More details are being made available about studies of Celgene’s (CELG) blockbuster drug Revlimid.  According to Bloomberg, the results of several studies, to be released at the American Society of Hermatology meeting later this week, should lead to more widespread use of the cancer drug and could as much as triple its sales.

“Celgene Corp. can more than triple sales for its best-selling cancer pill Revlimid on new data that may convince doctors to choose the drug as a first option over Johnson & Johnson’s intravenous medicine, Velcade.

Revlimid generated $1.3 billion in sales last year as a back-up therapy for patients with the blood cancer multiple myeloma who don’t respond to other options. Findings from research to be reported next week will show how well the pill works as a first-choice treatment, in long-term use and against other tumors. A preliminary report on one study, released in July, suggested Revlimid helped patients live longer.” — Bloomberg.com 11/30/2009

Celgene has leaked details about the study over the past few months and the market has digested them mostly with little affect on the stock price.  The stock had a very nice day back in July, rising nearly 20% after announcing a successful result to the trial.  However, since that day the stock has actually fallen slightly over the next four-plus months, even as the information continues to look extremely positive.  Consider the fact that as of right now, Revlimid accounts for the majority of the company’s sales ($1.3 billion share of the company’s $2.24 billion overall).  If sales of Revlimid were to triple and all other sales remained the same, CELG’s company-wide sales would at least double.

Revlimid has been shown to be effective in extending some cancer patients lives and works well in combination with other treatments.  Also, because it is in pill form rather than intravenous it is more convenient to the patient further increasing its appeal.  In the past, Revlimid has been a secondary option used after the use of Johnson & Johnson’s (JNJ) Velcade or others had proven ineffective.  These new results should help bolster Revlimid’s potential as a first option for cancer patients.

According to our methodology, the stock is priced attractively at current levels of fundamentals and receives our Undervalued rating.  For instance, historically the market has been willing to pay between 10.7x and 20.1x revenue per share for CELG stock, but the current level is only 9.9x.  The price-to-cash earnings looks similarly undervalued compared to the market’s historical valuation of the company.  Of course, this would only improve if the fundamentals appreciate like they could if Revlimid lives up to these expectations.  With so much optimism surrounding Revlimid and its potential, it is surprising that the stock remains Undervalued and it may not stay so attractively priced for long.

“So why do we like Celgene so much, and how come we have time? The main reason I like it is its huge blood cancer drug Revlimid. $1.3 billion sales in 2008. It’s approved by the FDA to treat multiple myeloma. That’s a cancer of the plasma cells and bone marrow. These cancers are horrible…

This could be approved to treat more diseases, help more people and yes, make Celgene shareholders more money. There is a lot of momentum behind Revlimid. Sales are accelerating with several launches this year.  Europe hitting the top line, gaining market share in the US. Up 3% in the last quarter over the previous one. Penetration still at only 34%. It’s about to launch in Canada and Latin America. Expected to launch in Australia late in the fourth quarter…

…What I think is going to be a terrific trade, not an investment, a trade ahead of the annual American Society of Hematology meeting. That’s December 5th. Write that down. Celgene’s going to be presenting some terrific Revlimid data there.  You got that? Again, no hurry, though. I wouldn’t pull the trigger on this trade until the week before the conference.

Celgene is a fabulous biotech company with a terrific slate of drugs for fighting cancer, especially Revlimid. I even think it could be a takeover target for bigger pharma player looking to expand its oncology business. But as Dan Fitzpatrick’s chart shows us, you don’t have to buy it right here. Let it fill in the gap. You could buy some now if you really wanted, but I would much prefer you wait for a pullback …” — CNBC’s Mad Money 11/3/2009

Cramer talked about one of his favorite Biotech companies on his Off the Charts segment on Tuesday’s Mad Money.  As viewers are aware, Cramer considers himself a fundamental analyst, but he still believes that there is value in understanding the technicals of a stock, for this he turns to Dan Fitzpatrick.  From the technical perspective, Fitzpatrick believes Celgene (CELG) is a buy, but it could face some near term weakness.  From reading the charts, this stock would be worth buying around the key support line of $48.

Looking at Celgene from the perspective of a fundamental analyst, this stock is attractive according to our methodology at Ockham.  Revlimid has already surpassed the blockbuster status with more than $1 billion in sales and may have much more growth potential with better penetration and more uses.  Celgene’s growth rate is already attractive, but it still has room to expand in other markets around the world.  For a long term investors, this stock is Undervalued anywhere under $55, but we believe that with the sales strength and earnings growth of Revlimid, CELG could be worth $70.

Cramer, who often views stocks in a much shorter time frame than we do, thinks that this stock may be a better trade than investment.  His belief is that the stock will get a nice boost from a solid showing of Revlimid at the American Society of Hematology in December.  He would buy the week before the meeting and look to sell after a quick pop.  At Ockham, we think it is far too difficult to predict these sorts of trades as so much can change before then, but if you can get Celgene under $55 then it presents a decent value.

Shares of Celgene (CELG) are off more than 15% since issuing profit warning this morning.  They are primarily involved in the treatment of cancer and immune-inflammatory diseases, and judging by sales growth in the last few years, some of their therapies have started to gain traction.  The company says that they expect revenue to be around $600 million in quarter versus estimates of $647.1 million.  Furthermore, the company guided EPS $2.05 to $2.15 for the full year, on the low end of the prior range and well below the expected EPS of $2.17.

“We’ve got Apollo education company falling and Celgene at a 52-week low. The company being downgraded left and right. Citigroup, Barclays, Lazard’s, the list goes on and on the and the company fell short of expectations.” Fox Business Network, Wednesday

The shares have experienced heavy dumping of call options today, according to Dow Jones as traders are betting that the stock will stay below $40 for the near future.  Clearly, the company is experiencing some difficulty in this environment and a total of 5 analysts lowered their price targets or ratings on Celgene this morning and possibly more are coming.  This profit warning will likely not trigger a downgrade at Ockham because we recently placed a Fairly Valued valuation on CELG from our prior Undervalued stance earlier in March. 

At this point, the stock is probably not in danger of an Overvalued valuation because after all the company is still a growth story.  Earnings, even if they come in at the low end of the new guidance of $2.05, would still have grown more than 30% over 2008’s results.  Furthermore, revenue has nearly doubled in just two years, including a gain of 38.5% in the last year.  We think that the stock is appropriately valued for the fundamentals at this point, and we would start to become bullish again on Celgene if it drops below $32 per share.  Having said that, that would be another 14% decline past their 52-week low set today, so we are not necessarily expecting the stock to sink that low.