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Celgene Corporation’s (CELG - Analyst Report) third quarter 2012 earnings (excluding special items but including stock-based compensation expense) of $1.14 per share beat the year-ago earnings by approximately 27%. Higher revenues drove earnings in the reported quarter. The Zacks Consensus Estimate was $1.16 per share.

Quarter in Details

Total revenue climbed 13.6% to $1.42 billion in the second quarter of 2012. Revenues were boosted by the impressive performance of Celgene’s cancer drugs Revlimid and Vidaza. Revenues edged past the Zacks Consensus Estimate of $1.41 billion. Net product sales climbed 16% to $1.34 billion.

Net sales of Revlimid, the key growth driver at Celgene, came in at $970 million, reflecting an increase of 18% over the year-ago period. The drug did well both in the US (up 17%) and international markets (up 20%). Market share gains, increased duration of therapy and geographic expansion helped drive sales.

Net sales of Vidaza spiked 15% to $220 million. Sales in international markets climbed 16% to $137 million. US sales of Vidaza jumped 13% to $83 million, despite the loss of exclusivity in 2011.

Net sales of another cancer drug, Abraxane, declined 6% to $106 million. Reduced sales of the drug in the US were primarily responsible for the decline. Sales of the drug in the US declined 14% to $81 million. Abraxane sales in international markets climbed 29% to $25 million. Sales of Abraxane in international markets were aided by volume growth and distributor purchasing patterns.

Net sales of another cancer drug, Thalomid, continued to decline due to the availability of better alternatives. Thalomid sales were $75 million, down 10%.

Research and development (R&D) expenses (excluding stock-based compensation and other special items) climbed 6.9% to $328 million in the reported quarter. The increase was primarily attributable to Celgene’s efforts to expand its pipeline.

Selling, general and administrative expenses (excluding stock-based compensation and other special items) in the quarter increased approximately 17% to $323 million. Costs associated with the marketing activities for Revlimid, Abraxane and pre-launch activities for pomalidomide primarily led to the rise in SG&A expenses.

Earnings Outlook for 2012 Raised

Apart from announcing financial results, Celgene upped its adjusted earnings guidance for 2012. Adjusted earnings (excluding stock-based compensation expense and other special items) are projected in the range of $4.85-$4.90 per share (old guidance: $4.80-$4.85).  The Zacks Consensus Estimate for 2012 currently stands at $4.46 per share.

Celgene now expects 2012 revenues in the range of $5.45-$5.55 billion (previous guidance: $5.4-$5.6 billion). The Zacks Consensus Estimate for 2012 currently stands at $5.5 billion. Revlimid will continue performing well with sales projected in the range of $3.75-$3.8 billion (previous guidance: $3.75 - $3.85 billion), up 18% year over year.

Our View

We are impressed by the strong oncology portfolio at Celgene. Celgene’s efforts to develop its pipeline are also encouraging. Celgene has multiple pipeline events lined up in the coming quarters. Positive pipeline related news would boost the stock.

An eagerly awaited event at Celgene concerns its oncology candidate, pomalidomide. Celgene is seeking approval of the candidate in combination with low-dose dexamethasone for the treatment of relapsed and refractory multiple myeloma (MM) patients, who have received at least two prior therapies. A final decision from the US Food and Drug Administration is expected by February 10, 2013 (action date).

The MM market has been in the spotlight this year. In July 2012, the FDA cleared Onyx Pharmaceuticals, Inc.’s Kyprolis. Kyprolis was approved for use in treatment-experienced MM patients (who have received at least two prior therapies, including Takeda /Johnson & Johnson’s (JNJ - Analyst Report) Velcade and an immunomodulatory agent). Moreover, the disease had progressed on or within 60 days of completion of the last therapy in those patients.

We currently have a Neutral recommendation on Celgene. The stock carries a Zacks #4 Rank (Sell rating) in the short run.

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