Is the Sell-Off in Celgene a Buying Opportunity?

11/01/2017 5:00 am EST

Focus: HEALTHCARE

Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

Celgene (CELG) saw its biggest drop in 17 years; although the company has stumbled, now is the time to stick with it and accumulate shares, notes growth stock expert Todd Shaver, editor of BullMarket.com.

The firm announced the discontinuation of the Phase III REVOLVE trial in GED-0301 for Crohn’s disease. This was unexpected and unfortunate news. Celgene’s decision comes after recommendation by the independent data monitoring committee upon its review of the overall benefit/risk during a recent interim futility analysis.

The company points to no meaningful safety imbalances identified during this analysis, suggesting a lack of efficacy for the drug. In our opinion, this represents more of a psychological blow than a fundamental one to the company.

At this time, Celgene has chosen to not initiate the Phase III DEFINE trial in CD. The company is awaiting review of the full dataset from the Phase II trial of GED-0301 in ulcerative colitis to determine next steps in this situation.

The firm reduced its 2020 sales guidance to range of $19 billion to $20 billion from its previous forecast of more than $21 billion. It also lowered its 2020 earnings-per-share guidance to more than $12.50 from more than $13.00.

Celgene’s profit did beat expectations, as income was $1.91 per share on sales of $3.3 billion, compared with $1.58 and $3.0 billion in the year-earlier period. Expectations were for $1.75 to $1.85 a share. But sales were light of the $3.42 billion expected.


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The company expects full-year earnings in the range of $7.30 to $7.35 per share, with revenue expected to be $13 billion. All of this sounds good, but Wall Street sure doesn’t like it and investors sold the stock heavily.

Sometimes you just have to sift through the headlines to find the real facts. This one drug was only supposed to be a $1 billion revenue contributor. But the company is expected to still do more than $20 billion by 2020. So we see no reason to panic.

You have to trust that the franchise is viable and will learn and progress past this current disappointment. This looks to us like a classic case of Wall Street exuberance on the downside with this out-of-favor sentiment swing. Take advantage of the drop and accumulate the stock down here.

Admittedly, it may take a while and we must be patient. But in my view, the company still remains a powerhouse, is very profitable and our long-term target is still a hefty $150. We continue to believe in Celgene.

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