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Is a Beat in the Cards for Celgene (CELG) in Q4 Earnings?

Zacks Equity Research

Celgene Corporation CELG is likely to beat expectations when it reports fourth-quarter results on Jan 31, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 2.23%.

Celgene’s track record has been excellent, with the company beating earnings estimates in all of the trailing four quarters. Overall, the company has delivered average positive surprise of 2.54%.

Let's see how things are shaping up ahead of this announcement.

Why a Likely Positive Surprise?

Our proven model indicates that Celgene is likely to beat earnings estimates this quarter because it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is pegged at +2.31%. This is because the Most Accurate Estimate stands at $2.37, while the Zacks Consensus Estimate is $2.32. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Celgene currently carries a Zacks Rank #1 (Strong Buy). The combination of a favorable rank and a positive ESP makes us confident of an earnings beat.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Earlier this month, Celgene announced preliminary results for 2018 and issued its financial guidance for 2019.

The preliminary results show that Celgene has achieved guidance for 2018 that it had provided on Oct 25, 2018 (revenues of $15.2 billion and earnings per share of $8.75- $8.80).

Revlimid sales are projected to be $9.7 billion and Abraxane sales are expected to be around $1 billion. Pomalyst’s revenues are expected to be $2.0 billion, whereas Otezla sales are projected at $1.6 billion, up from $1.5 billion projected earlier.

Celgene’s key product, Revlimid should continue to act as the main growth driver in the second quarter. Revlimid, an oral immunomodulatory drug, is currently approved for several indications, including newly diagnosed multiple myeloma ("MM"), myelodysplastic syndromes ("MDS") and mantle cell lymphoma ("MCL"). Market share gains in key markets and longer treatment duration are contributing to the drug’s growth. Continued uptake in front-line non-stem cell-eligible and post-stem cell transplant maintenance segments have propelled sales.

Data from the phase III ROBUST trial, evaluating Revlimid in combination with Rituxan, cyclophosphamide, doxorubicin hydrochloride, vincristine sulfate and prednisone (R-CHOP) in patients with first-line ABC-subtype diffuse large B-cell lymphoma (DLBCL), is expected in 2019.

Apart from Revlimid, Pomalyst, Otezla and Abraxane are also expected to contribute to the top line. Otezla sales in the third quarter were driven by increased demand, with continued benefit from expanded market access and higher channel inventory levels. We expect the momentum to continue in the fourth quarter. Encouragingly, Celgene is also working on label expansion of drugs like Pomalyst/Imnovid, Abraxane and Otezla, among others. Pomalyst in combination with bortezomib and dexamethasone (PVd) is being evaluated for the treatment of relapsed/refractory multiple myeloma ("RRMM") and an approval for the same is expected in Europe and Japan.

The sNDA for plaque psoriasis drug Otezla has been accepted for Behcet’s disease, with a Prescription Drug User Fee Act (PDUFA) action date of Jul 21, 2019. The company is expected to submit an sNDA to the FDA for Otezla for a label update to include moderate-to-severe scalp psoriasis, in the second quarter of 2019.

A decision from the FDA is expected by Mar 12, 2019 on the supplemental Biologics License Application (sBLA) filed by Roche for Tecentriq in combination with Celgene’s Abraxane for the initial treatment of patients with PD-L1-positive, metastatic triple-negative breast cancer.

We also expect the company to throw more light on its promising candidates. Celgene and partner Acceleron Pharma XLRN are evaluating luspatercept in two phase III studies — BELIEVE and MEDALIST. Both the companies intend to submit regulatory applications for the drug in the United States and Europe in 2019.

Celgene has been in news since the beginning of 2019, due to the recent announcement of a merger agreement made by large-cap pharma company, Bristol-Myers Squibb Company BMY. Share price of Celgene increased on the news. The acquisition is expected to close in the third quarter of 2019. We expect management to throw more light on the same.

Share Price Performance

Celgene’s stock lost 1.9% in the last six months compared with the industry’s 11.3% decline.


Another Stock That Warrants a Look

Here is a health care stock you may want to consider as our model shows that this too has the right combination of elements to post an earnings beat this quarter.

Vertex Pharmaceuticals VRTX is scheduled to release its results on Feb 5. The company has an Earnings ESP of +4.52% and a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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