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Celgene Corp. (CELG) Message Board

  • rob_cos rob_cos Feb 28, 2013 12:31 AM Flag

    WBlair "Sat AAD presentation upside. Many catalysts. PE expansion warranted for CELG"

    Wm Blair "CELG at AAD this weekend will offer insight & potential upside. St ests still below CELG's. Aprem under-appreciated by Street. Numerous catalysts ahead.PE expansion warranted"

    William Blair

    Equity Research

    Healthcare | Biotechnology

    Celgene Corporation

    Celgene’s Presence at the American Academy of Dermatology Meeting Offers the Potential for Insight and Upside

    Celgene is expected to present the full data sets from the Phase III ESTEEM-1 and ESTEEM-2 trials with apremilast in psoriasis at the American Academy of Dermatology (AAD) meeting beginning Friday, March 1, and to host its first-ever investor event at the meeting. We share our thoughts ahead of the meeting below.

    • We believe the full data sets have the potential to serve as a positive catalyst for the stock because they will offer insight into apremilast’s potential in the $4 billion psoriasis market. Apremilast is an investigational oral compound in late stage clinical development designed to modulate the inflammatory immune response. Altogether, apremilast is being tested in seven pivotal Phase III trials in over 3,500 patients in a number of inflammatory diseases, including psoriasis, psoriatic arthritis (PsA), and ankylosing spondylitis. The ESTEEM-1 and ESTEEM-2 trials are the two pivotal Phase III studies evaluating the potential for apremilast in psoriasis. If the full data sets from these trials are consistent with the early-stage results, we believe apremilast would have an approvable profile in psoriasis, which affects over 10 million patients in the United States and Europe and represents a $4 billion commercial opportunity.

    • Positive top-line results were announced in January, thereby reducing the potential downside risk to the stock, in our view. Management announced the positive top-line results at an investor conference in January. They included statistically significant differences between apremilast and the placebo in the psoriasis activity and severity index 75 (PASI 75) and the static physician global assessment (sPGA) scores at 16 weeks. In addition, no new safety signals were observed. We believe these prior announcements lower the likelihood for unexpected negative surprises. Furthermore, management has already provided regulatory filing timelines with apremilast in psoriasis (second half of 2013 in United States and Europe) and is hosting its first-ever investor event at the meeting, thereby offering additional signs of its confidence ahead of the meeting.

    • We believe apremilast’s efficacy and safety profile relative to existing therapies will be the focus at the meeting. A number of drugs are used to treat psoriasis, ranging from traditional treatments like methotrexate and cyclosporin A to biologics like Enbrel and Stelara. Enbrel, the market leader with more than $1 billion in sales in psoriasis, has demonstrated a PASI 75 score of roughly 50% at 12 weeks, and Stelara has demonstrated a PASI 75 score of about 70% at 12 weeks. In Phase II trials, apremilast demonstrated a PASI 75 score of roughly 40%, thus putting it at a disadvantage relative to some of its peers. However, traditional treatments like methotrexate are associated with cardiovascular toxicities and the biologics like Enbrel and Stelara carry serious infection and second malignancy risks. The absence of cardiovascular toxicities, serious infections, and second malignancies observed to date with apremilast combined with the convenience of oral dosing suggest it may offer a compelling benefit/risk profile for some patients, and we believe the data presented at the meeting should offer insight into which kinds of patients apremilast may be an appropriate treatment option for.

    • The Street’s sales estimates for apremilast remain below management’s 2017 guidance; positive data offers upside to our numbers and the potential for PE expansion, in our view. Management announced at an investor conference in January that it expects apremilast sales to contribute 4% of the 19% compound annual growth it is guiding between now and 2017. We roughly estimate the 4% to translate to about $1.5 billion in apremilast sales, yet Street consensus estimates for apremilast in 2017 are only roughly $900 million. We therefore believe meaningful upside to apremilast sales estimates exists and note that every $100 million in apremilast sales is worth $0.17 in EPS. We project $24 million in sales in 2013, $141 million in 2014, and $334 million in 2015. We also believe that since apremilast offers Celgene the opportunity to diversify beyond the cancer markets and thereby reduce concentration risk, P/E expansion may be warranted. Celgene shares trade at 17.7 times our 2013 estimate of $5.65.

    • Numerous catalysts, which should offer further insight into apremilast’s potential and provide for more visibility, lie ahead, including the following:

    – Top-line results from the PALACE-4 trial in PsA (first quarter 2013).

    – Full data sets from the PALACE-2 and PALACE-3 trials in PsA (2013).

    – Regulatory submission in PsA in the United States (first half 2013).

    – Regulatory submissions in psoriasis in the United States and in psoriatic arthritis and in psoriasis in Europe (second half 2013).

    –Top-line results from the POSTURE trial in ankylosing spondylitis (first quarter 2014).



    We reiterate our Outperform rating on Celgene shares.

