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Celgene Sales Drive Solid Quarter

The drugmaker sees strong sales of cancer drugs Thalomid and Revlimid doubling its earnings in 2007.

Shares of

Celgene

(CELG) - Get Celgene Corporation Report

climbed 3.4% to $55.50 Thursday after reporting strong fourth-quarter and year-end results before market open.

Despite

preannouncing results, there was still a slight revenue upside surprise of about $9 million. Revenue for the year came in at $899 million, while profit was 53 cents a share. In 2007, the company expects EPS of $1 on revenue of $1.3 billion.

A look at the fourth-quarter financials shows some impressive growth figures. Revlimid sales grew 22% quarter over quarter, although growth in Thalomid was just 1.7% from the third quarter and 4.1% year over year. Royalty revenue of $18 million grew 17.3% from the same period a year ago.

Gross margin was very strong at 86.1%, representing 9.3% growth over the fourth quarter of 2005.

Higher research-and-development costs and selling, general and administrative costs were offset by revenue from Revlimid, which grew operating margin by over 200% year over year to 28.9%.

The company and Wall Street anticipate Revlimid continuing to drive revenue in 2007. Approval in Europe and data from various trials, including phase II trials in CLL (chronic lymphocytic leukemia) and frontline multiple myeloma, should be released in the coming year.

Management did not delve too deeply into the pipeline but did mention that its newly discovered stem cells could potentially enter clinical trials in the next 12 to18 months.

Can't Afford a Slip-Up

Along with the usual binary events such as clinical trial results and Food and Drug Administration decisions that can cause a biotech stock to skyrocket or crater, Celgene could be affected by a few other factors.

The high cost of Revlimid, for those whose insurance won't pick up the tab, could be an obstacle to the torrid growth that is expected.

Dr. Barry Kaplan, an oncologist in Queens, N.Y., says, "Many of my patients cannot afford to pay $70,000 a year for this medication, and even when covered, if their deductible is 20%, they can't afford it."

He adds, "Absolutely, some of my patients are on Velcade for financial reasons." Celgene claims it is committed to helping any patient who can benefit from its drugs with various financial aid programs. Velcade is sold by

Millennium Pharmaceuticals

(MLNM)

.

As mentioned in my

TheStreet Recommends

earnings preview, Velcade appears to be growing sales despite the competition from Revlimid.

The company also needs to build its European sales and marketing teams. If there's a slower-than-expected acceptance of Revlimid in Europe, those costs could become a real drag on the bottom line.

Celgene appears to be firing on all cylinders -- and its stock price reflects it. Shares are trading at 54 times 2007 projected earnings. However, taking a consensus long-term growth rate forecast of 54, the stock is trading at 1 times price-earnings-to-growth.

On the basis of its track record, Celgene deserves the benefit of the doubt. With the exception of

Gilead Sciences

(GILD) - Get Gilead Sciences, Inc. (GILD) Report

, which jumped 10% after posting

strong earnings, the large-cap, profitable biotech names such as

Amgen

(AMGN) - Get Amgen Inc. Report

and

Genentech

(DNA)

are also trading at 1 times forward PEG.

Should Celgene's growth rate climb or earnings multiple fall, perhaps the stock would be justified in going higher. But with lofty expectations already priced into the stock, shares appear fairly valued.

In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;

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