My favorite call today comes from Cowen. They are downgrading Celgene (NASDAQ: ) to Underperform from Neutral based on based upon concerns over

) valuation,
2) the company’s ability to meet consensus revenue and earnings expectations and, 3) the potential for patent challenges to create an overhang on the stock. They expect CELG to underperform the market by 20%+ over the next 12 month

Can Revlimid Be A $5B+ Drug? Celgene’s small molecule franchises have finite patent lives and its pipeline appears immature. Cowen's NPV analysis of the company’s oncology franchises suggests CELG shares are worth $45 assuming Revlimid sales reach $5B+ and the drug’s 2026 U.S. polymorph patent holds up to scrutiny. Sensitivity analyses indicate CELG might beworth between $22/share and $61/share depending on one’s assumptions for Revlimid’s peak sales potential ($2-8B) and patent life (2016-2026).

How Much Will MM-015 Really Matter? Shares are up 25%+ in the wake of positive data from MM-015 as the bulls anticipate a meaningful acceleration in Revlimid sales driven by 1) greater front-line penetration and 2) increased adoption in maintenance. Although the firm expects the average duration of Revlimid therapy to steadily increase, they believe there is risk that the MM-015 results may not support the superiority of Revlimid relative to induction therapy with Velcade, or conclusively establish the clinical benefits of Revlimid dosing in maintenance. They expect Revlimid sales will continue to struggle to meet consensus expectations.

Intellectual Property Risk Ahead. Cowen expects the next 12-18 months to feature more discussion around the potential for generic threats to Celgene’s major franchises, including a challenge to Thalomid’s patents (ongoing), the U.S. expiry of Vidaza’s exclusivity (2011), and likely ANDA filings on Revlimid (late 2009/early 2010).



In Cowen's experience, oncology drugs rapidly penetrate new markets, followed by a plateau in sales growth. Examples of this phenomenon include Tarceva, Erbitux, Nexavar, Herceptin, and Thalomid. Less often, as exemplified by Rituxan or Avastin, oncology therapeutics grow for many years driven by new data indications. Investor expectations place Relvimid firmly in this latter camp. Street consensus calls for sales to grow from $1.65B in 2009 to $3.8B in 2013. This growth is expected to come from substantially higher sales in myeloma (greater ex-U.S. market penetration, more front-line use, and longer duration of therapy) coupled with modest use in NHL and CLL. Analysts have constructed fairly complex models of the myeloma marketplace, many of which have Revlimid reaching $5-6B in peak sales. Yet despite these great expectations, Revlimid is struggling to achieve consensus sales figures during a time period when growth should be rapid. The chart above depicts changes to consensus 2010 revenue expectations for Celgene over the past 18 months

Notablecalls: Eric Schmidt, Ph.D. and his biotech team at Cowen have done a terrific job with this call. If you happen to be long CELG I suggest you get your hands on a full copy and study it hard.

The stock is up almost 20 points from its lows & is looking toppish. And then Cowen comes and slams it hard. This one will take a dive. I'm calling it Actionable Short Call here.

I see it down 2pts+ today alone.

Note that most analyst are positive on the name: 19 Buys, 5 Holds and just one Sell.