With a more than 13% increase in price between the turn of the year and the close of market on Wednesday, it has been a fairly good year for Celgene (CELG) investors.
However, the story seems to be changing already, with CELG shedding about 6.2% of its value just after opening bell today following the release of a mixed third-quarter earnings.
Here are some quick figures … CELG said its total revenue for the quarter was $2.3 billion, an 18% increase over prior-year quarter revenue — which falls short of the $2.4 billion that analysts expected. CELG reported a net loss of $34.1 million, or 4 cents per share, down from the $508 million, or 61 cents, it reported for the same quarter a year ago.
CELG attributed the loss during Q3 to one-time items, which include upfront costs associated with its partnership with Juno Therapeutics (JUNO) as well as costs associated with its acquisition of Receptos.
The Upside for Celgene
Contrary to what the market thinks, though, I believe CELG had a good quarter.
Investors have to note that the net loss was primarily impacted by what is, in reality, costs accrued through growing the company. CELG actually said its diluted net income (non-GAAP) was $1.01 billion, a 26% increase over the prior year.
In essence, that the loss is attributable to business growth activities should actually be a cause for optimism. So it is bizarre that the reaction of the market to an evidence of growth is negative.
In addition, the third-quarter earnings release also revealed that CELG makes drugs that people take — and that it has a good marketing strategy in place to make the drugs available to patients.
In the earnings release, CELG outlined the sales performances of four of its top products – Revlimid, Abraxane, Pomalyst/Imnovid and Otezla. The sales of all the four drugs increased, primarily propelled by increased volume and market share, according to CELG.
Now, there are mainly two ways to increase revenues. It’s either you sell more units or you raise prices. CELG is increasing revenues by selling more. This, in a way, relieves pressure on CELG with regard to the patent dispute that Kyle Bass of Hayman Capital Management filed against CELG over Revlimid.
One of the accusations is that CELG has raised the price of Revlimid too high relative to the price when it was first released. So it is quite refreshing to not see that the sales growth of any of its product is driven by price. And I would actually conclude that, with sales volume still increasing at current prices, CELG doesn’t have a pricing issue, or at least not as big as Mr. Bass is trying to make out.
The Q3 earnings once again show us that CELG hasn’t gotten the best out of Revlimid just yet. Celgene filed a supplementary new drug application with the FDA for expanded indication of Revlimid for the treatment of non-del 5q lower risk myelodysplastic syndromes.
In addition to that, CELG is also planning to present data on two different clinical trials still relating to Revlimid at the next American Society of Hematology annual meeting. If any of these efforts were successful, Revlimid would sure have more sales.
Bottom Line for CELG Stock
In short, third-quarter earnings show us that CELG continues to grow its business impressively through partnerships — and it’s unfortunate that the market is reacting negatively to that. We also learn that Celgene stock keeps selling more products.
The third takeaway from the earnings is that blockbuster drug Revlimid hasn’t reached its peak yet.
These three are all positive trends that should make investors optimistic about the company. Therefore, savvy investors might want to take advantage of the overreaction to buy more CELG stock.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned stocks.
