Celgene: The Pullback Presents a Long-Term Opportunity

Over the past year, Celgene (CELG) shares have appreciated close to 25% on the stock market, driven by the company's impressive revenue and earnings growth. However, in the past month, Celgene shares have pulled back from their 52-week highs as the entire stock market has remained under pressure. I think that it is a buying opportunity for investors due to a variety of reasons. Let's take a look.

Why strong financial growth will continue

Last quarter, Celgene's revenue rose 22% year-over-year to $2.27 billion, while adjusted earnings increased to $1.23 per share as compared to $0.90 in the same period last year.

Going forward, I believe that these numbers will get better as the New Jersey-based drug maker is undertaking efforts to diversify its portfolio.

As a part of this plan, Celgene recently announced the acquisition of autoimmune-drug maker Receptos in a deal valued at $7.2 billion. This is a strategic step from Celgene to build a leading immunology and inflammation (I&I) franchise. Additionally, on the back of new products set for launch going forward, Celgene has improved its growth forecast for the long run. In fact, the company now aims to generate over $21 billion in revenue and $13 in earnings per share by 2020.

How Celgene plans to achieve its ambitious target

This might look like an ambitious target considering that Celgene has generated $8.43 billion in revenue and $2.64 per share in earnings in the past year. However, in order to achieve this target, Celgene has adopted a unique strategy of inorganic growth by investing in peer companies rather than acquiring them.

Its investments include companies such as AstraZeneca, Quanticel, Agios, Lycera, Juno, and Receptos. This is a smart move by Celgene, as according to Forbes, "Had Celgene simply acquired these companies outright, it would have caused delays in programs, distracted both Celgene and the target companies, and bogged down Celgene's financials."

For instance, Celgene has agreed to invest $1 billion in Juno Therapeutics under a 10-year partnership, which involves studying cures for cancer and autoimmune disease. The deal is intended to develop a new approach for cancer treatment, a process known as CAR-T and TCell Receptor Technology.

As per Reuters "The harnessing of T cells and other components of the immune system to attack tumors can have dramatic, long-lasting effects on advanced cancers, potentially transforming the $100 billion global oncology drug market." Such investments will play a key role in bolstering Celgene's growth going forward.

A strong product portfolio will be a catalyst

Apart from inorganic growth measures, Celgene will also benefit from a strong product portfolio and new launches. The company's newly-diagnosed multiple myeloma launch dynamics are very strong in both the U.S. and Europe, so Celgene is preparing for a global launch. Similarly, REVLIMID's growth accelerated significantly in the last reported quarter, with revenue surpassing $1.44 billion. At present, the company is undertaking efforts to expand this product globally.

Moreover, ABRAXANE reported solid growth of 13% year-over-year in the previous quarter, driven by the launch of the drug across Europe. The drug was also launched for non-small cell lung cancer in early access markets in this region. Going forward, this drug should generate more revenue for Celgene as it received approval for treating pancreatic cancer in Japan. The company has also invested in next-generation growth drivers by initiating the early stages of the pivotal program for GED-301 in Crohn's disease.


All in all, Celgene's prospects look bright in light of the different points discussed above. At the same time, the company also carries an impressive valuation with a forward P/E of 19 as compared to a trailing P/E of 42. This means that Celgene's earnings will grow at a robust rate going forward.

In fact, analysts expect Celgene's earnings to grow at 25% per year for the next five years, which is impressive. In addition, the stock is cheap as it has a price-to-sales multiple of 11.2 as compared to the industry average of 17.25. Hence, Celgene looks like a good investment due to a number of reasons, and since the stock has pulled back from its 52-week highs, I think that it will be a good time to buy some shares.

Published on Aug 26, 2015
By Harsh Singh Chauhan

Copyrighted 2020. Content published with author's permission.

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