st. john’s university undergraduate student … syndromes (mds), chronic lymphocytic leukemia...

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St. John’s University Undergraduate Student Management Investment Fund

Presents: Celgene (CELG)

Analysts: Nathaniel Abreu

Jidan Kim Aneesa Rasool

Alexander Valdez

Recommendation: Purchase 500 Shares Share Data as of 5/11/15: Price: $113.40 52 Week high-$129.06 (3/20/15) 52 Week low-$71.32 (5/9/15) Shares Outstanding: 793.1M Market Cap: 89.8B

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Table of Contents:

I. Executive Summary

II. Company Overview

1. History

2. Business Products

3. Executive Structure

4. Geographic Structure

III. Industry Overview

IV. Analysis

1. Financial Analysis

A. Operating Performance

B. Short Term Liquidity Status

C. Operating Efficiency

D. DuPont Analysis

2. Projected Income Statement

3. Relative Valuation

4. Absolute Valuation

V. Risk Factors

VI. Recommendation

VII. References

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I. Executive Summary

After the evaluation of Celgene, the group strongly believes that it is well

positioned for growth over the next five years. We recommend buying 500 shares of

Celgene. The stock is currently valued at $113.21. Based on the relative and absolute

valuation, Celgene is fairly valued at the moment, but in the long run the stock will be

worth more than the current price. These prospects are supported by the many

acquisitions and developments that Celgene has recently made. With the acquisition of

Quanticel Pharmaceuticals and collaboration with AstraZeneca, Celgene is expanding

its drug market. The diversification is significant for Celgene, being Revlimid is the

largest source of revenue, approximately 70%. Celgene is also globally expanding its

presence; milestones for 2015 include approval of Revlimid and Pomalyst in Japan.

We propose Celgene to be a strong buy for the Investment Fund. Celgene is

looking to have many new drugs in the pipeline, thus contributing to its growth in the

long run. With respect to its larger competitors, Celgene is situated in a different drug

market, which is an upside to purchasing this stock. In addition, Celgene is aligned with

the values of the fund. Celgene is a viable company, which has been significantly

progressing over the past ten years and will continue to do so, making it a compelling

addition to the portfolio.

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II. Company Overview

1. History

Celgene Corporation is a global integrated biopharmaceutical company primarily

engaged in the discovery, development and commercialization of innovative therapies

designed to treat cancer and immune-inflammatory related diseases in patients with

limited treatment options (Celgene.com). Celgene Corporation exists today because of

two men David Stirling and Sol Barer. The company was founded in 1986 and

established itself as an independent biotechnology company. Celgene’s first main

business focus became bioremediation, a treatment process known to use organisms in

order to neutralize hazardous substances. Celgene later agreed to partner with Kaplan

to develop a drug that could potentially treat AIDS and cancer. Celgene Corporation

then stopped all its work on bioremediation in 1994. The drug Thalomid got its first

approval by FDA in 1995 for AIDS patients suffering from cachexia and began shipping

Thalomid by the end of 1998.

In 2000, Celgene acquired Signal Pharmaceuticals, a private company that was

developing drug targets based on its protein and gene regulating technology. In 2002,

the company acquired Anthrogenesis Corporation, a company that focused on stem

cells from human placental tissues following the completion of a full-term, successful

pregnancy. “Celgene Corporation has since built a commercialization, development and

discovery platform for drug and cell-based therapies that allows us to both create and

retain significant value within our therapeutic franchise areas of cancer and

inflammatory diseases.” (Celgene.eu)

There are hundreds of clinical trials at major medical centers evaluating

compounds from Celgene. Investigational compounds are being studied for patients

with incurable hematological and solid tumor cancers, including multiple myeloma (MM),

myelodysplastic syndromes (MDS), chronic lymphocytic leukemia (CLL), non-Hodgkin’s

lymphoma (NHL), pancreatic cancer, non-small lung cancer and melanoma. In addition,

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several compounds are being evaluated as therapies for serious inflammatory diseases

such as psoriasis and psoriatic arthritis.

Celgene Corporation Timeline:

1980: Celgene's precursor is formed as a unit of Celanese Corp.

1986: Celgene is spun off as a separate company.

1987: Celgene completes its initial public offering of stock.

1992: Celgene acquires the rights to thalidomide.

1996: John Jackson is appointed Celgene's chief executive officer and chairman.

1998: Celgene begins shipping Thalomid.

2000: Signal Pharmaceuticals Inc. is acquired

2003: Celgene records its first annual profit.

2004: Celgene Headquarters moves to Summit, New Jersey

2004: FDA grants fast-track designation to Revlimd

2007: Celgene’s revenue surpasses $1 Billion

2010: Celgene acquires Abraxis BioScience

2012: Celgene acquires Avila Therapeutics

2014: OTEZLA becomes the first oral therapy approved by the FDA

2. Business Products

Celgene’s primary stage commercial products include:

Revlimid:

Revlimid is Celgene’s top selling product, approximately 66% of revenue. It is in several

phase III trials across a range of hematological malignancies that include multiple

myeloma, lymphomas, chronic lymphocytic leukemia (CLL) and myelodysplastic

syndromes. Revlimid has geographical approvals in the United States, Japan and the

European Union.

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Abraxane:

Abraxane is approximately 11% of Celgene’s total revenue. It is currently in various

stages of investigation for breast cancer, pancreatic cancer and non-small lung cancer

(NSCLC) and is currently under review by the EMA for first-line treatment of NSCLC in

adult patients who are not candidates for curative surgery. Abraxane has geographical

approvals in the United States, Japan and the European Union.

Pomalyst:

Pomalyst is approximately 9% of Celgene’s total revenue. Pomalyst was approved in

the United States and the European Union for indications in multiple myeloma based on

phase II and phase III trial results, respectively, and an additional phase III trial is

underway in relapsed and refractory multiple myeloma. Pomalyst achieved approval in

Japan in February.

Vidaza:

The U.S. regulatory exclusivity for Vidaza expired in May 2011. In September 2013, a

generic version of the drug was launched by another competitor. This caused a

reduction in sales. Celgene contracted with Sandoz AG to supply the generic version of

Vidaza in the United States; exclusivity is expected to continue in Europe through 2018.

Oztela:

Oztela was approved by the U.S. Food and Drug Administration (FDA) in March 2014

for the treatment of adult patients with active psoriatic arthritis and in September 2014

for the treatment of patients with moderate to severe plaque psoriasis who are

candidates for phototherapy or systemic therapy. In January 2015, Oztela was also

approved by the European Commission for the treatment of both psoriasis and psoriatic

arthritis in certain adult patients. In inflammation and immunology, Oztela is being

evaluated in phase III trials for Behçet's disease and expanded indications in psoriatic

arthritis and psoriasis.

