Leerink raises tgt from $90 to $120 on enhanced conviction on near term revenue from pipeline.Positively Biased on MM-020
January 22, 2013
RAISE TARGET FROM $90 to $120
Positively Biased on MM-020 Based on Our Analysis and Survey • Bottom Line: We conducted an analysis of MM-020 (data expected in 1Q:13) and its impact based on review of medical literature, conversations with 5 MEDACorp multiple myeloma (MM) key opinion leaders (KOLs), and a small survey of 20 US hematologists / oncologists. While the margin may be uncomfortable due to a missed interim analysis and general lack of data on Revlimid / low-dose dexamethasone (Rd) in the studied population, we believe MM-020 has a good chance in meeting its primary endpoint of progression-free survival (PFS) based on the principle shown in other MM studies that prolonged treatment is associated with improved PFS. Our survey suggests that physicians may view MM-020 results positively even if it fails the primary endpoint but shows a trend in favor of Rd. We are updating our model to reflect Abraxane opportunities in pancreatic cancer based on our expectation of strong data later this week. We are raising our valuation on CELG from $90 to $120.
• Key concerns include missing a relatively mature interim analysis and lack of Phase III data on Rd in elderly, transplant-ineligible patients.The primary comparison is Rd treat to progression vs. up to 18 months of melphalan, prednisone, and thalidomide (MPT). The interim analysis for MM-020 with ~72% of events as in the upcoming final analysis did not result in the early stoppage for efficacy. A large number of trials on MPT show a wide range of PFS from 15 to 27.5 months. Both Phase III trials on Revlimid / dexamethasone (ECOG-E4A03 and SWOGS0232) were in younger patients and showed a median PFS of 25 and 37 months, respectively, but the duration was short in E4A03.
• KOLs generally expect a positive outcome for MM-020, citing the difficulty to dose MPT for an extended period. Our analysis of MPT trials shows a correlation between achieved treatment duration and PFS. This correlation was also convincingly demonstrated in MM-015 where MP/Revlimid with and without maintenance shows a dramatic difference in PFS. Assuming a 30-31 month PFS for Rd (based on MM-015 and Mayo Clinic data), even taking a PFS of 25-26 months blending the two French trials with the best MPT data, we believe the trial is still big enough to have a positive outcome.
• A seemingly small margin of MM-020 leads us to #$%$ its potential impact in the US. Sixteen of the 20 surveyed US hematologists / oncologists do not expect a change in their Revlimid use on either FDA front-line approval based on MM-020, or a negative MM-020 with only a trend for Rd. The remaining 4 respondents projected increased use in each scenario with only slightly different magnitudes. No physician
We are increasing our valuation for CELG from $90 to $120 based on enhanced conviction on near term revenue contribution from pipeline products. Based on our expectations of strong data on Abraxane in pancreatic cancer, we are including pancreatic cancer sales in our Abraxane sales estimate starting in 2014, and we project Abraxane sales to increase from $536M in 2013, to $1B in 2015 and $1.65B in 2017. We include probability-weighted Pomalyst sales in both US and EU with estimated $165M sales in 2013 and reaching ~$1B sales in 2017. Additionally, we project out probability-weighted apremilast sales in both psoriatic arthritis (PsA) and psoriasis of $135M in 2015 to $500M in 2017. Our $120 valuation is based on a 17X multiple to our 2015 non-GAAP EPS estimate of $8.40 discounted at 20% for 0.94 years. Given our estimated CAGR of 22% in 2012-2017E, a 17
multiple represents a PEG ratio of 0.77. We believe this multiple is consistent with the growth opportunities for CELG’s commercial portfolio as well as the company’s development pipeline. As a comparison, large pharma companies are trading at PEG of 2.6 and large biotech companies are trading at PEG of 1.4.
Our previous $90 valuation for CELG was based on 13.5X multiple to the previous 2014 non-GAAP EPS estimate of $6.66. Given our prior estimated CAGR of 18% for EPS in 2012-2015, a 13.5X multiple represented a PEG ratio of 0.75.
Rob, seems like a correction or two maybe three over 2013 is in order which will present better buying opportunities than now. Attaining $120 by ye very probable. Taking advantage of the corrections along the way would be good investing.