Celgene Delivers Healthy Growth

1/7/2013


  Recent Price
$78
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
17
  Shares (millions)
436
  Long-Term Debt as % of Capital
33%
  52-Week Price Range
$82.78 - $58.53

Celgene ($78; CELG) generates most of its revenue from one blockbuster drug and three smaller treatments. New uses for existing drugs and a pipeline full of experimental medicines should keep sales growing. The company's biological drugs treat cancer and other diseases that cause inflammation or weaken the immune system.

After averaging annual sales gains of 41% in the five years ended 2011, Celgene's growth slowed to 14% in the first nine months of 2012. But operating profit margins have expanded in six straight quarters, while returns on equity and investment stand at their highest levels in at least a decade.

Shares have risen 16% since the end of 2011 and still look attractively valued at 17 times trailing earnings, a 39% discount to their three-year average. Even if the trailing P/E lingers at current levels, if Celgene meets the 2013 consensus profit estimate of $5.55 the shares will rally 20% over the next 12 months. Celgene is a Buy and a Long-Term Buy.

Business breakdown

Celgene's key drug is Revlimid, an oral treatment for multiple myeloma, a blood cancer afflicting 100,000 people in the U.S. Revlimid, which also treats other forms of cancer and anemia, generated 68% of the company's revenue in the nine months ended September. The drug's sales rose 17% in the first nine months of 2012. Celgene says Revlimid enjoys patent protection until 2023 in Europe and 2026 in the U.S.

Three other key drugs round out Celgene's portfolio:

• Vidaza (15% of nine-month sales), a blood-disorder treatment, produced 18% growth in the first nine months of 2012. The U.S. patent expired in May 2011, but generic alternatives have yet to enter the market.

• Abraxane (8%) treats some types of lung and breast cancer. Its sales advanced 14% in the first nine months of 2012. The U.S. patent expires in 2024. In November, Celgene reported favorable results for a late-stage trial of Abraxane on patients with advanced pancreatic cancer, a $3 billion market. Celgene sees Abraxane as its strongest long-term growth driver.

• Thalomid (6%), a predecessor to Revlimid, also treats multiple myeloma; together, they take about a 70% share of the U.S. market for first-line treatment of the disease.

Celgene's product pipeline includes 14 biologics in Phase II or Phase III testing, several of which have the potential to eventually generate $500 million in annual revenue.

In March, Celgene paid $352 million for Avilia Therapeutics, a biotechnology company developing drugs that treat diseases by silencing proteins. Milestone payments could add $595 million to that price tag.

Conclusion

Celgene produced $1.88 billion in free cash flow in the past year, up 33%. Much of that cash has funded stock buybacks, shaving 5% from the share count in the last 12 months.

For 2015, management targets per-share profits of at least $8.00, implying four-year annualized growth of 21%, on sales of $8 billion to $9 billion, equating to annualized growth of 13% to 17%. An annual report for Celgene Corp. is available at 86 Morris Ave., Summit, NJ 07901; (908) 673-9000; www.celgene.com.

CELGENE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '12
1.29
vs.
1.02
14%
78.63
-
61.89
18 - 14
Jun '12
1.22
vs.
0.89
16%
80.42
-
58.53
20 - 14
Mar '12
1.08
vs.
0.83
13%
78.83
-
66.28
21 - 17
Dec '11
1.05
vs.
0.72
20%
68.25
-
59.32
20 - 17
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
4.84
3.79
0.00
68.25
-
48.92
18 - 13
2010
3.63
2.79
0.00
65.79
-
48.02
24 - 17
2009
2.69
2.08
0.00
58.31
-
36.90
28 - 18
2008
2.25
1.56
0.00
77.39
-
45.44
50 - 29
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
95
84
55
99
85
90
67

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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