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3. Corporate Structure:

Celgene’s senior management structure is composed of Robert J. Hugin, Mark J.

Alles, Thomas O. Daniel, Jacqualyn A. Fouse, Perry A. Karsen, Peter N. Kellogg, Scott

A. Smith, and Lawrence V. Stein. Below is a brief description of each member:

Robert J. Hugin: Chairman and Chief Executive Officer

Robert J. Hugin has been the Chief Executive Officer for Celgene since June 2010 and

its Chairman since June 2011. “He was previously President and Chief Operating

Officer from May 2006 to June 2010, and was elected by the Board of Directors to

serve as a Director in December 2001. Mr. Hugin served as Senior Vice President and

Chief Financial Officer from June 1999 to May 2006. Mr. Hugin is immediate past

Chairman of the Board of The Pharmaceutical Research and Manufacturers of America

and is a member of the Board of Trustees of Princeton University, The Medicines

Company, and The Darden Foundation, University of Virginia. He also serves as a

member of the Board of Trustees of Atlantic Health System and of Family Promise, a

national non-profit network assisting homeless families. Prior to joining Celgene, Mr.

Hugin was a Managing Director with J.P. Morgan & Co. Inc. Mr. Hugin received an AB

degree from Princeton University in 1976 and an MBA from the University of Virginia in

1985 and served as a United States Marine Corps infantry officer during the intervening

period.”

Mark J. Alles: President and Chief Operating Officer

“Mr. Alles became President and Chief Operating Officer in August 2014. He was

formerly the Executive Vice President and Global Head of Hematology and Oncology

since December 2012 following his promotion to Executive Vice President and Chief

Commercial Officer on February 15, 2012. Mr. Alles joined Celgene in April 2004 and

served as Vice President, Global Marketing until March 2009 when he became

President of the Americas Region. Responsibility for commercial operations in Japan

and the Asia Pacific Region was added in July 2011. Mr. Alles previously served as

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Vice President for the U.S. Oncology Business Unit of Aventis Pharmaceuticals and in

other commercial sales and marketing management roles over an 11-year period with

Aventis. After earning his BS degree from Lock Haven University of Pennsylvania and

serving as a Captain in the United States Marine Corps, Mr. Alles started his 27-year

career in the pharmaceutical industry at Bayer and worked at Centocor before its

acquisition by Johnson & Johnson. Mr. Alles currently serves as a Director for Gilda’s

Club NYC, a not-for-profit organization helping people with cancer, and as a trustee of

The Healthcare Institute of New Jersey.”

Thomas O. Daniel, MD: Executive Vice President and President, Celgene

Research and Early Development

“Dr. Daniel is Executive Vice President and President, Celgene Research and Early

Development. He formerly served as Chief Scientific Officer and Director of Ambrx Inc.,

and as Vice President, Research at Amgen Inc., where he was Research Site Head of

Amgen Washington and Therapeutic Area Head of Inflammation. Prior to Amgen’s

acquisition of Immunex, Dr. Daniel served as Senior Vice President of Discovery

Research. He serves on the Board of Directors of The Pharmaceutical Research and

Manufacturers of America (PhRMA) Foundation, and is a member of the PhRMA

Biomedical Advisory Committee. He is a Director of FerruMax, Abide, and PharmAkea,

all privately held biotechnology companies. Dr. Daniel serves as a member of the

Biomedical Science Advisory Board of Vanderbilt University Medical Center and is a

member of the Therapeutic Advisory Board of aTyr Pharma, Inc, a privately held

biotechnology company. A nephrologist and former academic investigator, Dr. Daniel

was previously the K.M. Hakim Professor of Medicine and Cell Biology at Vanderbilt

University, and Director of the Vanderbilt Center for Vascular Biology. He formerly

conducted research supported by the NIH and the Howard Hughes Medical Institute at

UC San Francisco, earned an MD from the University of Texas, Southwestern, and

completed his medical residency at Massachusetts General Hospital.”

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Jacqualyn A. Fouse, PhD: President, Global Hematology and Oncology

“Dr. Fouse was promoted to President, Global Hematology and Oncology in August

2014. She was most recently Executive Vice President and Chief Financial Officer. Dr.

Fouse joined Celgene as Senior Vice President and Chief Financial Officer in

September 2010. She previously served as Chief Financial Officer for Bunge Ltd., an

NYSE-listed, leading global agribusiness and Food Company. Prior to that, Dr. Fouse

served as Senior Vice President, Chief Financial Officer and Corporate Strategy, at

Alcon Laboratories, Inc. Prior to Alcon, Dr. Fouse was Chief Financial Officer of the

Swissair Group in Switzerland from 2001 to 2002, and she was Group Treasurer of

Nestle S.A. in Switzerland from 1999 to 2001. Dr. Fouse previously held various senior

level financial positions in both the U.S. and Switzerland with both Alcon and Nestle

from 1986 to 1999. She also held positions with LTV Aerospace and Defense and

Celanese Chemical Company from 1983 to 1986. Dr. Fouse serves on the Board of

Directors of Dick’s Sporting Goods and is a member of the Board of Directors for

Perrigo. Dr. Fouse holds BA and MA degrees in Economics and a PhD in Finance from

the University of Texas at Arlington. She serves on the Development Board of UTA as

well as the Advisory Board of the College of Business Administration and on the

Advisory Board of Texas Christian University.”

Perry A. Karsen: Chief Executive Officer of Celgene Cellular Therapeutics

“Mr. Karsen serves the Chief Executive Officer of Celgene Cellular Therapeutics (CCT),

the placental stem cell research and development division of the Company. Previously

he was Executive Vice President, Chief Executive Officer of CCT and Chief Operations

Officer. Mr. Karsen served as President and Chief Executive Officer at Pearl

Therapeutics, a privately-held biotechnology company, from February 2009 until July

2010. From 2004 to 2009, Mr. Karsen was Senior Vice President and Head of

Worldwide Business Development for Celgene and was also responsible for emerging

businesses as President, Asia/Pacific Region. Prior to his tenure with Celgene, Mr.

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Karsen held executive positions at Human Genome Sciences, Bristol-Myers-Squibb,

Genentech and Abbott Laboratories. In addition, Mr. Karsen served as a General

Partner at Pequot Ventures. Mr. Karsen serves as a member of the Board of Directors

of the Biotechnology Industry Organization (BIO) and a member of the Board of

Directors for the Life Sciences Foundation. In addition, Mr. Karsen is a member of the

Board of Directors of Agios Pharmaceuticals, a publicly-held biotechnology company,

Alliqua Biomedical, a publicly-held advanced wound management company, and

Navidea Biopharmaceuticals, a publicly-held precision diagnostics company. Mr.

