Can Celgene Continue Its Impressive Growth?

Celgene

Celgene’s (NYSE:CEGL) stock has been on a tear this year, more than doubling in the last 12 months. At JPMorgan’s global health conference in January, CEO Bob Hugin set impressive guidance and outlined the company’s aggressive strategy to double sales by 2017. With plans to expand sales of best-selling drug, Revlimid, as well as other impressive products in its pipeline, Celgene looks poised for a big year. Let’s use our CHEAT SHEET investing framework to decide whether Celgene is an OUTPERFORM, WAIT AND SEE, or STAY AWAY.

C = Catalysts for the Stock’s Movement

Celgene recently announced positive results from the third phase of its groundbreaking MM020 study. The study was launched to examine whether Revlimid — originally developed for treating lymphoma — can be used in conjunction with the steroid dexamethosone to treat multiple myeloma. While the plasma cell cancer is relatively uncommon in the United States, treatment options are limited for newly diagnosed patients. Celgene already has a drug called Thalomide that treats multiple myeloma, but the new treatment option has proven to be more effective in the MM020 study. FDA approval of the new treatment, which seems more and more likely, would certainly be a boon to Revlimid sales.

On the other hand, Celgene announced last week that the Food and Drug Administration required the suspension of another Revlimid study called Origin. This study involved testing whether Revlimid was a more effective treatment than chemotherapy drugs in treating B-cell chronic lymphocytic leukemia. According to an article published last week on Bloomberg, Celgene paused the study indefinitely after 34 of the elderly late-stage leukemia patients treated with Revlimid died, compared with 18 who were treated with the chemotherapy drug. While Revlimid makes up 68 percent of Celgene’s total revenue, it is unlikely that the failed study will have lasting implications for the company.

E = Earnings are Increasing Year-Over-Year

Celgene reported first quarter GAAP earnings per share of 89 cents — a slight decline from last year’s numbers. Revenue, however, grew 15 percent on increased sales of the drugs Revlimid, Abraxane, and Vidaza. Celgene has demonstrated strong revenue growth, posting sales increases in the last five quarters. While GAAP earnings per share have declined in the last two quarters, the company raised its revenue and earnings guidance for the rest of the year, projecting a year-over-year earnings increase of 14 percent. Celgene announces its second-quarter earnings Thursday.

2013 Q1 2012 Q4 2012 Q3 2012 Q2 2012 Q1
Qtrly. EPS $0.89 $0.61 $0.97 $0.82 $0.90
EPS Growth YoY -1.11% -33.34% 19.75% 38.98% 66.67%
Revenue Growth YoY 15.02% 12.74% 13.56% 15.52% 13.15%

*Data sourced from YCharts

T = Technicals on the Stock Chart are Strong

Celgene is currently trading at around $138, well above its 200-day moving average of $113.18 and its 50-day moving average of $121.92. Celgene has experienced a strong uptrend in the past year: it’s up 106 percent in the last 12 months. The stock has a relative strength index of above 80, suggesting that it is overbought and could be due for at least a slight pullback. At its current intraday level, the stock is trading above its 52-week high of $137.80 that it set last week.

Conclusion

Celgene offers several invaluable treatments for blood diseases and cancers including multiple myeloma and leukemia. The company has demonstrated strong revenue growth and has laid out an impressive expansion plan for the next five year. Moreover, its intellectual property is well protected, with no significant patent expirations until 2019. The pharmaceutical industry is intensely competitive, but Celgene operates in a relatively specialized part of the market and has a strong research and development department. The company’s stock price is due for a pullback soon, as its relative strength index indicates, but over the medium term, Celgene is an OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from The Cheat Sheet