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Earnings Grow Year over Year at Celgene

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Celgene Corporation (CELG) reported fourth quarter 2013 earnings (including stock-based compensation expense but excluding other special items) of $1.28 per share, beating the year-ago earnings by 8.5%. Higher revenues drove earnings in the reported quarter. The Zacks Consensus Estimate was $1.39 per share.

Quarter in Details

Total revenues climbed 21.3% to $1.76 billion in the fourth quarter of 2013. Revenues were boosted by the impressive performance of cancer drugs Revlimid and Abraxane. Net product sales climbed 22% to $1.72 billion. Revenues marginally beat the Zacks Consensus Estimate of $1.73 billion.

Net sales of Revlimid, the key growth driver at Celgene, came in at $1.14 billion, reflecting an increase of 13% over the year-ago period. The drug did well both in the U.S. (up 15%) and international markets (up 11%). Market share gains and increased duration of therapy drove sales in the fourth quarter of 2013.

Net sales of another cancer drug, Abraxane, jumped 90% to $202 million. The drug did well both in the U.S. (up 89% to $159 million) and international markets (up 92% to $43 million). Sales in the U.S. were boosted by the label expansion of the drug into the non-small cell lung cancer indication in the final quarter of 2012 and the pancreatic cancer indication in Sep 2013.

Net sales of Vidaza declined 22% to $168 million. Soft U.S. sales (down 70%) due to generic competition hurt results during the quarter. We note that Dr. Reddy's Laboratories Ltd. (RDY) gained U.S. approval to market its generic version of the drug in Sep 2013.

U.S. sales of Pomalyst, approved by the U.S. Food and Drug Administration (:FDA) in Feb 2013 in combination with low-dose dexamethasone for the treatment of relapsed and refractory multiple myeloma patients, who have received at least two prior therapies, came in at $89million in the fourth quarter of 2013, up 15.5% sequentially.

The approval of the drug (trade name: Imnovid) in the EU in Aug 2013 has further boosted its sales potential. Sales of the drug in international markets were $32 million in the final quarter of 2013 as opposed to $13 million in the preceding quarter.

Net sales of another cancer drug, Thalomid, continued to decline due to the availability of better alternatives. Thalomid sales were $61 million, down 16%.

Research and development (R&D) expenses (excluding stock-based compensation and other special items) climbed 44.7% to $460 million. The increase was due to Celgene’s efforts to develop its pipeline along with collaboration payments. Selling, general and administrative expenses (excluding stock-based compensation and other special items) in the quarter increased 17.6% to $400 million. Costs associated with the launches of Abraxane in the pancreatic cancer indication, Pomalyst/ Imnovid led to the rise in SG&A expenses. Costs associated with the anticipated launch of apremilast (proposed brand name: Otezla) also pushed up SG&A costs.

Outlook for 2014 Maintained

Celgene re-affirmed the guidance provided by it on Jan 13, 2014. Total revenues in 2014 are projected to increase 15% year over year to $7.5 billion (in line with the Zacks Consensus Estimate) driven by strong product sales.

Net product sales are expected to grow 16% in 2014 to $7.3–$7.4 billion. Revlimid is expected to be the major contributor with 2014 sales expected in the range of $4.9–$5.0 billion, up 16%. Celgene expects 2014 earnings (excluding stock-based compensation and other special items) in the range of $7.0–$7.20 per share. The Zacks Consensus Estimate currently stands at $6.49 per share.

Our Take

We are impressed by the strong sales of the key cancer products at Celgene in the final quarter of 2013.  We expect Celgene to easily achieve its forecast for 2014 driven by its strong product portfolio.

We are also impressed by Celgene’s efforts to develop its pipeline. We expect 2014 to be a data rich year for the company. Management at Celgene is highly bullish on the prospects of its pipeline candidate apremilast. The candidate is under review in the U.S. for the psoriatic arthritis indication (target date: Mar 21, 2014).The candidate is also expected to be approved in the U.S. for psoriasis in 2014 (target date: Sep 23, 2014). Celgene is also seeking EU approval for the candidate in the combined psoriasis and psoriatic arthritis indication. The European Committee for Medicinal Products for Human Use (CHMP) is expected to render its opinion by Dec 31, 2014.

Celgene, a biopharmaceutical company, carries a Zacks Rank #3 (Hold). Actelion Ltd. (ALIOF) and Medivation Inc. (MDVN) are examples of better-ranked stocks in the biopharma space with a Zacks Rank #1 (Strong Buy).

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