Monday, November 11, 2013

Will the New Arthritis Drug Help Celgene Surge Higher?

With shares of Celgene (NASDAQ:CELG) trading around $148, is CELG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Celgene is a global bio-pharmaceutical company engaged in the discovery, development, and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases. Its primary commercial stage products include Revlimid, Vidaza, Thalomid, Abraxane, and Istodax. Celgene has made excellent advances and produces the products demanded by a large audience. These trends are poised to continue, so look for Celgene to see profits rise into the future.

Celgene's new arthritis drug has proven to be safe and highly effective during a trial of 527 patients who hadn't been treated for arthritis before. The pill Apremilast, when taken twice a day, was found to notably reduce the signs and symptoms of psoriatic arthritis, and symptoms further improved after a year of taking the drug. Celegene's drug is the first pill option for treating the disease, and will compete with injectable treatments currently available that have more serious side effects, according to Reuters. Celgene is expecting high sales from the treatment.

T = Technicals on the Stock Chart are Strong

Celgene stock has been surging higher over the last couple of years. The stock is currently trading near highs. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Celgene is trading between its rising key averages, which signal neutral price action in the near-term.


(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Celgene options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Celgene Options




What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options



January Options



As of today, there is an average demand from call or put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Celgene’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Celgene look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Celgene has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Celgene’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Celgene stock done relative to its peers, Novartis (NYSE:NVS), Therapeutics (NASDAQ:CTIC), Amgen (NASDAQ:AMGN), and sector?






Year-to-Date Return






Celgene has been a relative performance leader, year-to-date.


Celgene provides products that are seeing increased demand from a growing customer base around that world. The company released a new arthritis drug and is expecting high sales from the treatment. The stock has been surging higher over the last couple of years and is currently trading near highs. Over the last four quarters, earnings have been decreasing while revenues have been rising, leaving investors with conflicting feelings. Relative to its peers and sector, Celgene has led its peers and sector in year-to-date performance by a wide margin. Look for Celgene to continue to OUTPERFORM.

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