RBC"Oper margins to surge from 49% to 55%. Dividend. $115 on good MM-020 data"
RBC "5 Things We're Watching & Positive Mgt Coms. Stock goes to $115 on + MM-020 (delay a +). MM015 confidence. Op Margins to 55% from 49%.Next bio w dividend"
RBC Capital Markets
February 28, 2013
Celgene Corp. (NASDAQ: CELG; 101.04)
5 Things We're Watching & Positive Comments from Mgmt Fireside Meeting
We hosted management at the RBC HC conference - here's five things notable.
CELG is likely trending higher due to upcoming Apremilast data this weekend (our prediction is efficacy "near TNFs") but more our expectation from our work done on MM-020 that there is a 65% chance likely positive result and the stock goes towards $115. (analyst tells me his real % is higher but keeping expectations low)
1. MM-020 can be now as late as Jul, or even Sep (vs prior March/April).
Event rates in last month are slower. Mgmt believes the later readout could be construed positively given
1) only R/dex continuous arm is still receiving active treatment
2) (while blinded) company does have an idea of the level of drug they are supplying.
We think both arms are doing better due to managing MPT tolerability, but Rd has wider range of outcomes above 32-35+mos and MPT is likely 27m. As we've said before, positive data would help grow US maintenance but negative data would not really impact current sales (USA ~$1B maintenance revs but MPT not used) and Rd is not used at all front line EU.
2. Mgmt confident on MM015 hazard ratios improving vs last readout and ess than 1.0 for overall group and better in 65-75 yo subgroup. However while MM015 will be available internally in Q1 it may not be available for external consumption until ASH and in conjunction with all updated studies as part of H2:13 re-filing.
3. Apremilast is prime candidate for pre-biologic patients and will be priced attractively to target this population. For psoriasis, given wide spectrum of severity (only 5% are so severe they must adopt a biologic immediately), and psoriatic arthritis, where disease could wax/wane, an oral that is efficacious, easy to start/stop with ‘near-biologic’ efficacy and priced lower than biologics would be attractive. CELG most likely to commercialize in US alone (sales force 150-200). They continue to be open for potential partnership in EU. There is definitely room for an oral but risk we see is conservative docs at launch, lack of long term safety, and competitive market.
4. Mgmt confident on guidance. Why? Seems likely due to upcoming data for Apremilast. Down the P&L, operating margins will get upwards of 55%+ from current 49% today as leverage pulls through; meanwhile share count does not assume any major buybacks which is very unrealistic (plus our prediction is CELG will be next large cap biotech to issue a dividend).
5. Pipeline: CELG confirmed analyst event on May 6th in NYC where we predict highlights from Epizyme, Avila, Acceleron, etc. CELG continues to have an appetite for appropriately sized deals in hematology and oncology, but not likely immunology.
Updated comments around MM015 and MM020. Mgmt confirmed MM-020 readout can be now as late as Jul, or even Sep vs prior March/April. This is because event rates seen in last month are slower than expected. Mgmt very confident on MM015 hazard ratios improving vs last readout at ASH and be less than 1.0 for overall group and better in 65-75yo subgroup. However, while MM015 will be available internally in Q1 it may not be available for external consumption until ASH and in conjunction with all updated studies as part of H2:13 re-filing (policy to not report this data until medical mtgs). Mgmt aware that they want 50%+ OS events and Hazards below 1.0 and stable SPMs here beforere-filing with all prior studies.
Mgmt believes later than anticipated readout for MM-020 can be construed positively for Revlimid-dex, given:
1) only R + dex continuous arm is still receiving active treatment (others had limited cycles)
2) while trial remains blinded, company does have an idea of the level of drug they are supplying and
3) it has been more than 24 months since enrolment completion (Dec 2010) and estimated PFS benefit is 24 months for MPT so slower event rate might be more likely due to prolonged PFS in Revlimid arm.
Emphasized that positive data would help grow US maintenance therapy for Rd and is positive but negative data would not really impact current sales (MPT notreally used as alternative) and Rd is not yet used at all front line in EU.
Apremilast is prime candidate for pre-biologic patients and will be priced attractively vs biologics to target this population. CELG believes for psoriasis, given the wide spectrum of severity (only 5% are so severe they must adopt a biologic immediately), and psoriatic arthritic, where disease could wax and wane, an oral-treatment that is efficacious, easy to start/stop with ‘near-biologic’ efficacy and priced lower than biologics would be very attractive. They anticipate approval in Q1:14 timeframe and sees apremilast as a $1.5 - $2Bfranchise in 2017.
When asked on apremilast’s profile vs methotrexate, management stated patients are generally not dosed for more than 9 months on MTX due to GI effects, interaction with alcohol. Separately we note Phase III ESTEEM-1 data in psoriasis will be presented this Sat – we believe base-case is PASI-75 is in the 40% range, slightly lower than biologics (Enbrel, Humira, Stelara).
On Pomalyst adoption, mgmt noted it is progressing as expected. They noted their sales team is prepared, and close to 100% specialty pharmacies are registered. They do not expect a large patient ‘bolus’ as their EAP program was moderate in size and instilled only 6 months prior. They noted the first script was written 10 days after approval.
CELG continues to have appetite for appropriately sized deals in the hematology and oncology space, but not likely immunology. They confirmed they are most likely to commercialize apremilast in US alone, building out a sales force that’s 150-200, a sufficient size to call on specialists (dermatologists and rheumatologists). They continue to be open for potential partnership in EU.