Celgene’s decision to pull their European application for the expanded use of Revlimid might signal that it’s time to rethink the stock, “Mad Money” host Jim Cramer said Thursday.
The pharmaceutical company’s stock took a hit, falling 11.5 percent, or $7.72 per share, on the news that the company withdrew its application to expand the use of its biggest seller, a drug to treat multiple myeloma. Shares closed at $59.45.
Cramer said that “the stunning decline does make sense because a European approval for expanded use of Revlimid had been in the numbers, so to speak, since Bob Hugin, the CEO and one of my favorite execs, had assured us that huge sales awaited his company when this approval came through. And it was when, not if.”
Meanwhile, Onyx Pharmaceuticals shares soared more than $19.20 or 43 percent after receiving approval from an FDA panel for a new drug to fight the same disease. Its stock closed at 63.78 per share.
“Let me say right up front, even though Onyx has roared on this approval, it probably could go still higher after a couple days of digestion,” Cramer said, adding that he had liked the company ever since it unveiled drugs to combat kidney and liver cancer.
But should Celgene be abandoned?
Cramer said that although the company’s credibility has been hurt, Celgene did reiterate estimates and forecast earnings of $8 to $9 a share in 2015. That would make it one of the cheapest growth stories around.
“I also think Celgene deserves some benefit of the doubt when the company says that they will re-file the Revlimid application when more data is available,” he said.
Cramer said that Onyx also showed that smaller biotech firms can be strong out-of-the-money bets.
“A company that has serious entries in treating kidney, liver and now blood cancers is a company that can jump-start any old-line pharmaceutical firm that needs to buy growth, which makes Onyx a juicy takeover target,” he added.
Yet while Celgene serves to remind investors that any company so dependent on one drug for two-thirds of its revenue, owning the stock can be risky.
“It is now imperative that Celgene show growth away from Revlimid, while at the same time being able to make the claim that their drug is superior to anything Onyx has to offer in the blood cancer category, if, indeed, it can do so,” he said.
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