This morning, Celgene Corp. (CELG) reported third quarter earnings of 56 cents per share, beating the Zacks Consensus Estimate by 7 cents. The company had reported earnings of 40 cents in the year-ago period.

Total revenues came in at $695.1 million for the quarter, an increase of 17.3% over the same period in 2008. The increase in total revenues was driven by global market share gains and increased duration of the therapy of multiple myeloma drug Revlimid and the worldwide growth of myelodysplastic syndrome (MDS) drug Vidaza. Revlimid net sales came in at $449.6 million, an increase of 31% over the third quarter of 2008.

Net sales of Thalomid, also approved for multiple myeloma, were $110 million. Vidaza net sales came in at $103.1 million, an increase of 62% over the third quarter of 2008.

Research and development spend increased to $193.4 million from $160.9 million in the year-ago quarter. Selling, general and administrative expenses in the quarter increased 14.2% to $192.5 million.

Celgene’s net income for the quarter was $216.8 million or 46 cents per share compared to the prior-year’s $136.8 million, or 29 cents per share.

The company had a strong balance sheet. As of Sept. 30, 2009, Celgene held $2.76 billion in cash, cash equivalents and marketable securities.

We are concerned about top-line growth for the rest of 2009 and beyond for Celgene. The negative outlook for Thalomid is due to better alternatives available for multiple myeloma such as Revlimid and Velcade of Millennium Pharmaceuticals, now acquired by Takeda Pharmaceuticals. However, a sales slowdown for Revlimid will have much greater impact on top line growth for Celgene since the drug alone accounted for about 65.5% of total revenues in the reported quarter.

We have noticed that sales growth of Revlimid begun to slacken dramatically since the fourth quarter of 2008. Growth rate of 47% for that quarter was much lower than the growth rates in the first three quarters of 2008. In the reported quarter, growth rate of Revlimid declined further to 31%.

However, since the company is expanding its labels into other indications, we expect Revlimid sales to grow in the coming years, albeit at a declining rate. We feel that sales of Vidaza will continue to increase and will become a significant contributor to both top-line and bottom-line growth in the years to come. The negative growth of its other product Thalomid is likely to continue due to the presence of better alternatives in the market for multiple myeloma.

Currently, we are Neutral on Celgene.
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