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Celgene's $2 Billion Stock Buyback Shows Biotech's Maturity


It's not sexy, but Celgene is showing what a big biotech should do when it is sitting on a pile of cash and its stock is down.

In the biotech world, things like dividends and share buybacks just aren't cool. Sure that's fine for grandpa's stock but not for biotech.

Yet here we are with Amgen (AMGN) paying quarterly dividends for the first time and Celgene (CELG) announcing this morning that its board is giving it the green light to buy another $2 billion of its own stock. (Celgene says it has acquired $1.75 billion worth of its shares over the past two years following a previous board approval.)

Celgene's shares fell 3% to $54.84 in morning trading Thursday. The stock is down 7% this year and some analysts say the stock is undervalued. (See Drug and Biotech Stocks to Buy Now)

Stifel Nicolaus analyst Maged Shenouda likes Celgene because of the potential sales growth of blood cancer drug Revlimid. The drug is Celgene's biggest product, with sales that climbed 45% to almost $2.5 billion last year. The drug accounted for almost 70% of the company's revenue. (Revlimid is on pace to exceed $3 billion in sales this year.)

But Celegene isn't the new kid on the block with its first blockbuster. The company was spun off chemical maker Celanese (CE) in the late 1980s. A decade later, the company got approval for Thalomid to treat leprosy. The drug was later approved to treat skin cancer. Thalomid is thalidomide, the notorious drug once used to treat morning sickness in pregnant women but later pulled from the market because it caused severe birth defects. Celgene milked Thalomid for a dozen years but sales are declining, dipping 11% to about $390 million last year.

The company also benefits from rising sales of the drug Vidaza, used to treat bone marrow cancers and blood cell disorders. Vidaza sales rose 38% to $543 million last year.

Celgene's market cap is about $25 billion -- again, this is not your start-up biotech. The company had $2.79 billion in cash and marketable securities as of June 30. It needs to put that money toward some use.

"We intend to manage our balance sheet dynamically in order to return cash to shareholders and to take advantage of strategic growth opportunities to expand our business," CEO Robert Hugin says in a statement.

It's not a flashy a move. It's just the maturity of another big biotech company.

Twitter: @brettchase
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