Top Analyst: Celgene Corporation (CELG) Credibility Likely to Take a Hit Following “Major” Otezla Disappointment

Eric Schmidt worries CELG investors will further question franchises' longevity in the 3Q earnings aftermath.

Celgene Corporation (NASDAQ:CELG) shares are crashing 18% much like investors’ hopes for psoriasis drug Otezla, which dared to massively underwhelm in the third quarter for the biotech giant.

Top analyst Eric Schmidt at Cowen may be a Celgene bull, but even he acknowledges that “Otezla disappoints in a major way” this quarter, attributing a sharp revenue miss to the lead asset’s performance that simply was not up to par with expectations. For this reason, the CELG team was forced to reign in its annual sales guide. Additionally, cancer drug Revlimid in multiple myeloma likewise underclassed the Street, and Celgene brought down its expectations for 2020 on all assets except the hematology segment.

For the third quarter, Otezla brought to the biotech table a 12% year-over-year rise to $308 million, a far cry from the Street’s estimate looking for $11 million. Meanwhile, Revlimid realized a 10% year-over-year climb to $2.08 billion, falling below consensus of $2.11 billion.

Boiling down takeaways from the print, Schmidt does not stray away from his bullish stance on the giant, but notes that such a flop will not go unnoticed by panicked investors: “Cost-saving measures for the quarter enabled Celgene to exceed non-GAAP EPS estimates and raise non-GAAP EPS targets for the year. Importantly the company updated 2020 financial targets, lowering guidance across the board with the exception of the company’s hematology franchise, where existing products are expected to best original expectations. Investors are likely to be very concerned by the shortfall in Otezla sales. In the absence of third party prescription data, investors had relied upon management to provide an accurate description of the drug’s trajectory and changing reimbursement environment. Hence, today’s news is likely to impact the company’s credibility. While the adjustments to 2020 top- and bottom-line guidance are fairly minor, the new guidance forecasts greater reliance on Revlimid and Pomalyst. Given concerns about these franchises’ longevity, greater weighting toward these products will not be well-received.”

For now, the analyst reiterates an Outperform rating on CELG stock with a $150 price target, which represents a 53% decrease from current levels.

Eric Schmidt has a very good TipRanks score with a 64% success rate and a high ranking of #25 out of 4,700 analysts. Schmidt collects 42.1% in his annual returns. When recommending CELG, Schmidt yields 8.9% in average profits on the stock.

Wall Street largely continues to back this biotech shark, considering TipRanks analytics reveal CELG as a Buy. Based on 24 analysts polled by TipRanks in the last 3 months, 18 rate a Buy on Celgene stock, 5 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $150.85, marking a 55% upside from where the stock is currently trading.

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