Bern" MM-020 results likely to be significant catalyst. $96 target..."
Bernstein"CELG not yet delivered stock gains that should be expected from Panc Ca, Aprem, Pom...MM020 interim results likely to be significant + catalyst stock during Q113. $96 target"
Outperform - $96 target
· With the recent announcements about the success of Abraxane for metastatic pancreatic cancer and the apremilast and pomalidomide phase III results, Celgene has had a solid run of positive news in recent weeks. In a difficult market, the stock has held up reasonably well compared to peers, but has not yet delivered the upside we might have expected from such announcements. While the two new products (apremilast, pomalidomide) and new indications (pancreatic ca for Abraxane) offer the most upside, we don't expect the positive newsflow to end with the likely pom approval in Q1 2013. The first results of the seminal MM020 study for Revlimid in front line myeloma should be announced in Q1 as well, and are shaping up as another significant event, or overhang, for the stock. Investors are cautious about this study however, suggesting to us that they worry about its risk of failing at either its primary or secondary endpoint. In this note we dig into the trial, its arms and our expectations for results; in all likelihood this trial will be in the background to the expected fanfare of data, presentations and positioning by Celgene, Onyx and other biotech and pharma companies at this weekend's American Society of Hematology (ASH) meeting in Atlanta.
· With ~1600 patients MM020 is one of the largest front line trials ever conducted in multiple myeloma, and will be well powered to show what we expect to be a solid benefit in PFS for Revlimid, and potentially a larger, but slower to emerge benefit in overall survival. Although the exact timing of filing, approval and reimbursement remains open to question, we think this study should leave Celgene better positioned to secure front line approval, reimbursement and adoption for Revlimid in Europe, and to increase their share of front line adoption in the US.
· MM020 compares two active arms consisting of different durations of Revlimid + low dose dexamethasone (Rd) to a third active control arm of Melphalan/prednisone/thalidomide (MPT). This active comparator arm raises the stakes for the study, and certainly increased its size. The primary analysis is for the Revlimid "maintenance" arm (RdR=treated to progression) against the MPT arm; the secondary analysis is of the fixed duration of treatment compared to the control. Although there could be considerable variability of the outcomes within ranges, our analysis suggests that the PFS for fixed 18 month Rev-Dex arm (Rd) should be approximately 26 months (range of 24-27) compared to ~21.5 months (range of 15-27.5) for the MPT control arm. There is also likely to be something of a "maintenance premium" for the treatment until progression arm, pushing the PFS of that arm to just over 29 months (range 28-31). Such results are likely to achieve statistical significance for the primary endpoint of PFS compared to the control arm and to support approval (EU) and adoption of Revlimid as an active, effective and well-tolerated first line regimen, particularly in the elderly patient population.
· The key secondary endpoint will be overall survival (OS) and this endpoint will take considerably longer to mature. We believe that only around 30% of deaths will have occurred by the interim analysis in H1 2013, leaving the study with another 12-18 months to achieve median OS in all three arms. However, even with 30% of these events, there could be a preliminary trend toward difference in the landmark analysis of survival at 3 years. We expect the 3 year survival for the MPT arm to be in the range of 58%, compared to 70-75% for the two Revlimid arms; ultimately median OS for the active arms is likely to reach 65-75 months, compared to 40-50 months for the MPT arm, although cross-over could dilute this difference.
· Although there is always the risk of secondary primary malignancies (SPMs) and Adverse Events (AEs) with any cancer treatment, we do not believe that the SPM risk is likely to be significantly worse between the collective Rd/RdR arms compared to MPT; in fact, if anything, Rd is likely to be better tolerated overall, with fewer discontinuations due to AEs and potentially fewer SPM's. We expect the rate of SPMs to be slightly higher in the Revlimid maintenance arm, probably in the 7% range, and around 6-6.5% for both the MPT and fixed duration Rev-dex arms. If anything, these estimates could over-estimate the risk for Rd, and underestimate if for MPT – the available data about the exact rates of such events remains limited and the increased scrutiny for SPM events could yet bump up rates in all arms compared to prior studies.
· If the results are as we expect, the announcement of these interim results is likely to be a significant positive catalyst for Celgene's stock during the first half of 2013. They should certainly increase investors' confidence in the company's ability to secure regulatory approval for front line and maintenance use of Revlimid in the non transplant setting in Europe.
· We reiterate our Outperform on Celgene and our $96 target price.
Based on research with the original, older drug, thalidomide, Celgene has invented a whole new class of compounds and a novel approach to cancer treatment with its Revlimid (lenalidomide) product. Although it has taken a while to evolve, Celgene now appears to be in a good position to capture significant incremental use of its first novel compound with Revlimid in its two existing indications, myeloma and myelodyspalstic syndrome, as well as in other diseases such as NHL and CLL, and potentially even in solid tumors. Over the next three years, we expect Celgene to deliver ~ 22% EPS CAGR. Although there will be start-up or regulatory approval expenses related to new product line extensions, the incremental revenues derived therefrom, as well as the Abraxis acquisition boosts the company's long-term growth outlook, consolidates its position in oncology, and leverages the Company's global establishment and commercialization infrastructure.