Celgene (CELG)

This appears to be one of the long time favorites here. Clearly the company and stock have done well.

A couple of basic questions:

CELG has a quite large difference between GAAP and adjusted EPS. This has led to some considerable confusion as to which to use for valuation. Value Line is using the GAAP numbers. My question is why is there this large difference and which one is the more correct on to use in assessing valuation?

About 66% of the revenues come from Revlimid. CELG clearly expects sales from this drug with expanded indications to be a key growth driver in future years. There has been some activity by generic companies to challenge the patent for Revlimid. CELG lists the patent as expiring in 2027 (US), 2024 (Europe). The patent situation appears complex:


with the basic composition of matter patent expiring in 2019. If Revlimid loses protection in 2019 that would appear to be a huge risk for the valuation. What is the sense of investors on this board on this key question?

thanks for your thoughts - sw


Interesting quote from a guy that seems reliable in a comment on SA:

I’ve been seeing “Celgene is too expensive” articles since 2000. In these 15 years, it has been the best performing stock in the S&P 500.

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Fast growing stocks are always too expensive by standard value stock metrics. But if growth is accompanied by volatility one has to be careful timing the entry points:

CELG: http://invest.kleinnet.com/bmw1/stats25/CELG.html

CELG has a historic growth rate of 29%. Had you bought at the top of the 2000 bubble ($184.06 adjusted for 24::1 splits) you would have been underwater for five full years. But, had you held on, by now you would have a market busting 20% return. How many people can ride out the five lean years? Had you bought at the trough of 2002 ($11.50 adjusted for 8::1 splits) your CARG would now be 55%.

The argument has been made that you can’t time the market and I agree. But the risk of being underwater for five years is very real. My solution is to wait for a considerable retreat in the stock’s price (25% or more) before buying. This will keep you out of a lot of good deals. That’s the cost of this hedge.

Some market darlings took almost 15 years to recover

MSFT: http://invest.kleinnet.com/bmw1/stats25/MSFT.html

Some have yet to recover

CSCO: http://invest.kleinnet.com/bmw1/stats25/CSCO.html

Denny Schlesinger


“I’ve been seeing “Celgene is too expensive” articles since 2000. In these 15 years, it has been the best performing stock in the S&P 500.”

Interesting quote, Saul.

Just for grins I compared Celgene with Under Armour going back to 2005 when UA went public.

UA has killed CELG in price growth by approximately 1300% to around 875%. That is 10 years. UA is always too pricy to buy as well! By comparison, Nike is up around 400% for the same 10 year time frame.

Bottom line: Perhaps there is more to investing than just numbers. Maybe hyper growth can be worth paying more for?


Maybe hyper growth can be worth paying more for?

The power of compounding is under appreciated.

“The most powerful force in the universe is compound interest” – Albert Einstein

Denny Schlesinger

So far no one has answered my questions which are:

  1. Why are adjusted EPS so much greater than GAAP EPS? An unusual situation. I may take this to their investor relations.

  2. What do people think about the potential for loss of patent protection on Revlamid? This is a key question that any real investor must have an opinion on.



Hi Ed,

Great questions! Thanks for asking.

With respect to the big difference between GAAP and non-GAAP, one big contributor is share based compensation. If you look here:


You will notice that share based compensation accounts for about $0.54. This includes share based compensation under both SSGA and R&D. This alone adds about 23% to the non-GAAP numbers.

The other equally big contributor is upfront R&D collaboration costs. I guess this refers to initial costs associated with starting collaborations with smaller pharma companies. In my quick look, it was unclear why this item should be adjusted. If they pay for this by printing their stock, may be it’s okay. If it’s cash paid to the collaborator (and most small pharma companies tie up with big brother for cash) then I don’t understand why it should be adjusted. It’s not really one off as big guns like CELG and GILD are generally on the lookout for small players for

I am going to have a look at Gilead’s adjustments and see if there’s a common thread here.

Can someone help here?