Deutsche Bank - Equity Research - North America CELG
Celgene - The most transformative biotech pipeline is emerging. New TP $115
24 July 2014 (3 pages/ 489 kb)
Celgene {Ticker: CELG.OQ, Closing Price: 89.12 USD, Target Price: 115.00 USD, Recommendation: Buy}
Pipeline to drive upside beyond 2017. Raising TP to $115
The prime focus of 2Q call was pipeline as the early-mid stage pipeline continues to emerge. We note that CELG has most transformative yet underappreciated pipeline which could potentially double the market cap in next 3-5 years. We are raising our TP to $115 as we strongly believe in the long term prospects of the company and note that street could start including pipeline in next 12 months.
Q2 Revlimid in-line.2014 guidance raised by $100M in revs & 5-10c on EPS
Revlimid numbers were in line with expectations at ~$1.2B & the company narrowed the ’14 guidance to $4.95B at the mid-point of prev. guidance. Total rev guidance increased to $7.6B vs. $7.5B prev. & the new EPS guidance is $3.60-$3.65 vs. $3.50-$3.60 previous.
Otezla scripts set to accelerate in 2H’14 2015 will be the key launch year
~4K patients started on Otezla in 2Q and the co expects July numbers to meet/beat the entire 2Q. ~1000 doctors have already prescribed Otezla with many of them being repeat prescribers. This suggests strong uptake of Otezla which could further increase post Psoriasis approval on 23 Sep’14. We expect 2015 is the real launch year & model ‘15/16’17 sales at $688M/$1.2B/$1.9B.
CELG has the most transformative pipeline which could double the Mcap
Celgene has 7 phase 3 programs and multiple Ph 1/2 programs ongoing in oncology and I&I space. We note that street is not modeling most of them. Our detailed analysis of pipeline suggests ~70% upside (Pipeline FV ~$63/sh) to current market price at 100% probability. We expect pipeline to emerge meaningfully in next 12 mos. The company seems most excited about I&I franchise including GED-301 and immune-oncology collaborations. Please ask for our pipeline models and analysis.
Proof of concept data for GED-0301-in Oct’14. Every $1B sales adds ~$3/sh
GED-0301 phase 2 data in Oct’14 represents next data catalyst for the company as Crohn’s represents substantial upside Opp’y. The co has noted a couple of times that the phase 2 data were “striking” leading us to believe in the potential of this compound. We also note that it will be nice addition to company’s I&I franchise. The co expects ph 3 to start later this year. We could see this drug in markets by 2018 (2-2.5 yrs of study + 1 yr FDA review).
We recommend being Buyers on the weakness: long-term promise outweighs any NT concerns
The ongoing Revlimid patent case remains a key overhang. If the companies settle in next 12 months we could see the street focus shifting to pipeline. If CELG were to settle for Actavis launch 6 mos early vs. patent expiry in 2027, we see ~$2.5/sh impact to DCF. Additional upside could come w/ potential EU approval for Revlimid in first line MM. We believe the package is more robust this time with MM-020 data. The filing is under review in the US & EU.
Raising TP to $115. Risks
We value CELG using a 2015 PE multiple of 21x which we believe fairly reflects the EPS growth potential in next 5 years (29% CAGR) and in line with peers. Risks: 1) Pipeline failures, 2) Otezla launch weaker than expected.
