Celgene Is 30% Overvalued

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Big pharma is on the ropes right now. Issues range from failures within their drug pipelines to high debt levels to being exposed for making acquisitions at the height of the financial markets. When financial markets turn down it could be difficult for firms like Celgene (CELG), Mallinckrodt (MNK) or Allergan (AGN) to justify overpaying for companies. After hiking drug prices or laying off employees it still could be difficult for them to compensate for poor deal making.

In 2017 the company discontinued phase III trials and an extension trial for mongersen,¬† expected to treat Crohn’s disease. Its recent Refusal To File (“RTF”) letter from the FDA pursuant to ozanimod (multiple scleroris) left many questioning management’s competency. Q1 2018 product sales grew by 20% Y/Y and EBITDA was up 19%; however, blockbuster cancer drug Revlimid represented over 60% of sales. Revlimid appears to be a reliable moat. The questions remains, how long can Celgene rely on double-digit price hikes for Revlimid in order to sustain the growth narrative?

Otezla, one of Celgene’s largest revenue generators, appears to be cracking. Its Q1 revenue was up 46% Y/Y, yet fell¬† 5% sequentially. Johnson & Johnson’s (JNJ) Tremfya punished Otezla and other psoriasis players. Celgene’s business prospects appear to be weakening, and its share price should reflect that. Shocking The Street, a premium investment service the Shock Exchange runs in conjunction with Seeking Alpha, estimates CELG is 30% overvalued. Read more:

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