Business

Celgene Hasn't Earned the Benefit of the Doubt

Investors need more evidence that the company is getting beyond its recent spate of unforced errors.

A dose of stability, at least.

Photographer: Jayme Gershen/Bloomberg

Celgene Corp. has been the sick man of biopharma lately, and a big disappointment to investors. That narrative may be changing. 

The company delivered first-quarter earnings on Friday, and importantly, there were no nasty surprises. Earnings per share and revenue actually beat analysts’ estimates, and the company boosted its full-year sales guidance. Celgene also said it plans to refile its multiple sclerosis drug ozanimod with the Food and Drug Administration in the first quarter of 2019, sooner than some expected (the FDA rejected an initial application for approval in February). 

All in all, it was a needed dose of stability. But the firm’s shares — which have been hammered in recent months – reacted in a relatively muted way, rising only about 2 percent in midday trading. That’s a reminder of the trust the company has burned, and how badly it needs to deliver on Friday’s promises. 

Misery

Celgene's shares have been in a deep funk amid drug development issues and a guidance cut

Source: Bloomberg

Celgene’s woes started in October, with the clinical trial failure of an expensively acquired Crohn’s disease drug and a massive cut to its 2020 revenue guidance. The company followed that up with the news that ozanimod’s launch would be substantially delayed.

The impact of these setbacks is heightened by the fact that Revlimid — a blood-cancer drug that accounts for more than 60 percent of Celgene’s revenue — will face generic competition by 2022. Investors are skeptical that the company can replace the medicine. Beyond that, Celgene has an interesting set of drugs in development, but its R&D execution has been found wanting.

The ozanimod saga in particular has been damaging. Celgene’s application for approval was missing key information, which doesn’t instill confidence in its R&D department. Ozanimod was supposed to launch this year — as it stands now, it will be lucky to hit the market before 2020. That gives competing medicines more time to establish themselves. If Celgene’s timeline for answering the FDA’s concerns is wrong, the drug’s sales potential will be in greater jeopardy. 

Late Expectations

A significant delay to the launch of a key Celgene medicine has substantially reduced its sales prospects

Source: Bloomberg

Celgene’s raised 2018 guidance relies mostly on Revlimid, so it seems relatively safe. But it also reaffirmed its 2020 guidance, which depends more on other drugs and pipeline projects and is much riskier. Investors, understandably,  aren’t prepared to give the company the benefit of the doubt. 

Penalized

Celgene used to trade at a premium to its big biotech rivals and now commands a significant discount

Source: Bloomberg

If the company builds on its first quarter’s performance, the sentiment may change. But if Celgene’s affection for unforced errors continues, the floor may be lower still. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Max Nisen at mnisen@bloomberg.net

    To contact the editor responsible for this story:
    Beth Williams at bewilliams@bloomberg.net

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