Tuesday, January 15, 2008

Celgene: A 'Shot' of Relief in a Volatile Market.

With this uneasy domestic economy, it's time to look at more defensive names in order to persevere through a very volatile tape. It's not time to bottom pick, catch falling knives or take unecessary risks. This market simply calls for safe, defensive plays. And ONE of those MANY stocks that can make you money is Celgene (NasdaqGS:CELG). In fact, the healthcare sector as a whole is one of the safe bets to ride out a slowing economy, before the Federal Reserve steps in to (hopefully) ease their target interest rate aggressively again tomorrow. But, after watching this Fed and their recent actions, I would not be buying any equity ahead of the meeting, for nothing else but the chance of only a 25 point cut.

Let us move to Celgene independent of the tape. I could go on with the technicals, but that is readily available information. I'd like to point out certain aspects of Celgene that will push this stock to full-valuation in 2008-- be it good management/pipeline or a takeover.

Celgene's 15% year-over-year full EPS growth recognizes this as a $65-$70 stock, trading at a huge discount. For the skeptics, all that needs to be seen is how far the stock is from its fall 2007 high. It's ripe for the picking.

1. The management has been dedicated to not only improving the quality of its pipeline, but to development of innovative cancer drugs, as well as acquisitions of competitors. CELG recently purchased its parter in Revimlid -- German based Pharmion (NasdaqGS: PHRM)-- for $2.9 B in cash and stock. In my personal opinion, contrary to others, they are NOT overpaying for this company. Let's take a look at the advantages of this acquisition:
-Their pipelines are a perfect marriage. Mike Nagle of DrugResearcher.com describes it to a tee:

"A large part of Celgene's oncology franchise consists of thalidomide and derivatives of that molecule, such as Revlimid (lenalidomide). These are approved to treat multiple myeloma (MM) and myelodysplastic syndromes (MDS).

"With this latter group of conditions, the bone marrow typically produces more blood cells than normal, yet they are defective, leading to lower numbers in circulation. In some cases, this can lead to acute myeloid leukaemia (AML).

"Although Celgene has four immunomodulatory drugs, dubbed 'IMiDs', in its pipeline, they treat MDS, not AML. This is where Pharmion comes in, with its drug called Vidaza (azacitidine). The injection form of the drug is already approved to treat MDS, but crucially, is also in Phase II trials for AML. An oral form is also in Phase I clinical trials for both diseases (see table below).

'It's a great move for Celgene,' Michael King, an analyst with Rodman & Renshaw, told Bloomberg.

'Vidaza has the potential to be a billion-dollar product.'

(C) Mike Nagle from [http://www.drugresearcher.com/news/ng.asp?id=81456-celgene-pharmion-thalidomide-vidaza-azacitidine-myelodysplastic-syndromes]

2. Follow the big money? Carl Icahn is moving into BioTech company Biogen (NasdaqGS: BIIB), looking to overthrow the board with three of his supporters (http://biz.yahoo.com/ap/080128/biogen_idec_icahn.html?.v=2)

3. Takeover? Celgene has been trading at a discount for months, and along with (NasdaqGS: ISIS Pharmaceutical), is a prime takeover candidate for a pharma-giant. Its blood cancer drug, Revlimid, has achieved record sales growth in Europe. I personally own a basket of Biotechs, namely CELG and ISIS.

Disclosure: I am long both CELG and ISIS. This article is for informational purposes only and is not a recommendation to buy or sell any security.