Karsen has a Masters of Management degree from Northwestern University’s Kellogg

Graduate School of Management, a Masters in Teaching of Biology from Duke

University, and a BS in Biological Sciences from the University of Illinois, Urbana-

Champaign.”

Peter N. Kellogg: Executive Vice President and Chief Financial Officer

“Mr. Kellogg was named Executive Vice President and Chief Financial Officer in August

2014. Mr. Kellogg joined Celgene as Executive Vice President in July 2014. Previously,

he was Chief Financial Officer and Executive Vice President of Merck & Co. Inc. since

August 2007. From 2000 to 2007, Mr. Kellogg served as Chief Financial Officer and

Executive Vice President of Finance (since 2003) at Biogen Idec Inc. and the former

Biogen, Inc. Before that, he served as Senior Vice President, PepsiCo E-Commerce at

PepsiCo Inc. from March to July 2000 and as Senior Vice President and Chief Financial

Officer, Frito-Lay International, from March 1998 to March 2000. From 1987 to 1998, he

served in a variety of senior financial, international and general management positions

at PepsiCo and the Pepsi-Cola International, Pepsi-Cola North America, and Frito-Lay

International divisions. Prior to joining PepsiCo, Mr. Kellogg was a senior consultant

with Arthur Andersen & Co. and Booz Allen & Hamilton. Since March 2007, Mr. Kellogg

has been a Director of Metabolix, Inc., a public bioscience and engineering company

focused on providing sustainable solutions to the plastics and chemicals industries. He

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received a BSE from Princeton University in 1978 and an MBA from The Wharton

School in 1982.”

Scott A. Smith: President, Global Inflammation and Immunology

“Mr. Smith was named President, Global Inflammation and Immunology (I & I) in

August 2014. Previously he was Senior Vice President, Global Head of I & I. He joined

Celgene in 2008 as Vice President, Global Marketing Inflammation and Immunology.

From 2003 to 2008 Mr. Smith was with Biovail, holding positions of General Manager

Biovail U.S., General Manager Biovail Canada and Global Commercial Head. As

Global Commercial Head for Biovail, he was responsible for global revenue generation,

global commercial strategies, business development strategy, and input into global

regulatory and clinical development strategies. Prior to Biovail, Mr. Smith was with

Pharmacia/Upjohn for 16 years where he held various positions including Vice

President U.S. Sales, Vice President Marketing Europe based in Paris, Vice President

and Commercial Lead for Canada based in Toronto, and Commercial and Regulatory

Head for South East Asia based in Hong Kong. Mr. Smith holds a BSc in Chemistry

and an HBSc in Pharmacology and Toxicology from the University of Western Ontario

and a Masters of International Business Management from the American Graduate

School of International Management (Thunderbird).”

Lawrence V. Stein: Executive Vice President, General Counsel and Corporate

Secretary

“Mr. Stein joined Celgene as Executive Vice President, General Counsel and Corporate

Secretary in November 2012. From March 2010 through March 2012, Mr. Stein served

as Counsel to Reed Smith LLP. He joined Wyeth’s legal team in 1997 and served as

Senior Vice President and General Counsel from 2003 until Wyeth’s merger with Pfizer,

Inc. in 2009. While at Wyeth, he served on the Board of Directors of Immunex

Corporation and until December 2012 served on the Board of Trustees of the Wistar

Institute. Prior to joining Wyeth, he was Senior Vice President, General Counsel and

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Secretary of Genetics Institute, Inc. Mr. Stein started his legal career with the law firm

of Arnold & Porter where he specialized in the representation of pharmaceutical and

medical device companies with respect to regulatory matters and product liability

litigation. He received his JD from the University of Pennsylvania Law School, an AB

from Columbia College and an MA from Cornell University.”

4. Geographical Structure

Celgene’s geographical operations include research and development facilities across

the United States and Europe. Moreover, Celgene’s locations are listed below with their

specific operation and can be found on Celgene’s Website at (Celgene.com).

CITRE

CITRE, which stands for Celgene’s Institute for Translational Research Europe, is

located in Seville, Spain. CITRE is Celgene’s first Research and Development facility

located outside of the United States. Moreover, it connects Celgene’s research and

development division with the research and development community of Europe.

Celgene Avilomics Research

Located in Bedford, MA, Celgene Avilomics Research is a facility that works on

targeted covalent drugs. Currently, medicines are able to “inhibit disease-causing

proteins” but are only able to form short binding interactions with the disease

substances. Targeted Covenant drugs are drugs that have the ability to not only “inhibit

disease-causing proteins”, but also to “silence” those disease substances.

Celgene Cellular Therapeutics

“Celgene Cellular Therapeutics is a state-of-the-art R&D center in Warren, NJ that

discovers and develops cutting-edge therapeutics from cells derived from the human

placenta and from the umbilical cord.” Celgene Cellular Therapeutics was acquired

when Celgene bought out the company Anthrogenesis in 2003.

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Translational Development

“Located in San Francisco, CA, the Celgene Translational Development center serves

as the main site for IMiDs research.” Imids are small molecules that control the immune

system. Moreover, Celgene’s leading Imid product, Lenalidomide, has been approved in

nearly 70 countries to treat patients with multiple Meyloma who have had other

therapies previously.

Drug Discoveries and Alliance Development

Celgene’s Drug Discoveries and Alliance Development facility is located in San Diego,

CA. It is devoted to development of platforms for drugs and cell based therapies in order

to fight cancer and other inflammatory diseases.

Recent News (Q1 2015)

The six regulatory approvals for Revlimid, Pomalyst, Abraxane and Otezla are

among the most notable accomplishments in Q1.

Celgene reported net product sales of $2,055M for the first quarter of 2015,

growing 20% from the same period in 2014.

First quarter total revenue increased 20% to $2,081M compared to $1,730M in

the first quarter of 2014.

Revlimid sales for the first quarter increased 17% to $1,343M; Abraxane sales

increased 21% to $223M and Pomalyst increased 46% YOY to $199M.

Celgene agrees to acquire Quanticel Pharmaceuticals Inc. for $485M cash. The

transaction will allow Celgene Corp to a pipeline of innovative cancer therapies.

Celgene announces its strategic collaboration with AstraZeneca, which

strengthens its competitive position in the rapidly emerging and evolving

immuno-oncology market

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Celgene entered into a new joint Worldwide Development and Commercial

Development Program for AG-881, Agios’s IDH1 and IDH2 inhibitor that has

shown in pre-clinical models to fully penetrate the blood-brain barrier.

III. Industry Overview

Being a biopharmaceutical company, Celgene is in the Healthcare industry

sector. The biotechnology and health industry has grown significantly over the years.

