Celgene: Its Valuation Compared to Its Peers

Celgene’s valuation

On March 14, 2016, Celgene (CELG) was trading at a forward PE (price-to-earnings) multiple of about 13.1x. Since January 1, 2016, the company has traded at PE multiples of 13.1x–16.6x.

Celgene: Its Valuation Compared to Its Peers

Since January 2014, Celgene (CELG) has consistently traded at premium valuations compared to other hematologic oncology players such as Merck & Co. (MRK), Amgen (AMGN), and AbbVie (ABBV). In 2015, Celgene managed to expand approved indications as well as geographic markets of its flagship product, Revlimid. It also strengthened the position of Otezla in the immunology and inflammation (or I&I) market.

The company also entered into multiple collaborative arrangements to add innovative molecules to its hematology and oncology franchise. It invested significantly in its research and development (or R&D) pipeline in 2015, which also involved several late-stage clinical trials.

In addition to hematology, immuno-oncology, and epigenetics, the company is developing a unique drug in the inflammatory bowel disease space. It’s expected to be a key growth driver in the future.

Since January 1, 2016, Celgene has witnessed a drop in PE multiples, as the company’s 4Q15 guidance was lower than Wall Street estimates. In 4Q15, the company’s EPS (earnings per share) was $1.18, lower than analyst estimates of $1.22. The shortfall can be attributed to the impact of milestone payments paid by Celgene to partner OncoMed Pharmaceuticals, which was about $0.07 per share.

On January 11, 2016, Celgene announced a reshuffling of its top management. Effective March 1, 2016, the company’s new CEO (chief executive officer) is Mark Alles. Under the leadership of the previous CEO, Bob Hugin, Celgene witnessed strong growth in market capitalization and overall shareholder value. Hugin has been promoted to the executive chairman position. Investors seem doubtful that Alles will be able to sustain the company’s growth rate.

Analyst recommendations

In a Bloomberg survey of 29 brokerage firms, recorded on March 15, 2016, about 80.8% of the brokers rated Celgene a “buy,” while 15.4% rated it a “hold.” Only 3.8% rated Celgene a “sell.”

The consensus 12-month target price for Celgene is $139.18, compared to $99.99 on March 14, 2016. This implies a 39.2% return. If Celgene’s share price manages to realize this projection, it could have a positive impact on the share price of the iShares Nasdaq Biotechnology ETF (IBB). Celgene accounts for about 7.6% of IBB’s total portfolio holdings.

In the next part, we’ll explore Celgene’s growth strategy in the hematologic oncology space.