Celgene Downgraded from Buy

Recession Finally Taking a Toll on Celgene’s Top & Bottom Lines

Celgene Corp. (CELG - Analyst Report) warned last week that first-quarter and 2009 earnings will be lower than expected, sending shares sharply lower.

In an update to its financial outlook in advance of an investor presentation, Celgene said it expects first-quarter adjusted earnings per share to increase approximately 20% year over year. This implies adjusted earnings of 38 cents per share according to our model, well below current Street consensus of 48 cents per share. Our estimate is 47 cents per share for the first quarter of 2008.

Celgene guided first-quarter revenue of approximately $600 million, below the current consensus estimate of $647 million. Our estimate of the revenue for the first quarter of 2008 is $649 million.

The company guides Revlimid sale of about $1.7 billion, in line with our estimate of $1.65 billion. Vidaza sales will be about $400 million, also in line with our estimate of $404 million. Our best guess is that sales of Thalidomide will decline dramatically in the first quarter of 2009.

However, Celgene reaffirmed adjusted 2009 earnings in the range of $2.05 to $2.15 a share, but said actual results will probably come in at the lower end. The company expected total revenue of $2.6 billion to $2.7 billion. Our EPS estimate for 2009 is $2.17 (excluding share based expenses) based on total revenue of $2.7 billion. Currently the Street is looking for Celgene to earn $2.16 a share on an adjusted basis and total revenue of $2.77 billion.

Based on the new guidance, we have down-adjusted our numbers for the first quarter and full year 2009. We also down adjusted our numbers for 2010 and 2011. Specifically, we lowered our estimate for 1Q09 total revenue from $648.8 million to $602.3 million; EPS is lowered to $0.40 from $0.47 for 1Q09.

For the full year 2009, we lowered our estimate for total revenue from $2.69 billion to $2.65 billion. EPS for full year 2009 is expected to be $1.85 from originally $1.92 (including share based expenses). For 2010 and 2011, our new estimates for total revenues are $3.12 billion (vs $3.22 billion), and $3.53 billion (vs $3.73 billion).

Based on our new model, we downgrade Celgene shares from Buy to Hold with a new price target of $45 per share.