However, the industry has significant potential for growth. The healthcare industry is an

industry that will always be needed as people around the world continuously need

medical care. As a result new medicines and drugs will always be demanded to treat

illnesses and diseases across the globe.

The United States is the “world leader in pharmaceutical research”

(netsolhost.com). Moreover, in the biopharmaceutical industry, there are approximately

5,000 new drugs in development from which around 3,400 are being researched in the

U.S. According to Select USA, there are about 3.4 million jobs in the U.S economy, held

by the pharmaceutical industry. Nearly 60% of all jobs in the pharmaceutical and

medical manufacturing industry are in large establishments employing more than 500

workers, and earnings are much higher than those in other manufacturing industries.

(netsolhost.com).

For the purpose of this analysis we narrowed in on specific companies for our

industry. The industry averages for all ratio analysis are composed of the following:

Celgene, Biogen, Gilead Sciences, Amgen, Regeneron, Alexion, Illumina, Mylan and

BioMarin.

http://netsolhost.com/

http://netsolhost.com/

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The above chart shows Celgene’s and our industry’s annual revenue growth rates from

2008 to 2014. The industry has shown a positive trend since 2008 and we believe it will

continue to increase because of the need for new drugs and the constant research that

is put in to develop the best treatment for cancer. The industry average growth rate had

an increase of 14.75% to 39.01% from 2012 to 2014, whereas for Celgene there was a

slight decrease from 19.49% to 17.89%. However, the industry average main driver was

from Gilead Sciences, it had a good year in 2014 due to its new drug, Sovaldi.

Conversely, looking at the average annual growth for the 5 past years, Celgene is

among the highest at 22.90%, when compared to Gilead Sciences (29.14%), Biogen

(16.98%), and Amgen (6.46%).

IV. Fundamental Analysis

1. Financial Analysis

Celgene is compared and evaluated relative to the biotechnology industry, based on the

financial indicators below. The industry performance analysis is composed of the

following companies: Celgene, Biogen, Gilead Sciences, Amgen, Mylan, Alexion,

BioMarin, Illumina, and Regeneron. We chose these companies because they are part

of the top ten holdings in the iShares Nasdaq Biotechnology ETF. The only company

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

2008 2009 2010 2011 2012 2013

Celgene

Industry Avg. Total

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excluded from this list is Vertex Pharmaceuticals due to it being an outlier and its

numbers skewing the data.

A. Operating Performance

ROE:

Celgene from 2009 to 2014 has shown a postive increase for most the part. With only a

slight decrease in 2009 to 2010, from 19.70% to 16.97%, and 2012 to 2013. Last year

Celegene reached a all time high of 33.02% providing more profitablility with each dollar

of shareholders’ equity. The company from 2011- 2014 has outperformed our industry

average and 2 main competitors (Biogene and Amgen).

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

2008 2009 2010 2011 2012 2013 2014 Celgene (CELG)

Industry Avg

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ROA:

Celgene has kept a steady return on assets. Since 2010, Celgene ROA has been

between 11-13% percent, keeping up with our industry average, meaning the company

is generating a net profit and able to utilize its assets.

EBIT MARGIN:

Celgene since 2009 has outperformed our industry EBIT margin.

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

2008 2009 2010 2011 2012 2013 2014

ROA

Celgene (CELG)

Industry Avg

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2008 2009 2010 2011 2012 2013 2014

EBIT Margin

Celgene (CELG)

Industry Avg

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NET MARGIN:

Celgene demonstrated a higher net margin than our industry average since 2009. We

believe that Celgene is being effective in converting revenue into actual profit.

GROSS MARGIN:

Another financial metric we used to assess Celgene financaal health is the Gross

Margin. Celgene’s gross margin tells us that the company’s markup over cost per dollar

-80.00%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

2008 2009 2010 2011 2012 2013 2014

Net Profit Margin

Celgene (CELG)

Industry Avg

65.00%

70.00%

75.00%

80.00%

85.00%

90.00%

95.00%

2008 2009 2010 2011 2012 2013 2014

Gross Margin

Celgene (CELG)

Industry Avg

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of sales is well above the industry average. In 2014, the company reached a all time

high of 91.57%.

B. Short Term Liquidity

Current Ratio:

Celgene in 2008 put a lot of cash into research and development, preparing the

company for coming growth. From 2009 to 2010 it decreased from 7.77 to 4.06, it is still

around the industry average. Celgene Company since 2011 to 2014 has shown an

increase of 2.83 to 4.60.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2008 2009 2010 2011 2012 2013 2014

Current Ratio

Celgene (CELG)

Industry Avg

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Quick 2 Ratio:

This Quick Ratio analyzes how well a firm can cover its short-term obligations with its

most liquid short-term assets, including cash, short-term investments, and receivables.

Celgene for the past 2 years has had a higher quick 2 ratio when compared to the

industry, in 2013 3.47 and in 2014 4.13. The company however, has been on a slight

increase since to 2011. The positive trend shows that Celgene has more quick assets

than current liabilities. An increasing ratio illustrates the improving liquidity of the

company.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

2008 2009 2010 2011 2012 2013 2014

Celgene (CELG)

Industry Avg.

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C. Operating Efficiency

Asset Turnover:

Celgene asset turnover ratio over the years has stayed in line with the industry average.

This shows the company is able to use its assets to generate sales. In 2014, Celgene

generated 49 cents of sales to each dollar of assets, compared to the industry average

of 58 cents. Although Celgene in 2014 is below the industry average, we believe

company management is still using its assets efficiently.

0.000x

0.100x

0.200x

0.300x

0.400x

0.500x

0.600x

0.700x

2008 2009 2010 2011 2012 2013 2014

Asset Turnover

Celgene (CELG)

Industry Avg

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Inventory Turnover:

Celgene since 2011 is producing similar numbers when compared to the industry

average. We have a reason to believe that Celgene Company can effectively control its

products. This is also showing that the company does not spend so much on inventory

and makes use of all its resources.

Long-term Solvency:

Celgene’s long term debt-to-equity is similar to its competitors and the industry average. The company use of debt has been on the rise since 2008, distinguishing it in this picture from its peers.

0.00x

2.00x

4.00x

6.00x

8.00x

10.00x

12.00x

2008 2009 2010 2011 2012 2013 2014

Inventory Turnover

Celgene (CELG)

Industry Avg

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

2008 2009 2010 2011 2012 2013 2014

Celgene (CELG)

Biogen (BIIB)

Gilead Sciences (GILD)

Amgen (AMGN)

Industry Avg

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D. DuPont Analysis

YEAR 2012 2013 2014

Net Profit Margin 26.84% 22.36% 26.17%

Asset Turnover 0.499 0.516 0.498

Financial Leverage 1.94 2.23 2.54

ROE 25.99% 25.70% 33.02%

The DuPont analysis is used to analyze ROE performance. ROE can be decomposed

into net margin, asset turnover, and financial leverage. We see a significant jump from

2013 to 2014, attributed mainly to an increase in net margin. Asset turnover has stayed

relatively the same and financial leverage has increased slightly over the years.

