Celgene (CELG) was on the receiving end of an upgrade today, but the upside has been limited as the biotech sector continues to sell off.
Shares of Celgene gained 0.6% to $142.06 today, even as Amgen (AMGN) dropped 2% to 111.41, Biogen (BIIB) fell 3.1% to $285.81 and the SPDR S&P Biotech ETF (XBI) declined 3.9% to $124.37, extending its losing streak to three days. Gilead Sciences (GILD) dipped 0.2% to $73.90, ending a nine-day winning streak
In a report titled “It’s Time…We Think,” Piper Jaffray’s Joshua Schimmer and team explain why they raised their rating on Celgene:
The biotech sector has cooled off significantly over the past couple of months. Even a crushing EPS beat by [Gilead] barely moved that stock. Growth in general has come under pressure, and we are cognizant that high-multiple stocks may struggle to perform. While [Celgene] can’t yet be considered a “value” stock trading at a 2014 P/E multiple of 20x, it’s 20%+ sustainable EPS CAGR means it will eventually either become a value stock or see multiple stabilization with share performance driven by organic EPS growth…
We believe the valuation now reflects a conservative 2024 Revlimid patent expiry and excludes meaningful contribution from the advancing pipeline. As such, we are less concerned with Revlimid’s May 15 Markman hearing outcome for the Revlimid polymorph patents since we believe a settlement somewhere between the method of use (2024) and polymorph (2027) dates is the most likely outcome regardless. Such a settlement could come this year and act as a potent catalyst to lift shares out of their doldrums. [Celgene] is attuned to delivering shareholder value and we believe will fight aggressively to lift the Revlimid polymorph patent overhang and deliver sustainable EPS growth. We are upgrading from Neutral to OW…
At least the market noticed, even if the gain wasn’t much.
This post has been updated.
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