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Celgene (CELG - Analyst Report) reported second-quarter 2014 earnings (including stock-based compensation expenses) of 80 cents per share, which surpassed the Zacks Consensus Estimate by 3 cents. The company’s earnings were 70 cents per share in the year-ago quarter. We note that figures have been adjusted to reflect the two-for-one stock split effective last month. Investors were not pleased with the narrow earnings beat leading to a decline in the company's shares.

Quarter in Details

Total revenues climbed 17% year over year to $1.87 billion in the second quarter. Revenues were boosted by the impressive performance of Revlimid. Net product sales climbed 18% year over year to $1.84 billion. Revenues surpassed the Zacks Consensus Estimate of $1.85 billion.

Net sales of Revlimid, the key growth driver at Celgene, came in at $1.2 billion, reflecting an increase of 15% over the year-ago period. The drug did well both in the U.S. (up 15%) and international markets (up 17%). Market share gains, geographic expansion and increased duration of therapy drove sales in the reported quarter. The drug is approved in many countries across the globe in combination with dexamethasone for treating multiple myeloma (MM) patients, who have received at least one prior therapy. Revlimid is also approved in the U.S. in the relapsed refractory mantle cell lymphoma indication.

Revlimid is also available in many countries for treating transfusion-dependent anemia due to low or intermediate-1-risk myelodysplastic syndrome (MDS) associated with a deletion 5q cytogenetic abnormality (with or without additional cytogenetic irregularities). Celgene is looking to expand the drug’s label. To attain the objective, it has filed regulatory applications in the U.S. and EU in the newly diagnosed MM indication. The FDA target date is Feb 22, 2015.

Net sales of another cancer drug, Abraxane, jumped 39% year over year to $215 million. Net sales of Vidaza declined 28% year over year to $152 million. Soft U.S. sales (down 89%) due to generic competition hurt results during the quarter. U.S. sales of another oncology drug Pomalyst came in at $104 million, up 16.8% sequentially. The drug gained FDA approval in Feb 2013.

The approval of the drug (trade name: Imnovid) in the EU was gained in Aug 2013. Sales of the drug in international markets were $57 million in the second quarter of 2014 compared to $47 million in the preceding quarter.

All other product sales (inclusive of Thalomid, Istodax and an authorized generic version of Vidaza in the U.S.) came in at $98 million in the second quarter, up 22.5%.

Research and development (R&D) expenses (excluding stock-based compensation and other special items) increased 15.1% to $397 million. The increase was due to Celgene’s efforts to develop its pipeline. Selling, general and administrative (SG&A) expenses (excluding stock-based compensation and other special items) increased 14.6% to $440 million. Costs associated with the launch of Otezla for psoriatic arthritis (FDA approval gained in Mar 2014) and pre-launch activities related to the drug in the moderate-to-severe psoriasis indication (U.S. target date: Sep 23, 2014) pushed up SG&A costs. Otezla sales were $5 million in the quarter.

Outlook for 2014 Upped

Celgene now expects total revenues to increase 17% year over year to $7.6 billion (old guidance $7.5 billion) driven by strong product sales. Net product sales are expected to grow 18% in 2014 to over $7.5 billion (old guidance: $7.3 billion to $7.4 billion). Revlimid is expected to be the major contributor with sales expected at approximately $4.95 billion (old guidance: $4.9 billion to $5.0 billion), up 16%. Abraxane net sales are projected in the range of $850 million to $900 million. Celgene expects earnings (excluding stock-based compensation and other special items) in the range of $3.60 to $3.65 per share (old guidance: $3.50 to $3.60), up 22%.

Celgene carries a Zacks Rank #2 (Buy). Better-ranked stocks in the healthcare sector include Salix Pharmaceuticals Ltd. (SLXP - Analyst Report), Biogen Idec (BIIB - Analyst Report) and Allergan (AGN - Analyst Report). All the three stocks sport a Zacks Rank #1 (Strong Buy).

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