2. Projected Income Statement

Total Revenue

The total revenue for Celgene in 2014 was 7642.90 Million. The forecasted revenue for

2015 is 8765.15M. Estimating Celgene’s approximate market share facilitated the

revenue projection. We created a “custom” industry, which represents the key industry

players in the United States. Companies acquired by both Celgene and Gilead Sciences

are factored into the projections. Below is a snapshot of companies and their respective

revenues and the 2015 forecast:

2011 2012 2013 2014 2015*

Gilead Sciences 8464.03 9613.71 11221.35 24890.00 28435.00

YM BioScience* 1077.10 4638.40

Amgen 15690.00 17191.00 18672.00 20035.00 21000.9

Celgene 4842.10 5425.80 6483.2 7642.9 8765.15

Abraxis BioScience*

Gloucester Pharmaceuticals*

Nogra*

Avila*

Biogen 5085.53 5481.36 6945.4 9696.52 11205.1

Regeneron 445.82 1378.48 2104.75 2819.56 3514

Alexion 789.99 1121.24 1511.96 2214.86 2620.7

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Agilent Technologies 6731 6903 6781 6328 4086

Illumina 1055.54 1148.52 1421.18 1861.36 2256.4

Myriad Gentics 443.05 545.32 737.12 724.92 768.4

Charles River Labratories 1142.65 1129.53 1165.53 1297.66 1330.9

Total 45766.82 54576.36 57043.49 77510.78 83982.55

Overall Market Share

(Celgene) 10.580% 9.942% 11.365% 9.860% 10.437%

The estimated market share is an average of Celgene’s market share from 2011-2014.

We found this 4-year average to be the most adequate, being those are the highest

percentages for Celgene. With a market share of 10.437%, Celgene’s projected

revenue is 8765.15. Although we saw a decrease in terms of market share from 2013

to 2014, we strongly believe that Celgene will increase its market presence the following

year due to recent acquisitions and developments1:

1. On April 27, 2015 Celgene agreed to acquire Quanticel Pharmaceuticals Inc. This

transaction will give Celgene access to a pipeline of innovative cancer therapies.

2. Celgene has strategically collaborated with AstraZeneca, strengthening its

competitive position in the rapidly emerging and evolving immune-oncology market.

3. Celgene fulfilled the accelerated improvement requirements for Pomalyst (an

International phase III; approval for Pomalyst in Japan).

4. Newly diagnosed multiple myeloma approvals in the United States and Europe

Cost of Goods Sold

We analyzed COGS (excluding D&A) as a percent of sales. From 2005 to 2014 it has

been consistently decreasing. In 2005 Total COGS was 12.37% revenue compared to

2014 where it was only 3.54% of revenue. Due to the trending decrease, we believe

Celgene is efficiently managing its COGS, in order to continue increasing gross profit.

1 2001-2015 FactSet CallStreet, LLC

25

(Consistently trending upwards from 2005-2014). By using the 3-Year average for

COGS as a percent of revenue, we estimate it to be approximately 3.65% of revenue, or

319.87M in 2015.

Depreciation and Amortization

Depreciation was estimated using the percentage of the prior year gross PP&E. In 2014

the percentage was 10.731%; we have no reason to believe that the percentage will

change substantially, thus projected the same amount for 2015. 10.371% was multiplied

by the gross PP&E for Dec 14, 1,166.10M, which resulted in a depreciation of 125.13M.

This number was used as the 2015 estimated depreciation. The Amortization for 2015 is

estimated to be 260.0M. Based on the 2014 10-K Report, Celgene’s amortization of

intangible assets for 2015 through 2018 is estimated to be in the range of approximately

$255.0 million to $260.0 million annually.

Interest Expense

The interest expense for 2015 was calculated by totaling the interest payments for all of

Celgene’s bonds and commercial paper, maturing in 2015 and onwards. The estimated

amount is 241.058M.

Unusual Expense + Other Income

Due there being no significant expenses reported in the 10-K, such as restructure and

reorganization costs, we totaled the unusual expense and other income numbers. We

used the 3-Year average to project a cost of (210.20) for 2015. From 2012-2104 the

combined costs were consistently within the same range, in comparison to the prior

years.

Earnings Per Share:

Celgene started a buyback program in 2009 and was supposed to conclude in 2014.

The Board of Directors approved an aggregate $13.500B common stock; approximately

26

$3.140B remained for future shares repurchases at the end of 2014. Being that the

buyback program was projected to end in 2014, we estimate that the remainder of

shares will be bought in 2015. We took the $3.140B and divided by the price of Celgene

at the time [113.52], which resulted in 27.66M actual shares repurchase. In order to

determine the annual diluted weighted average, we multiple 27.66 by annual diluted

weighted average to actual relationship of 1.05 (consistently so since 2011) and added

785 for the shares outstanding. This resulted in an annual diluted weighted average of

814M. Dividing projected earnings of 2,271.54 by 814, the earnings per share for 2015

is estimated to be $2.79, which is up from $2.39, the prior year.

3. Relative Valuation

A relative valuation was performed in order to compare Celgene’s firm value to that of

its competitors. Comparables selected for our analysis were top grossing biotechnology

companies in the U.S. and the Biotechnology Industry of North America. We examined

price-earnings ratios for the valuation multiple in our analysis. P/E ratios of Celgene and

its comparables from 2009 to 2014 are shown below.

P/E Ratios (Dec. 31, using Diluted EPS)

2009 2010 2011 2012 2013 2014

Celgene (CELG) 33.54 31.46 23.72 23.78 50.14 46.80

Biogen (BIIB) 15.97 17.02 21.84 25.41 35.80 27.44

Gilead Sciences (GILD) 15.34 10.92 11.53 22.39 41.49 12.82

Amgen (AMGN) 12.54 11.46 15.89 15.62 17.18 23.77

Regeneron (REGN) - - - 25.34 72.24 133.63

Alexion (ALXN) 14.98 77.45 78.57 73.23 104.63 56.76

Ilumina (ILMN) 57.89 72.80 49.16 49.19 122.88 77.88

Mylan (MYL) 61.43 31.07 17.59 18.06 27.47 24.09

Biotechnology Industry (North America)

16.93 15.49 15.78 22.14 30.50 27.51

The relative value of Celgene is the average of the estimated prices of Celgene from

each comparable. The estimated prices are calculated by multiplying $2.79, the 2015

E[EPS] of CELG from our projected income statement, by the 2015 forward P/E ratios

27

of the comparables. An adjustment factor is applied to each calculation to abridge the

relationship between Celgene and each comparable. The adjustment factors aim to

forecast the future relationships between Celgene and each comparable. By studying

the historical P/E-to-P/E relationships between Celgene and the comparables, an

adjustment factor can be projected based on the historical mean and median or an

apparent trend in the relationships. The P/E-to-P/E relationships and adjustment factors

are shown below.

