Potential in Celgene's Weak Quarter

In the first quarter of 2012, Celgene Corporation had weak product sales, causing UBS to drop its price target from $88 to $85. Although the company’s profit grew, it missed estimates, causing the stock to fall sharply.

Celgene’s revenue increased by 13% to $1.27 billion, missing the forecasted $1.31 billion. Before the earnings were released the stock had closed Wednesday at $77.91. The stock closed Monday at $72.93.

But while the company missed in certain areas, Celgene is expected by UBS to have a strong second quarter, something SeekingAlpha agrees with.

“The first quarter miss was due to three items of note, U.S. Revlimid sales weakness was due to a Medicare coverage gap expense,” SeekingAlpha wrote.. Second, draw down of inventory levels outside of the US occurred, and third, SG&A expenses increased to 25.6% of revenues up from 23.6% of revenues in the fourth quarter and breaking three sequential quarters of decline. All could be considered one-time events.”

Celgene’s key growth driver is Revlimid, which did well both in the U.S. (up 17%) and abroad (up 16%). The drug is also in several trials in lymphoma and leukemia patients. In contrast, net sales of other drugs didn’t fare as well. While Vidaza’s net sales climbed, this was mostly driven by international sales, while U.S. sales declined.

Also on the horizon for the company, it is forming a partnership with Enzyme. AP reported that Celgene will pay $90 million upfront to “develop drugs that treat genetically defined cancers, including a potential treatment for leukemia.”

Despite the setback, UBS and SeekingAlpha both expect Celgene’s stock price to go up; however, Zacks.com is neutral on the stock.

The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock.

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Celgene Reports Q1 Results: Seeing Further Upside
Celgene Slips as 1Q Results Fall Short of Views