Biotech Celgene Street’s Top 2nd-Half Pick

Biotech Celgene is Wall Street analysts top pick for the second half of 2010 after a flurry of upgrades last month made the maker of cancer drugs among the most-loved stocks in the S&P 500.

Shares of Celgene, down 9 percent this year, were upgraded four times since the end of May, giving it a total of 17 ‘buy’ ratings and just 2 ‘hold’ ratings. The Summit, New Jersey-based firm is best known for its Revlmid drug, used now for the treatment of blood cancer, but is in phase 3 development for lymphoma and chronic leukemia.

“This is the last aggressive growth stock left in large cap biotech,” said Mark Schoenebaum, MD, ISI Group analyst. “We think Revlmid will get approved for first line myeloma. We see upward bias to estimates for the next year.”

Celgene shares are down today, bringing its losses to seven percent since announcing a $3 billion acquisition of Abraxis BioScience. Celgene paid a 17 percent premium for the maker of tumor medicines, raising concerns that it overpaid.

“We think the Abraxis deal is neutral at best,” wrote Jason Zhang, BMO Capital Markets, in a note to clients after the deal. “Celgene should meet its 2010 guidance, but we think the deal may not be accretive in 2012.” Zhang, however, maintained his ‘outperform’ rating.

The core reason for investor optimism is the expansion of uses for its blockbuster Revlmid. Since May 28, it was added to the ‘Best Ideas List’ at Wedbush Securities, upgraded to ‘buy’ at Jefferies, upgraded to ‘neutral’ at Cowen & Co. and raised to ‘buy” at Summer Street research. Schoenebaum, the top biotechnology analyst according to Institutional Investor magazine five years running, initiated Celgene a ‘buy’ in late June.

A screen using puts Celgene in second place as the most loved company in the S&P 500, behind CMS Energy, a utility, which has 12 ‘buy’ ratings. CMS, however, hasn’t had any upgrades since January, whereas Celgene seems to be a story more and more analysts are quickly warming up to, even with concerns about its acquisition.

“This is not a valuation call, it’s a ‘mo call,” said Schoenebaum.

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