P/E to P/E Relationships

2009 2010 2011 2012 2013 2014 AVG Median Adjustment

Factor

Biogen (BIIB) 2.100 1.849 1.086 0.936 1.401 1.706 1.513 1.553 1.60

Gilead Sciences (GILD) 2.186 2.882 2.057 1.062 1.208 3.650 2.174 2.122 3.00

Amgen (AMGN) 2.674 2.745 1.492 1.523 2.918 1.969 2.220 2.321 2.10

Regeneron (REGN) 0.938 0.694 0.350 0.661 0.694 0.44

Alexion (ALXN) 2.240 0.406 0.302 0.325 0.479 0.825 0.763 0.443 0.67

Ilumina (ILMN) 0.579 0.432 0.482 0.483 0.408 0.601 0.498 0.483 0.50

Mylan (MYL) 0.546 1.012 1.348 1.317 1.825 1.943 1.332 1.333 2.10


1.982 2.030 1.503 1.074 1.644 1.701 1.656 1.673 1.70

Estimated price calculations of Celgene are in the table below.

CELG

2015 E(EPS) Forward

P/E Ratios Adjustment

Factor

CELG Estimated

Price

Biogen (BIIB) $2.79 23.06 1.60 $102.94

Gilead Sciences (GILD) $2.79 9.97 3.00 $83.50

Amgen (AMGN) $2.79 17.00 2.10 $99.60

Regeneron (REGN) $2.79 44.85 0.44 $55.06*

Alexion (ALXN) $2.79 29.39 0.67 $54.95*

Ilumina (ILMN) $2.79 55.41 0.50 $77.31

Mylan (MYL) $2.79 17.68 2.10 $103.62


$2.79 35.48 1.70 $168.31

28

Average Price of CELG

Relative to Comparables: $105.88

*REGN and ALXN are outliers and are excluded in the average price calculation.

Our estimate of the current price of Celgene is $105.88. The last closing price was

$113.21 on May 8, 2015. Based on this relative valuation model, the stock’s estimated

price is below the current market price. Considering a small margin of 6.5%2, we

conclude that Celgene is still fairly valued in the market relative to its comparables.

4. Absolute Valuation

To calculate the intrinsic value of Celgene, an absolute valuation was performed. The

value of the equity is the present value of the future cash flows, as summarized by the

equation below:

Value of Equity =

Given that the stock does not issue dividends and debt levels have been increasing

over the past five years at a mean rate 133.87%3, the discounted cash flow (DCF)

model of valuation was applied using the free cash flows to equity (FCFE). FCFE is the

cash flow available to providers of equity capital after operating expenses, debt

payments, and reinvestments are accounted for.

Cost of Capital

The cost of capital can be computed using the capital asset pricing model, CAPM:

K =

2 Calculated the difference in prices over the current market price to find a margin of 6.475% = ($113.21-$105.88)/$113.21 3 Geometric growth rate of total debt from 2009-2014

FCFE t

(1 k)tt1

n

FCFE n1

k g

1

(1 k)n

rf CELG E (rmkt ) rf

29

The components of CAPM considered for our analysis and the calculated costs of

capitals are in the table below.

Risk-Free Rate, Rf\ Equity Risk Premium, E(rm)-rf

10-Year U.S. Treasury Rate 2.114% Equity Risk Premium (using the 10-Year Treasury Rate)

7.217%

30-Year U.S. Treasury Rate 2.827% Equity Risk Premium (using the 30-Year Treasury Rate)

6.504%

Equity Risk Premium (using 1986-2013 historical market average)

8.400%

Beta, bCELG

5-Year Raw Beta 1.087 Cost of Capital, KCELG

5-Year Adj. Beta 1.058 K1 9.959%

10-Year Raw Beta 0.764 K2 9.897%

10-Year Adj. Beta 0.843 K3 11.245%

U.S. Treasury rates and beta statistics were found using the Bloomberg Terminal. Due

to the current state of low treasury rates, we looked at the 30-year rate in addition to the

10-year rate as the risk-free rate. All betas were calculated against the S&P 500 Index

as the market using monthly data. The 5-year raw beta of 1.087 was used to calculate

each KCELG. We chose the highest beta of the four to produce the highest possible costs

of capital to keep our valuation conservative. The market risk premiums were calculated

using the risk free rates and the expected market return of 9.331%, also provided by the

Bloomberg Terminal. The 1926-2013 and 1986-2013 historical average of the excess

return of the S&P500 over treasury rates, 8.4%, was used as another estimate of the

market risk premium in CAPM.

30

Cash Flows

FCFE is calculated with the following adjustments to Celgene’s net income:

depreciation, amortization, deferred tax items, other non-cash charges & expenses,

changes in working capital, capital expenditures, and net new borrowing.

We looked at the FCFE from 2004 to 2014, but focused on the data of the past five

years (2009-2014) for forecasting the FCFE for 2015, when net income and cash flows

began to stabilize. The constructed FCFE for CELG from 2009 to 2014 and two

forecasts of FCFE for 2015 using two different net issuance and reduction of debt

scenarios are detailed below:

FCFE (values in millions, $)

2010 2011 2012 2013 2014 2015 E* 2015 E**

Net Income 880.51 1,318.15 1,456.18 1,449.90 1,999.90 2,273.66 2,273.66

Depreciation & Amortization Expense

259.09 362.85 283.45 374.10 373.60 385.13 385.13

Deferred Tax Items

-103.92 -85.82 100.20 -246.60 -272.30 -337.03 -337.03

Other Non-Cash Charges/ Expenses

253.41 178.01 568.56 644.20 590.20 600.99 600.99

Changes in Working Capital

-107.85 34.80 -389.83 4.30 114.90 204.00 204.00

Capital Expenditures

98.63 132.12 111.52 119.70 150.30 172.60 172.60

Net Issuance/ Reduction of Debt

1,237.27 525.72 1,269.30 1,713.70 2,025.30 2,025.30 0.00

FCFE 2,319.87 2,201.60 3,176.32 3,819.90 4,681.30 4,979.45 2,954.15

Growth Rates 184.13% -5.10% 44.27% 20.26% 22.55%

31

The Net Income and Depreciation & Amortization Expense are using the values from

our projected 2015 Income Statement. ‘Deferred tax items’ for 2015 was forecasted by

taking the net of the expected 2015 income tax from our 2015 Income Statement and a

projected value for current taxes in 2015. The current taxes were projected using a

historical average percentage of current taxes to earnings before taxes (EBT) to our

E[EBT] value for 2015. ‘Other non-cash charges & expenses’ was projected using the

average of the other non-cash charges & expenses for the past three years. Changes in

working capital was forecasted backing out FactSet’s estimate of net income for 2015

and other projected values of operating cash flow (OCF) from FactSet’s estimated 2015

OCF 2015 to derive a value of $204 million. Expected capital expenditures for 2015 was

also obtained from FactSet.

