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Celgene: Healthy Outlook

This drug maker has invested heavily in research and development and may have a blockbuster on its hands.

A recently approved cancer drug could inject a dose of momentum into the shares of Celgene, the drug's developer. That's the opinion of Citigroup analyst Yaron Werber, who this week reiterated his "buy" rating on the stock (symbol CELG), based on expectations that Revlimid will become a blockbuster drug in the treatment of a blood cancer called multiple myeloma.

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Revlimid has already been approved to treat another blood cancer, mylodysplastic syndrome. The drug is currently awaiting approval by the Food and Drug Administration for the treatment of multiple myeloma. Celgene's pricing of Revlimid, at about $4,500 per month, coupled with modest competition and widespread interest among physicians, sweetens the outlook, Werber says.

Shares of the Summit, N.J., firm, currently $69, have more than doubled over the past year. Celgene also develops drugs for treating leukemia, lymphoma, and ovarian, pancreatic, and prostate cancers. Revenues have risen steadily over the past few years, driven by sales of Thalomid, which is used to treat a skin condition associated with leprosy. Thalomid (known generically as thalidomide) sparked an uproar in the 1950s for causing thousands of birth defects, after being used as a treatment by pregnant women for morning sickness. In 1998, Thalomid gained FDA approval to treat a rare complication of leprosy. The drug accounted for about three-quarters of Celgene's 2005 sales of $437 million, which represented a 42% jump from 2004. Thalomid is also awaiting FDA approval for treatment of multiple myeloma.

Thalomid's robust sales have allowed Celgene to spend heavily on research and development over the past few years. This has helped bolster the company's pipeline of drugs but weighs heavily on Celgene's profits. In the fourth quarter of 2005, Celgene earned 2 cents a share, 82% lower than in the year-earlier period.

Thomas Weisel Partners analyst Ian Somaiya expects Revlimid to be approved for treating multiple myeloma by this spring or early summer. Somaiya says shares of Celgene are worth $74 to $81. Analysts, on average, expect the company to earn $0.82 cents in 2006, according to Thomson First Call. The stock has a market value of nearly $12 billion.

--Katy Marquardt

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