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Celgene Corporation (CELG) Discontinuation Impairment Charge from Failed Crohn’s Drug Program Is Ultimately ‘Insignificant’

Cantor's Mara Goldstein is not shaken by the $411 million pretax charge impacting CELG in 4Q, as the stock barely dipped past 1% upon the GED-0301 program cancellation news.


Celgene Corporation (NASDAQ:CELG) revealed yesterday in an 8-K further details, in the context of charges coming on the heels of the discontinued Crohn’s drug program, which turned out to be a failure on a sour note of $710 million worth. The anticipated impairment cost for the whole program stands at roughly $1.6 billion, on top of another around $188 million of one-time charges correlated to the expenses of the GED-0301 trial’s “wind-down.”

Cantor analyst Mara Goldstein notes that though a $411 million pretax charge will be hitting the drug maker in the fourth quarter, she sees no real fearful frenzy corrupting sentiment: “The stock has reacted modestly (<1%) and we do no expect the update to have a more significant effect.”

In fact, the analyst notes, “We think CELG’s valuation has already taken a hit for the loss of this program, and an additional update regarding financial effect has been expected.”

“The total $1.8 billion cost is expected to be offset by approximately $1.4 billion decrease in the contingent consideration liabilities associated with the program. […] We think that the charge is not insignificant, given that it corresponds to approximately 30% of the historical quarterly operating expense, but is within our expectations following the announcement of the program discontinuation. Our focus remains the readout from the Phase III program of OZANIMOD, which is expected in 2018, as well as a possible guidance update in January,” writes Goldstein.

Believing shares have a high probability of facing “a struggle to attain a higher valuation until greater clarity on the company’s longer term growth prospects are visible,” the analyst reiterates a Neutral rating on CELG stock with a $112 price target, which implies a 6% upside from current levels. (To watch Goldstein’s track record, click here)

TipRanks shows a moderately optimistic analyst consensus on Celgene’s biotech opportunity. Based on 25 analysts polled in the last 3 months, 14 rate a Buy on Celgene stock, 10 maintain a Hold, while 1 issues a Sell on the stock. With a solid return potential of nearly 20%, the stock’s consensus target price stands at $125.14.