Celgene: Extremely Attractive Growth Play

| About: Celgene Corporation (CELG)

The Overview

In early December, Celgene Corp. (NASDAQ:CELG) presented encouraging interim results of its study CLL-009, which is evaluating the efficacy of Celgene's key drug, Revlimid, in its ability to treat patients suffering from chronic lymphocytic leukemia. If this study eventually proves fruitful, Celgene will have another avenue for potential revenue through the prescription of Revlimid for CLL, which it is currently not cleared for. This was also combined with positive results in other studies Celgene presented at the 53rd Annual Meeting of the American Society of Hematology. Celgene also recently announced that Revlimid helped slow multiple myeloma, a development which could pave the road for Revlimid to be approved as a treatment option. U.S. regulators have also recently issued a favorable opinion of Revlimid along with an endorsement from European Union health regulators that could easily result in higher Revlimid sales in Europe. Overall, although less reliance on revenue from Revlimid would be preferred, Celgene continues to exhibit extremely positive growth and is an excellent investment.

The Niche

Celgene is a $29.78B integrated biopharmaceutical company that discovers, develops, and commercializes various therapies to treat cancer and immune-inflammatory related diseases. Its flagship product is Revlimid, which accounts for about 70% of sales. However, Celgene has focused on expanding its pipeline of drugs and other drugs also show significant revenue potential. For example, Vidaza is approved by the FDA for treatment of all subtypes of myelodysplastic syndromes and was granted orphan drug designation by the FDA for the treatment of acute myeloid leukemia. This means that Vidaza has the right to 7 years of market exclusivity in the area of acute myeloid leukemia, which could lead to significant revenue generation from Vidaza. Also, from a company standpoint, Celgene has exhibited a desire for aggressive expansion, a factor that will definitely increase its host of drugs and contribute to its profitability. Celgene has had a long history of strategic acquisitions to strengthen its manufacturing and research capabilities and enhancing its product line. In fact, there is a good chance that Celgene wouldn't have become the industry leader it is now without crucial acquisitions of companies such as Pharmion Corporateion and factories such as Siegfried's API manufacturing facility. Celgene's most recent strategic acquisition was Gloucester Pharmaceuticals, which has developed a crucial orphan drug named Istodax that was also given fast track status by the FDA. Celgene's expansion efforts, encouraging trial studies, and valuable product line make CELG an extremely attractive addition to any investment portfolio

The Result

Celgene's growth and balance sheet are very positive and exceed the vast majority of CAN SLIM requirements for an outperforming stock. Its 4Q filings showed a 36% increase in EPS compared with the 2010 4Q EPS, delivering a 7.4% earnings surprise. This growth has not been spontaneous by any means: the average EPS Growth of Celgene's last 3 quarters was 32%. Going further back, Celgene boasts 4 consecutive years of EPS growth and a 3-Year EPS Growth Rate of 35%. These numbers show that Celgene has a history of outperformance and consistent double-digit growth, one which Celgene continues to exhibit to this day. Presently, estimate revisions are up and Celgene is expecting EPS for the current quarter to increase 47% from that of the same quarter last year. Overall, Celgene's 2011 EPS figures are estimated to increase 35.71% from its 2010 EPS figures, showing an up-trending pattern of growth.

Sales figures for Celgene are also extremely positive. Its 2011 4Q sales figures represent a 37% increase from those of the same quarter a year ago. Also, Celgene's 3 Year Sales Growth Rate is 30%, showing strong demand for its products and an increasing audience for Celgene's new drugs/new applications for existing drugs. Celgene has an extremely healthy Annual Pre-Tax Margin of 44.8% and a Gross Margin (ttm) of 93.61%, reflecting the profitability of Celgene's drug pipeline. Celgene also has a low Debt/Equity Ratio of 21% and a high ROE of 25.3%. Celgene is in excellent financial shape and has experienced unprecedented growth in the last few years, growth which will very likely continue and ultimately be reflected in the positive performance of its stock.

The Verdict

As noted by fellow Seeking Alpha contributor Insider Monkey, Celgene has seen recent insider buying, a positive indication of confidence within the company. Institutional buying also increased in Celgene's 4Q by 2%, which has resulted in 2 consecutive quarters of increasing fund ownership. Celgene is an excellent momentum/growth play that dominates its niche, has a pristine balance sheet, expresses a necessary desire for expansion, has a strong product pipeline, and exceeds the vast majority of CAN SLIM requirements for a successful stock; I strongly recommend investing in this company's prosperity and growth.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CELG over the next 72 hours.

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