CELG Confident About Its Longer-Term Prospects

For Thomas' preview heading into the Celgene conference call, please click here.

Celgene (CELG - commentary - Cramer's Take) reported a strong quarter with lots of optimism for the longer-term picture. For the quarter just ended, the company posted EPS of 40 cents on revenue of $587 million.

Revlimid sales increased 72%, to $343 million. Thalomid sales came in at $132 million, and Vidaza sales came in at $64 million.

Management is focused on expanding geographic reach across all three product lines. Vidaza received approval and label expansion for use in higher-risk myelodysplastic syndromes. Celgene bought out the future Vidaza royalties that Pfizer (PFE - commentary - Cramer's Take) was to receive, and it will have no royalty payments to make on any Vidaza sales, which speaks to management's confidence in the longer term. The company expects gross margins to be in the 90% range after buying out Pfizer. European approval for Vidaza is expected "imminently," and Revlimid volume gains in Europe were up 10% (market share gains primarily).

Management was very happy with the results and confident about the longer-term prospects for the company. This stock is a bit of challenge for me. It's quite possible that this stock could double in value over the next 12 to 18 months. It's also possible, however, that management can't execute nearly as well as it expects or the market decides that it won't pay a premium on the multiple.

All in all, I would probably be inclined to give Celgene the benefit of the doubt but keep my mental stop limit pretty tight. The company could be an acquisition target as well at some point.

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At the time of publication, Thomas had no positions in the stocks mentioned, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm?s senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor?s degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.