Celgene (CELG) is down 20% at a sixteen-month low after the company missed third quarter sales estimates, lowered fiscal 2017 sales guidance but most importantly, lowered its 2020 financial targets this morning.
Third quarter adjusted EPS grew 21% to $1.91, above estimates. However, net product sales grew 11% to $3.3 billion, ~4% below estimates.
- Blood cancer drug Revlimid sales increased 10% $2.1 billion, driven primarily by increased volume, as a result of increases in duration and market share.
- Notably, psoriasis drug Otezla sales rose 12% to $308 million, down from 49% growth in the second quarter. Otezla sales in the U.S. rose just 2%, down from 41% last quarter, which were impacted by an increase in gross-to-net adjustments from contracts implemented in January and a slowing in overall category growth due to a more challenging market access environment.
Celgene lowered fiscal 2017 rev guidance to $13 billion but raised the low end of EPS guidance to $7.30-7.35. The lower sales outlook was the result of Otezla sales guidance going to $1.25 bln from $1.50-1.70 billion.
What's really weighing on the stock today is the cut to 2020 financial targets. Celgene lowered 2020 revenue guidance to $19-20 billion from $21 billion and EPS guidance to at least $12.50 from at least $13.00.
Management said the cut was due to last week's discontinuation of GED-0301, a drug for Crohn's disease, and lower expectations for Otezla, as well as some other minor updates.
While the tempered expectations have certainly disappointed investors and perhaps impaired management's credibility to a degree, it also resets a more achievable bar and still represents a 20% EPS CAGR in the coming years.
Management also noted that the 2020 targets do not include partnered pipeline assets in cell therapies with bluebirdbio (BLUE) and Juno Therapeutics (JUNO).
Celgene has a busy business development team that has partnered with a myriad of biotech companies, mostly in oncology. That strategy will continue.
Investors are still concerned about patent cliffs that Revlimid faces beyond 2020.
Celgene management indicated the company will be buying back stock at these levels.
Celgene's valuation has become fairly cheap, especially considering the growth, now that the stock is down more than 33% this month.
With a $75 billion market cap, CELG is now trading at 13x adjusted earnings estimates (11x next year's estimates) with a PEG (P/E over EPS growth) ratio below 0.6x.
Important technical levels to watch are 95 and 100.