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Celgene Walks the Neutral Path

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We are maintaining our Neutral recommendation on Celgene Corporation (CELG - Free Report) with a target price of $76.00. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

Celgene disclosed its second quarter 2012 results in July 2012. The company earned $1.10 per share on an adjusted basis during the quarter. Earnings were above the Zacks Consensus Estimate of $1.06. Higher-than-expected expected revenues were primarily responsible for the earnings beat in the quarter.

Total revenue climbed 15.5% to $1.37 billion in the second quarter of 2012. Revenues were boosted by the impressive performance of Celgene’s cancer drugs Revlimid, Abraxane and Vidaza.

Net sales of Revlimid, the key growth driver at Celgene, came in at $934 million, reflecting an increase of 17% over the year-ago period. Net sales of Vidaza climbed 24% to $201 million, driven by strong sales in international markets. Net sales of Abraxane climbed 16% to $110 million due to strong US sales.

Apart from the strong oncology portfolio, Celgene boasts of a robust pipeline with multiple pipeline-related events lined up in the coming quarters. The decision on oncology candidate pomalidomide (target date: February 10, 2013) is an eagerly awaited event. The company is also seeking EU approval for the candidate.

Meanwhile, a decision from the US Food and Drug Administration (FDA) is expected in October 2012 on Celgene’s efforts to expand Abraxane’s label into the advanced non-small cell lung cancer indication. Positive news from the FDA would boost Celgene’s already strong oncology portfolio.

Moreover, Celgene is highly optimistic on the potential of apremilast, which is being developed for multiple indications such as moderate-to-severe psoriasis and psoriatic arthritis among others. Celgene is also advancing the development of the early-stage candidates in its pipeline.

We believe that the successful development and commercialization of the pipeline would boost Celgene’s top line further. We are also impressed by Celgene’s financial flexibility and strong balance sheet.

However, in June 2012, Celgene suffered a setback in its efforts to expand the label of Revlimid. The company withdrew its marketing application in the EU where it was seeking approval for Revlimid as a front-line maintenance therapy for treating multiple myeloma patients. Celgene also pushed back its plans to seek approval of Revlimid for the additional indication in the US. Any further discouraging news on Revlimid will pull down the stock further since Revlimid is Celgene’s key growth driver.

We are also concerned about the decline in the sales of cancer drug, Thalomid. The continuing decline in Thalomid sales has the potential to hurt Celgene’s top line if other products do not perform impressively enough.

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