Understanding Celgene’s Premium PE Valuation



Celgene’s valuation on PE basis

On September 1, 2016, Celgene (CELG) was trading at a forward PE (price-to-earnings) multiple of ~13.2x. Amgen (AMGN), AbbVie (ABBV), and Biogen (BIIB) were trading at forward PE ratios of ~13.0x, 10.2x, and ~13.8x, respectively.

AbbVie was trading at a significant discount when compared with the other three peers. Perhaps rising concerns over top-line growth following the composition of matter patent expiry for Humira, AbbVie’s lead drug, has caused a discounted valuation for ABBV. In 2015, Humira accounted for ~61% of AbbVie’s total revenue.

Since the beginning of 2016, Celgene’s (CELG) stock has fallen by ~13%. In this series, we’ll look at the possible threats and opportunities for its blockbuster drugs, as these drugs are Celgene’s primary valuation drivers.

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Why such a premium for Celgene?

Celgene’s premium valuation is justified by its continued robust revenue growth, supported by three blockbuster drugs—Revlimid, Pomalyst/Imnovid, and Abraxane—coupled with the fourth potential blockbuster drug, Otezla.

Revlimid and Pomalyst are both indicated for multiple myeloma, while Abraxane is indicated for lung, breast, and pancreatic cancer. Otezla is an inflammation and immunology drug that is expected to cross $1 billion in sales in 2016.

Celgene is also working on the development of new indications for its key drugs. For detailed information on CELG’s plan to dominate the multiple myeloma space, please read Celgene Continues to Develop New Multiple Myeloma Drugs.

Valuation multiple

Celgene’s average PE multiple over the past two years was 16x of its forward earnings. Its median valuation multiple over that period stood at 16.2x. Over the last two years, its average PE multiple ranged from 12x–20x of the estimated earnings. The current forward PE multiple of 13x seems to be at attractive levels for the stock.

If you invest in the iShares NASDAQ Biotechnology ETF (IBB), you can enjoy exposure to Celgene. IBB holds ~7.8% of its total portfolio in Celgene.

Continue to the next part to understand Celgene’s efficiency based on its EV-to-EBITDA multiple.


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