Celgene Spikes On Big Patent Win: Here's What It Means For Shareholders

Celgene Corporation CELG surged 7 percent in after-hours trading on Tuesday, following its announcement that the company reached a patent agreement with Natco Pharma Ltd. (BOM:524816), Arrow International Limited, and Watson Laboratories, Inc.

The biopharmaceutical company 's patent expires in 2027, however, Celgene did agreed to allow Natco Pharma a license to sell limited amounts of lenalidomide, which is the generic version of the drug, in the United States beginning in 2022, followed by an unlimited amount in 2026.

Piper Jaffray reiterated its Overweight rating for Celgene on Tuesday, giving the company a $163.00 target price.

Analyst Joshua Schimmer commented, "We view the agreement as creative and a positive, lifting the overhang in a reasonable compromise that allows the company to continue managing towards a 25 percent EPS CAGR through the middle of the next decade, which is why we like this deal. CELG remains one of our top biotech picks with a reasonable valuation and high EPS growth visibility heading into 2016."

Bank of America Merrill Lynch maintained a Buy rating for the blue-chip biotech company.

"We view the settlement terms as a substantial positive for CELG as it shifts the attention to the growth momentum behind Revlimid and the rest of the company's pipeline assets. This settlement is also more favorable to CELG than Street expectation of generic entry in 2023/2024 considering the gradual entrance of generics from 2022 to 2025," BofA noted.

The Buy rating is based on its 2020 estimate for U.S. Revlimid sales with a prediction of a 5 percent annual growth. The lost Revlimid revenues only represent approximately 2 percent to 10 percent of total annual sales from 2022-2025.

For investors, BofA analysts noted that the company's Revlimid still has a "long road ahead as backbone therapy."

"Risks to our $155 price objective are slower-than-expected growth from product sales, particularly Revlimid, unfavorable outcome from the Revlimid patent litigation, slower-than-expected launches of Otezla, and pipeline setbacks,"

In a five-year run, Celgene is up nearly 280 percent compared with around 65 percent for the broad-based S&P 500.