Two different assumptions were made in regards to net new borrowing for 2015 forming

two E[FCFE]. For the first E[FCFE2015], we assumed that CELG will continue with the

upward trend in their debt position increasing net new borrowing by no less than $2.03

billion in 2015. To prevent overestimating the amount of net new borrowing and FCFE,

we simply projected the net new borrowing to be $2.03 billion, the same value as 2014.

Although it is likely that CELG will follow the trend and increase their debt level, issuing

more debt than the amount retiring, due to the uncertainty, a second E[FCFE2015] was

forecasted. For the second E[FCFE2015], we assumed that CELG will have no net new

borrowing and projected $0 to show an extreme case scenario in which FCFE is not

comprised so heavily by the net issuance and reduction of debt.

To determine the average growth rate to apply to the cash flows in the near-term future,

several geometric growth rates were calculated using averages of different number of

years in the table below. The 3-year average annual growth rate of 28.59% was

selected for the near-term growth rate. In addition, growth rates of 20% and 15% were

also considered in our analysis to include more conservative scenarios.

32

Estimated FCFE

The future FCFE from 2016 to 2020 is estimated using the four different near term

growth rates and the forecasted 2015 FCFE. Table X shows the estimated FCFE from

2015 to 2020 when E[FCFE] 2015 is forecasted assuming that net new borrowing will be

no less than $2.03 billion in 2015. Table Y shows the estimated FCFE from 2015 to

2020 when E[FCFE] 2015 is forecasted under the extreme case that net new borrowing

will be $0 in 2015.

Assumption 1: Projection of Net New Borrowing in 2105 - $2.03 billion

Estimated FCFE (values in millions, $)

2015 2016 2017 2018 2019 2020

g1 = 28.59% 4,979.45 6,403.11 8,233.81 10,587.92 13,615.08 17,507.73

g2 = 20.0% 4,979.45 5,975.34 7,170.41 8,604.49 10,325.39 12,390.47

g3 = 15.0% 4,979.45 5,726.37 6,585.32 7,573.12 8,709.09 10,015.45

Assumption 2: Projection of Net New Borrowing in 2015 - $0

Estimated FCFE (values in millions, $)

2015 2016 2017 2018 2019 2020

g1 = 28.59% 2,954.15 3,798.76 4,884.86 6,281.48 8,077.40 10,386.78

g2 = 20.0% 2,954.15 3,544.98 4,253.98 5,104.77 6,125.73 7,350.87

g3 = 15.0% 2,954.15 3,397.27 3,906.86 4,492.89 5,166.83 5,941.85

Average Annual Growth Rates

5-Year (2009-2014) 41.80%

4-Year (2011-2014) 19.19%

3-Year (2011-2014) 28.59%

33

Present Value of Cash Flows

To obtain the present values of the estimated FCFE from 2015 to 2020 using the

various growth rates, the cash flows are discounted by each cost of equity, k: 9.959%,

9.897% and 11.245%. The present values of the future FCFE are detailed in tables

below.


PV of Cash Flows (values in millions, $)

Near-term g=28.59% Sum of PVs

Cost of Equity 2015 2016 2017 2018 2019 2020

K1=9.959% 4,528.47 5,295.79 6,193.13 7,242.51 8,469.71 9,904.85 41,634.46

K2=9.897% 4,531.02 5,301.77 6,203.62 7,258.88 8,493.64 9,938.44 41,727.37

K3=11.245% 4,476.12 5,174.06 5,980.83 6,913.40 7,991.38 9,237.44 39,773.23



Cost of Equity 2015 2016 2017 2018 2019 2020

K1=9.959% 4,528.47 4,941.99 5,393.28 5,885.78 6,423.25 7,009.80 34,182.57

K2=9.897% 4,531.02 4,947.57 5,402.42 5,899.08 6,441.40 7,033.58 34,255.07

K3=11.245% 4,476.12 4,828.40 5,208.41 5,618.32 6,060.49 6,537.46 32,729.20



Cost of Equity 2015 2016 2017 2018 2019 2020

K1=9.959% 4,528.47 4,736.08 4,953.20 5,180.29 5,417.78 5,666.16 30,481.97

K2=9.897% 4,531.02 4,741.42 4,961.60 5,191.99 5,433.09 5,685.38 30,544.50

K3=11.245% 4,476.12 4,627.22 4,783.41 4,944.88 5,111.80 5,284.36 29,227.80

34




Cost of Equity 2015 2016 2017 2018 2019 2020

K1=9.959% 2,686.60 3,141.82 3,674.19 4,296.75 5,024.81 5,876.24 24,700.41

K2=9.897% 2,688.11 3,145.37 3,680.41 4,306.46 5,039.01 5,896.17 24,755.53

K3=11.245% 2,655.54 3,069.61 3,548.24 4,101.50 4,741.03 5,480.28 23,596.20



Cost of Equity 2015 2016 2017 2018 2019 2020

K1=9.959% 2,686.60 2,931.93 3,199.66 3,491.85 3,810.71 4,158.69 20,279.44

K2=9.897% 2,688.11 2,935.24 3,205.08 3,499.74 3,821.48 4,172.80 20,322.45

K3=11.245% 2,655.54 2,864.54 3,089.98 3,333.17 3,595.50 3,878.47 19,417.20



Cost of Equity 2015 2016 2017 2018 2019 2020

K1=9.959% 2,686.60 2,809.76 2,938.58 3,073.30 3,214.20 3,361.55 18,083.99

K2=9.897% 2,688.11 2,812.94 2,943.56 3,080.24 3,223.28 3,372.95 18,121.08

K3=11.245% 2,655.54 2,745.18 2,837.85 2,933.64 3,032.67 3,135.04 17,339.93

Terminal Value and Intrinsic Value

Using the constant growth model, terminal values are calculated by growing the

E[FCFE2020] by a terminal growth rate to account for all the cash flows after 2020. The

calculated value is the present value of the cash flows in year 2020, which is then

35

discounted back to 2015 using the cost of equity. The sum of all the present values of

the future free cash flows to equity is divided by the number of shares of equity

outstanding brings us to the intrinsic value for CELG.

