Celgene Corporation (CELG): Does This BiotechStudy Matter to You?

Too Dependent On One Drug?

Now, I am not saying that Celgene Corporation (NASDAQ:CELG) is definitely involved in this practice, but I do believe it’s possible. The company earned $3.7 billion from sales of Revlimid last year. Yet analysts believe the drug could reach peak global sales of $6 billion. Therefore, at 60% of peak sales, it’s reasonable to suggest that off-label usage is occurring, with only two of its 11 possible indications FDA approved.

One problem for Celgene could arise if the product is already being used for off-label indications, or those that are being tested in clinical trials. If so, this failed study and the number of deaths that occurred could make prescribing physicians fearful.

To investors, we typically view blockbuster drugs as having little risk, but those additional trials and sought indications are very important for continued success. A company that is trying to fight cancer already faces a disease that evolves rapidly, but in the case of Celgene, it is especially vulnerable because so much of its upside is tied to Revlimid.

Conclusion

Celgene is a $55 billion company, trading at 10 times sales. Yet, Celgene Corporation (NASDAQ:CELG) has top-line growth of just 15%, which makes it the slowest growing biopharmaceutical company that trades over 10 times sales. Therefore, I view Celgene as very risky right now, and I want to see how Revlimid performs over the next several quarters. If sales remain strong, then Celgene didn’t miss a beat with this failed study. But, if sales fall, then this failed study had more than what Wall Street obviously projected. If so, then Celgene’s valuation could fall drastically.

The article Does This BiotechStudy Matter to You? originally appeared on Fool.com and is written by Sherrie Stone.

Sherrie Stone has no position in any stocks mentioned. The Motley Fool recommends Celgene. Sherrie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.