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Is Celgene's Fortune Running Out? Wall Street Looks for Answers

  • Celgene is the Worst Performer in S&P 500 After Forecast Cut
  • Analysts Look for Clarity on Pipeline After Recent Failure

Celgene Corp. has sent the biotech sector tumbling after reporting what were described as “alarming” third quarter earnings and cutting its 2020 forecast. Investors had been looking for reassurance after a recent failure in an anticipated blockbuster drug as well as concerns over patent issues of its top-selling Revlimid, but were left searching for answers. Analysts now see increasing pressure for more details on Celgene’s pipeline and further clarity on the guidance given. Shares in the company fell as much as 20 percent following the results, heading for the lowest closing price since June 2016.

Leerink, Geoffrey Porges

(Outperform, $156 Price Target)

“Celgene reported alarming Q3 2017 with revenues 4% below consensus and pro forma EPS 2% above consensus, and the company lowered their long-term 2020 revenue targets by 5-10% after recent pipeline failures and negative market trends for Otezla. Investors are likely to ask whether the company’s good fortune has run out, with disappointments (mongersen) and negative revisions (Otezla) left and right. Recently installed new management are likely to face tough questions from investors about the company’s direction and leadership after the operational and guidance disappointments this quarter”

“Guidance adjustments are likely to weigh on the stock near-term until more clarity from pipeline programs is established. In essence, Celgene have loaded their mid-term future to Revlimid, which the market increasingly anticipates will face generic competition in 2022, and a very low multiple is likely to be ascribed to this change in mix.”

Cantor Fitzgerald, Mara Goldstein

(Overweight, $162 Price Target)
“We continue to see strong financial flexibility that can offset some topline weakness, but ultimately the company must convert its large pipeline to commercial product in order to dilute Revlimid’s profit & loss dominance, and this capitulation amid the loss of GED-0301 last week elevates concerns about doing so.”

“News is likely to pressure the shares as this suggests that pipeline execution and strengthening of non-Revlimid franchises are under greater pressure. We also expect the next quarter to reflect the loss of the GED-0301 in Crohn’s disease, which was not included in our valuation”

Mizuho, Salim Syed

(Buy, $158 Price Target)
“The most important thing in the press release is that CELG has now taken down its 2020 guidance. The net decrease of $1 billion in 2020 numbers is due to lower expectations for CELG’s Oncology and I&I franchises offset by increase confidence in their core competency, Hematology. Recall, GED-301 recently failed, which is part of I&I, but we will need the call to understand how much of GED-301 was baked in CELG’s 2020 guidance. Investors were looking for reassurance on this print, conference call following GED-301’s failure”

“Investors will also want to understand CELG’s process in establishing its 2020 guidance (both previous and current), since the company has previously referred to it as "conservative", and disclosure policy around interim analyses.”

Barclays, Geoff Meacham

(Equalweight, $135 Price Target) 
“With the recent setback for ‘0301 in Crohn’s disease, most investors thought that upside on 2020 could be more limited, but few if any expected formal lowering of long-term guidance.”

“Given the diminished outlook, we think investors will increasingly press Celgene to find additional commercial or late pipeline stage assets.”

Cowen, Eric Schmidt

(Outperform, $150 Price Target)

“Investors are likely to be very concerned by the shortfall in Otezla sales. In the absence of third party prescription data, investors had relied upon management to provide an accurate description of the drug’s trajectory and changing reimbursement environment. Hence, today’s news is likely to impact the company’s credibility. While the adjustments to 2020 top- and bottom-line guidance are fairly minor, the new guidance forecasts greater reliance on Revlimid and Pomalyst. Given concerns about these franchises’ longevity, greater weighting toward these products will not be well received.”

RBC, Brian Abrahams

(Top Pick, $166 Price Target)

“Otezla miss is the biggest story of the quarter - though most expected Otezla softness was based on weak prescription trends, sales came in at just $308 million - substantially below even our lower-than-consensus $391 million estimate, attributed to competitive dynamics, pricing pressures, and a slowing U.S. dermatology market.”

“Negative optics on quarter, with Otezla miss and 2020 guidance reduction, in face of recent negative sentiment, difficult to combat, but downside move this morning looks exaggerated to us’

“At $100 the stock now trades at 8x the company’s 2020 EPS guidance - so suggests it may already reflect a potential floor.”

Wells Fargo, Jim Birchenough

(Downgrades to Market Perform from Outperform, Price Target cut to $101 from $163)
“With focus on generic risk to Revlimid beyond 2020, we believe that a tipping point of setback has been reached with GED0301 failure in Crohns’s, push out in timelines for ozanimod in ulcerative colitis, a reduced outlook for solid tumor revenues, deceleration of Otezla growth... and potential impact on ozanimod outlook with this more challenging reimbursement environment.”

“We expect the generic Revlimid overhang to intensify and while positive on the outlook for BCMA CAR-T bb2121 in myeloma, we believe this may not be sufficient to grow through 2020 to 2025 time period.”

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