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Investment idea - Celgene
23 march 2015

Celgene (CELG), a global integrated biopharmaceutical company, recently held an investor meeting at which it outlined the following growth drivers:

- The company continues to deliver strong financial performance. According to the report for Q4 2014, revenue increased by 18.7% y-o-y to USD 2.09 bn, outstripping the consensus of 0.5%. Sales of REVLIMID, the main growth driver, rose 16% and totaled USD 1.3 bn due to an increasing share of the drug on the US market and international expansion. Operating profit in the US climbed 20%, while revenue from international sales went up by 11%. Sales of another anti-cancer drug ABRAXAN climbed 16.9% to USD 236 mn. Adjusted EPS advanced 32.9% y-o-y to USD 1.01, exceeding the median forecast by 0.3%.

- The company generates significant cash flows. Celgene fetched an operating cash flow worth USD 2.81 bn in 2014 (+26% y-o-y) and closed the quarter with USD 7.55 bn in cash and short-term investments. The company spent about USD 2.9 bn to buy back its own shares over the year. The remainder of the buyback program was USD 3.1 bn as of December 31.

- Celgene continues to develop new drugs. The company awaits results of the phase III clinical trials of REVLIMID (used to treat myelodysplastic syndromes (MDS) in Q1 2015 and approval of the drug in the EU and Japan, approval of OTEZLA in the US (used to treat psoriasis), as well as approval of ABRAXANE (used to treat cancer).

According to the company’s forecast for 2015, annual revenue will amount to USD 9.0-9.5 bn (up 17-24% y-o-y) on the back of strong sales of the company’s core products. Sales of REVLIMID are expected to increase by 14% y-o-y and reach USD 5.6-5.7 bn. Adjusted EPS will rise 24-28% y-o-y to USD 4.60-4.75. Adjusted operating margin will reach 42% (+9 pps y-o-y). Revenue CAGR is expected to grow by 21% until 2017 and adjusted EPS CAGR to increase by 26%.

We are upbeat about the prospects of Celgene and believe that the launch of new drugs will improve the company’s financial performance. This factor, along with the buyback program, will boost the share price in the mid-term. We raised our target price of the company’s shares to USD 140 and reiterate our Buy recommendation in the mid-term. The short-term technical target is USD 135. 

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Investment idea - Celgene

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