    Investment Summary

    Brief overview of apremilast and the ongoing Phase III clinical programs. We have previously written about the significant investment Celgene has made in its late-stage clinical pipeline. Apremilast is one of the promising compounds developed from that investment. It is a small-molecule inhibitor of phosphodiesterase-4 (PDE-4), an enzyme that normally promotes the inflammatory immune response. By blocking PDE-4, apremilast reduces inflammation by inhibiting proinflammatory cytokines, including tumor necrosis factor-alpha (TNF-alpha) and interleukin-2 (IL-2). Not surprisingly, apremilast is being investigated in a number of conditions in which inflammation occurs, including psoriasis, PsA, and ankylosing spondylitis. In psoriasis, the two Phase III trials, known as ESTEEM-1 and ESTEEM-2, have previously reported positive top-line results. In PsA, Celgene is conducting the largest Phase III program ever, consisting of four clinical trials (PALACE-1 through PALACE-4) and roughly 2,000 patients. In ankylosing spondylitis, one Phase III trial, known as POSTURE, was initiated in April 2012. Altogether, apremilast is being tested in seven pivotal Phase III trials in over 3,500 psoriasis, PsA, and ankylosing spondylitis patients (exhibit 1, on the following page).

    Management previously announced that the Phase III ESTEEM-1 and ESTEEM-2 trials met their primary and key secondary endpoints and generated no new safety signals. Exhibit 2 provides a description of the Phase III trial designs with apremilast in psoriasis. The positive top-line results released last month include statistically significant differences between apremilast and the placebo in the PASI 75 and the sPGA scores at 16 weeks. In addition, no new safety signals were observed. We believe these top-line results are encouraging, and if the full results turn out to be consistent with the early stage results, we believe apremilast would have an approvable profile in psoriasis.

    The Phase II trial results with apremilast in psoriasis are highlighted in exhibit 3. The 30 mg dose of apremilast given orally twice-daily achieved a PASI 75 score of roughly 40%. Headaches were the most common adverse event, and no major cardiovascular, infection, or second malignancy signals were observed. Currently, Enbrel is the leading therapy in psoriasis, generating more than $1 billion in sales in the disease, and it has demonstrated a PASI 75 score of roughly 50% at 12 weeks. Stelara, the newest therapy approved to treat psoriasis, has demonstrated a PASI 75 score of about 70% at 12 weeks. We acknowledge that the Phase II trial results with apremilast did not achieve the same level of efficacy as Enbrel and Stelara have been shown to demonstrate. However, traditional treatments like methotrexate are associated with cardiovascular toxicities and the biologics like Enbrel and Stelara carry serious infection and second malignancy risks. The absence of cardiovascular toxicities, serious infections, and second malignancies observed with apremilast combined with the convenience of oral dosing suggest it may offer a compelling benefit/risk profile for some patients, and we believe understanding the potential positioning of apremilast relative to the other drugs on the market will be a key focus at the meeting.

    We reiterate our view that the commercial potential for apremilast is attractive and underappreciated by the Street.

    Inflammatory diseases are common worldwide. For example, we estimate over 10 million patients suffer from psoriasis in the United States and Europe. Furthermore, the psoriasis commercial opportunity is roughly $4 billion at present despite the adverse events associated with the existing therapies. We therefore believe psoriasis represents an attractive commercial opportunity. We also note that management announced at an investor conference in January that it expects premilast sales to contribute 4% of the 19% compound annual growth it is guiding between now and 2017. We roughly estimate the 4% to translate to about $1.5 billion in apremilast sales, yet Street consensus estimates for apremilast in 2017 are only roughly $900 million. We therefore believe meaningful upside to apremilast sales estimates exists and note that every $100 million in apremilast sales is worth $0.17 in EPS. We project $24 million in sales in 2013, $141 million in 2014, and $334 million in 2015.

    We also believe that since apremilast offers Celgene the opportunity to diversify beyond the cancer markets and thereby reduce concentration risk, P/E expansion may be warranted. Celgene shares trade at 17.7 times our 2013 estimate of $5.65.

    The coming months should further elucidate the potential for apremilast and increase the visibility of Celgene’s nascent inflammatory diseases franchise. We expect to see additional data releases and presentations and potential regulatory submissions in psoriasis, PsA, and ankylosing spondylitis. Refer to exhibit 4 for a detailed timeline of upcoming events.

    Valuation

    Shares are now at a 2013 multiple of 17.7 times and trade at a premium to the group’s 14.5 times on a P/E basis. However, the stock is trading at a discount when accounting for growth, with a PEG ratio of 0.9 versus the peer group’s value of 1.0, which implies a discounted valuation considering the company’s growth trajectory. With what we view as 2013-2017 EPS growth of roughly 25% and the stock trading at a discount to its peer group on a relative PEG ratio basis, we believe purchasing shares at these levels would be appropriate for any investor interested in a high-growth, innovative company poised to take a leading position in a growing market.

    Celgene is a fully integrated biotechnology company dedicated to discovering, developing, and commercializing medical therapeutics in the oncology and inflammatory spaces. The company’s flagship product, Revlimid, is approved for use in patients diagnosed with multiple myeloma and myelodysplastic syndromes.

 
CELG
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