Since the intrinsic value is heavily determined by the growth rate used to calculate the

terminal value, a scenario analysis was conducted using nine terminal growth rates from

1.0 to 9.0% to estimate what growth rate needs to be achieved for CELG to have an

intrinsic value greater than the current market price.

The scenario analysis for the calculated intrinsic values for both net new borrowing

cases using each short-term growth rate is below. The terminal growth rate that is

necessary for the value of the equity to match the current price in the market is in red.

This indicates that Celgene must achieve a growth rate above this rate in the long term

for the stock to be considered a “buy.” The last closing price of CELG was $113.21 on

May 8, 2015.


Intrinsic Value of CELG using Near-Term g1 = 28.59%

Terminal Growth Rates k1 = 9.96% k2 = 9.90% k3 = 11.24%

1.0% $191.48 $193.05 $163.43

2.0% $210.56 $212.47 $176.98

3.0% $235.12 $237.51 $193.82

4.0% $267.93 $271.06 $215.31

5.0% $313.97 $318.30 $243.68

6.0% $383.27 $389.80 $282.87

7.0% $499.40 $510.65 $340.53

8.0% $734.11 $758.92 $433.72

9.0% $1,458.38 $1,560.86 $609.94

36

Using the estimated future FCFE when net new borrowing is projected at $2.03 billion,

Celgene is undervalued in the market in nearly all scenarios. Even using the lowest

near-term growth rate of 15.0% and the highest cost of equity, 11.24%, CELG is worth

buying given that it can grow at a rate above 2.5% in the long term.



1.0% $141.41 $142.52 $121.39 2.0% $154.91 $156.27 $130.98 3.0% $172.29 $173.99 $142.89 4.0% $195.51 $197.73 $158.10 5.0% $228.09 $231.17 $178.18 6.0% $277.14 $281.77 $205.92 7.0% $359.33 $367.29 $246.72 8.0% $525.43 $543.00 $312.67 9.0% $1,038.01 $1,110.55 $437.39



1.0% $117.86 $118.77 $101.58 2.5% $134.36 $135.57 $113.87

3.0% $142.83 $144.21 $118.97 4.0% $161.60 $163.40 $131.26 5.0% $187.93 $190.42 $147.49 6.0% $227.58 $231.32 $169.91 7.0% $294.01 $300.46 $202.89 8.0% $428.28 $442.49 $256.20 9.0% $842.60 $901.24 $357.01

37




1.0% $113.60 $114.53 $96.96 2.9% $137.85 $139.23 $113.88

3.0% $139.49 $140.91 $114.99 4.0% $158.96 $160.81 $127.74 5.0% $186.27 $188.84 $144.57 6.0% $227.38 $231.25 $167.82 7.0% $296.28 $302.95 $202.02 8.0% $435.53 $450.25 $257.31 9.0% $865.21 $926.01 $361.86



1.0% $83.89 $84.55 $72.01 2.0% $91.90 $92.71 $77.70 3.9% $114.41 $115.69 $92.78 4.0% $115.99 $117.31 $93.80 5.5% $148.24 $150.45 $113.22

6.0% $164.42 $167.16 $122.16 7.0% $213.18 $217.90 $146.37 8.0% $311.72 $322.15 $185.50 9.0% $615.82 $658.85 $259.49

38

Using the estimated future FCFE when net new borrowing will be $0, CELG will need to

achieve a long-term growth rate higher than 2.9% for the value of the stock to exceed

the current market price if the stock grew at a of 28.59% in the near-term. Under the

worst case scenario, using the lowest near-term growth rate of 15.0% and highest cost

of equity, 11.24%, the stock is favorable if the cash flows sustain a long-term growth

rate above 6.7%.

V. Risk Factors

Operating results are subject to significant fluctuations:

Revenues are subject to foreign exchange rate fluctuations due to Celgene’s global

operations. Due to the fluctuations in Celgene’s reporting currency, the U.S. dollar and

other currencies used for business, operating results can be affected. Net income can

also fluctuate due to required fees from foreign currency and additional hedge

transactions.

Dependency on Revlimid, Vidaza, Thalomid, Pomalyst and Oztela:



1.0% $69.92 $70.46 $60.26 2.0% $76.40 $77.05 $64.86 3.0% $84.74 $85.55 $70.58 4.0% $95.87 $96.94 $77.87 5.1% $113.41 $114.94 $88.64 6.7% $160.06 $163.25 $113.59

7.0% $174.43 $178.25 $120.37 8.0% $254.09 $262.51 $152.00 9.0% $499.89 $534.68 $211.80

39

Competition from generic firms and selling generic drugs at lower costs will reverse

sales from Celgene’s top selling products, Thalomid and Revlimid. Generic firm, Nacto,

along with its partner Actavis are working to developing a generic Revlimid, this could

occur before Revlimid’s formulation patents that expire in 2027. Competitor Amgen’s

drug Kyprolis could also slow the potential sales of Revlimid. Also, if any unexpected

adverse events occur, relating to the use of any of these products, the success of such

product can be adversely affected. However, Celgene has taken the responsibility to

educate patients regarding potential side effects or risk of each drug. Celgene has also

has taken the initiative to diversify its drug market, by acquiring or strategically

collaborating with other firms.

FDA Approval:

FDA approvals are also a concern due the stringent reviews of drugs. Future growth

can be negatively impacted if regulatory approvals are not obtained, both in the United

States and international markets. However, Celgene had six regulatory approvals for

Revlimid, Pomalyst, Abraxane and Otezla Q1 for 2015.

VI. Recommendation

Due the results of our analysis, we recommend that to buy 500 shares of Celgene.

Based on the absolute valuation, Celgene is an overall buy and well-positioned to

growth in the next five years. We conclude that Celgene will be a positive return for the

portfolio.

40

VII. References 1. “AstraZeneca enters strategic immuno-oncology collaboration with Celgene

Corporation to develop PD-L1 inhibitor programme for patients with serious blood

cancers.” AstraZeneca. Web. 28 April. 2015.<

http://www.astrazeneca.com/Media/Press-releases/Article/20150424--astrazeneca-

enters-strategic-immuno-oncology-collaboration-Celgene-PD-L1-inhibitor-programme>.

2. Celgene. Web. 28 April. 2015. <https://www.celgene.com/about/history/>.

3. “Celgene Corporation History”. Web. 28 April. 2015.

<http://www.fundinguniverse.com/company-histories/celgene-corporation-history/>.

4. “The Pharmaceutical and Biotech Industries in the United States”. SELECTUSA.

Web. 1 May. 2015. < http://selectusa.commerce.gov/industry-

snapshots/pharmaceutical-and-biotech-industries-united-states>.

st. john’s university undergraduate student … syndromes (mds), chronic lymphocytic leukemia...

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