, approved for treating patients suffering from myelodysplastic syndrome (MDS), continued to perform impressively.

Net sales of the drug for the reported quarter came in at $141 million, an increase of 37% over the third quarter of 2009. However, net sales of Thalomid (approved for treating multiple myeloma (MM) declined 14.5% to $94 million in the reported quarter.

Research and development (R&D) spend climbed 31.1% to $253.5 million in the reported quarter. The increase was primarily attributable to Celgene's efforts to expand its pipeline.

Selling, general and administrative expenses in the quarter increased approximately 18.6% year-over-year to $228.3 million. Costs associated with the launch of cancer drug Istodax in the US and the European launch of Vidaza primarily led to the rise.

Net interest and other income plummeted to $20.8 million in the third quarter of 2010 from $34.9 million in the comparable quarter of 2009. The decline was primarily attributable to a reduction in interest and investment income, coupled with a loss on net hedging and foreign currency revaluation in the reported quarter.

2010 Outlook Upped

The biotechnology company raised its earnings and revenue guidance for 2010. Celgene expects to end 2010 with total revenues of approximately $3.60 billion as against the prior projected range of $3.40 billion - $3.45 billion. Net sales of Revlimid in 2010 are expected to be around $2.45 billion (up 44%) as opposed to the earlier forecasted range of $2.30 billion to $2.35 billion.

Furthermore, the company expects earnings (excluding special items) in the range of $2.78 - $2.80 per share in 2010. The previous guidance range was $2.65 - $2.70 per share. The revised outlook is inclusive of the impact of the purchase of Abraxis BioScience, completed earlier in the month.

Our Take & Recommendation

With the completion of the acquisition of Abraxis BioScience coupled with the purchase of Gloucester Pharmaceuticals earlier this year, Celgene has further boosted its cancer portfolio, which will drive growth in the coming quarters. The company's key growth engine is Revlimid, currently approved for myelodysplastic syndromes and second-line multiple myeloma and Celgene is expanding its label into additional indications.

Although Celgene, with Vidaza and Revlimid, will dominate the myelodysplastic syndromes market, it will face tough competition in the multiple myeloma market. The negative growth of its other product Thalomid, approved for the treatment of multiple myeloma, is likely to continue due to the availability of better alternatives in the market. 

Even though the company carries a Zacks #2 Rank (short-term Buy rating) in the short-run, we are more cautious in the long-run and have a Neutral view on the stock.