Celgene Retains Neutral Rec

We are maintaining our Neutral recommendation on Celgene Corporation (CELG - Analyst Report) with a target price of $74.00.

Celgene disclosed its first quarter 2012 results last month. The company earned 96 cents on an adjusted basis during the quarter. Earnings were below the Zacks Consensus Estimate of $1.02. Higher-than-expected expenses were primarily responsible for the earnings miss in the quarter. The company also missed revenue estimates.

The company’s key growth engine is Revlimid, currently approved for myelodysplastic syndrome (MDS) and second-line multiple myeloma (MM). The company is expanding its label into other indications.

We note that Celgene is seeking European approval for the use of Revlimid as a front-line maintenance treatment for MM in Europe. A decision from the European Medicines Agency (EMA) is expected shortly. Moreover, Celgene intends to seek approval for Revlimid for the above indication in other territories, including the U.S., during the course of the year.

Apart from Revlimid, the oncology portfolio at Celgene also includes Vidaza, Abraxane, Istodax and Thalomid. Moreover, the company is investing heavily in its pipeline with multiple pipeline events lined up in the coming quarters. The most eagerly awaited is the FDA decision on pomalidomide for treating patients suffering from relapsed and refractory multiple myeloma. European approval is expected to be sought for the same indication shortly.

Even though pleased with the overall oncology portfolio at Celgene, we remain concerned about the decline in the sales of cancer drug, Thalomid. We are also concerned about the loss of exclusivity of Vidaza in the U.S. in May 2011. In view of these challenges, we see limited upside potential from current levels and retain our Neutral stance on the stock.

Our long-term recommendation is in line with the Zacks #3 Rank (Hold rating) carried by the company in the short run.