Celgene Cut to Neutral - Analyst Blog

We are downgrading Celgene Corporation (CELG) to Neutral from Outperform following the risk of cancer associated with the use of Revlimid as a maintenance therapy in patients suffering from multiple myeloma (MM).

The disturbing data was presented at the American Society of Hematology (ASH) late last year. Even though prolonged treatment with Revlimid extended the survival without the disease worsening, data from some studies revealed an increase in the number of patients with secondary malignancies in the Revlimid arm compared to placebo. 

The concerns did not bother Celgene's management who stated that the risk was within the expected range. However, we believe that any setback regarding Revlimid, Celgene's key growth driver, would hit the company hard.

Another cause for concern is the disappointing performance of Thalomid, approved as a first-line therapy for MM in combination with dexamethasone. We believe this decline will continue as safer and more effective drugs are available for multiple myeloma. The continuing decline in Thalomid sales has the potential to hurt Celgene's top line if other products do not perform impressively enough.

Moreover, in September 2010, Indian pharma company Natco Pharma filed an Abbreviated New Drug Application (ANDA) with the US Food and Drug Administration (FDA) seeking permission to manufacture and market a generic version of Revlimid. Subsequently, Watson Pharmaceuticals Inc (WPI) has inked a deal with Natco Pharma to develop and sell the generic version if the application is approved. Although Celgene has challenged the application, a decision in favor of Natco would be devastating for Celgene.

However, the impressive oncology portfolio at Celgene and its efforts to expand through acquisitions pleases us. The company recently filed applications in Europe and the US seeking to expand the labels of cancer drugs, Revlimid and Istodax, respectively. Successful label expansions would bolster Celgene's portfolio further.

The impressive portfolio notwithstanding, the risk of cancer associated with the use of Revlimid as a maintenance therapy in MM patients cause us to revert to a Neutral recommendation on Celgene. Our long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).

 
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