Full report on investorvillage CELG message board
BERNSTEIN * Quick Take - Celgene: Markman Schedule, Outcomes and NICE Decision Not Material to Outlook, Buy on Weakness - our target remains $214,,,
The major overhang for Celgene's stock this year is concern about the ongoing challenge to the market exclusivity of Revlimid. The next step in the litigation between Celgene (the plaintiff) and Natco and Watson (the defendants) is the Markman hearing about claim construction and interpretation. This week the court announced that the magistrate from the New Jersey District Court noted that the hearing is "being scheduled" for April 29th. Separately, the UK's National Institute for Clinical Excellence (NICE) recommended that Revlimid not be covered for second line treatment of multiple myeloma, and these two news items have contributed to the stock's overall –6% performance this week.
The court announcement comes earlier than the 3Q14 timeline we previously anticipated and may have spooked some investors who are already concerned about the outlook of Revlimid exclusivity. Based on the limited material impact that we expect this hearing to have on Celgene's dispute with Natco, and the lack of opportunity we expected in the UK with Revlimid's current label, we believe that the market's reaction to these events is overblown and likely to reverse.
Our confidence in Revlimid's patent exclusivity and sustained revenue and cash flow growth through 2025 remains unchanged and we recommend taking advantage of the stock's weakness to add to positions in one of the highest quality (and defensive) names in the biotech group.
· The earlier than expected date may not necessarily be reflective of the outlook for the case, nor the final date of the hearing. The language of the court documents is that the Markman hearing is "being scheduled" on April 29th. This announcement follows a teleconference that the two parties had with the magistrate, in the absence of the judge. An earlier than expected hearing date may not necessarily reflect urgency of the part of the judge to proceed with the case but a simple scheduling arrangement that the magistrate may have imposed but may yet be subject to further discussion with the judge and the parties involved. To date, the case has been proceeding slowly since both Natco and Celgene filed their claim construction (Markman) briefs in October 2013. Based on the slow course of this case to date, and the notes to this schedule, we believe it is quite likely that this hearing may be further postponed.
· We expect that the outcome of the Markman hearing will not have a material impact on the outcome of this case. The Markman hearing will likely discuss claim construction as submitted by the two parties. As the two parties did not agree to date that a certain claim definition would be dispositive in this case, we and our attorney consultants believe the hearing will not have a material impact on the eventual outcome. The markman hearing is likely to split the disputed claims roughly down the middle, and regardless has little bearing of the strength of either side's position in the litigation. We continue to believe that Natco faces a very high hurdle in their efforts to invalidate the entire portfolio of almost two dozen patents that are currently protecting Revlimid (discussed in our March 7th note, see below ). Compared to the magnitude of the number of patents and claims at issue, the claim terms and construction issues are relatively trivial.
· If the hearing does indeed take place on April 29, the outcome could be posted by mid-2014, perhaps late summer. Our patent advisors suggest that the court would be likely to issue its interpretation of the disputed claims by mid year, given an April 29 hearing. Should there not be a document from the judge in this timeframe, the decision could be postponed by several months due to summer staffing issues. A long fact discovery process will most likely be required after the hearing outcome is posted and before a trial date is set. Given the number and the breadth of the Revlimid patents, we believe that this process may be lengthy and cumbersome. With an earlier hearing timeline, the trial could take place in the first half of 2015 rather than the 2015-2016 that we previously anticipated. We and our attorney consultants expect that the parties may settle in the eve of the trial, perhaps earlier than previously anticipated. The result of an earlier settlement may help clarify Revlimid's exclusivity and potentially remove this overhang.
· We maintain our view that the likelihood of Natco challenging all Revlimid patents is extremely low. Overall, the outcome of the case will likely not be impacted by the outcome of the Markman hearing. Revlimid is currently protected by some two dozen patents in the US. Our attorney consultants believe that the polymorph patent 7465800 (or '800 patent) is a particularly solid pillar in the "dome" of patents that Celgene has built around Revlimid. Our outlook for Revlimid sales remains unchanged, we continue to project product sales growth from $9bn in 2015 to $16bn in 2019, and $21bn 2023. Based on our analysis of consensus expectations , we estimated that the stock had been already discounting a ~30% chance that Revlimid will lose its patent protection by 2019.
· The NICE decision is consistent with current practice in the UK and labeling and does not reflect Revlimid's ultimate potential.. The UK's NICE decision concerns the potential use of Revlimid in second line Myeloma. The lack of endorsement in this setting is consistent with the UK's longstanding preference for thalidomide on a cost basis over Revlimid, and for Revlimid's lack of front line results in their UK label and approval. In the future we would hope that NICE re-evaluates their recommendation when Revlimid is approved for front line and maintenance use, which is likely to occur in 2015. In those settings, it is easier to make the relative effectiveness arguments in favor of Revlimid over thalidomide. Thal is poorly tolerated for long duration treatment, and very few patients historically stayed on thal in the maintenance setting for much more than 8 or 9 months due to neuropathy, sedation, GI effects etc. These differences matter less in the second line setting where the duration is relatively short, hence NICE's decision. We only expect the growth trajectory of Revlimid to accelerate in Europe in 2015 and 2016, and would have been surprised to see any inflection earlier than that, either in the UK or in other markets. Revlimid's penetration is growing in Europe, and duration is increasing, but the overall market position there remains only 30-40% of their US market position today, much less where the US market is headed with maintenance being more and more widely adopted.
We continue to rate Celgene Outperform, with a target price of $214. We believe that the market's concern about Revlimid's patent protection and NICE recommendations is overdone. We see no reason to change our revenue and earnings forecasts for the stock and recommend investors add to positions on this temporary weakness
Wells Fargo - CELG: Adding To Wells Fargo Priority Stock List
We are adding CELG to the Wells Fargo Priority Stock List based on our belief that the company's long-term fundamentals remain strong, given CELG's heme/onc growth prospects, deep pipeline, and excellent long-term operating leverage; we view today's downside on the Markman hearing scheduling and UK reimbursement recommendation as an overreaction presenting an attractive opportunity to build a long-term position.
Why do we believe CELG's patents are strong? Our layman's view is 1) CELG's claims are constructed according to generally accepted practices of patent claims and do not appear to be overly broad, 2) Natco's rendering of these claims do not necessarily a priori extend from their natural construction, and we await the Judge's interpretations, 3) we find limited readthrough from oral arguments made at recent Court of Appeals Federal Circuit for CEPH's Nuvigil's case to Revlimid case, as the debate centers on obviousness of that particular form of polymorph, which is almost always what is achieved following "routine" chemistry procedures. In contrast, Revlimid exists in various crystalline forms (A-H) as well as in amorphous forms, and CELG has taken steps to systemically characterize/patent them. Our view is discovery/isolation of specific crystalline forms for drug manufacturing is non-obvious. 4) Lastly, CELG's broad patent estate means Natco will need to have multiple claims construction (out of 16) in their favor, to enable sufficient freedom to operate without infringing CELG's patents.
CELG - Update on Revlimid Case - Markman Hearing Date Set for Apr 29 - Why we believe CELG patents are strong
Big picture: CELG's Revlimid patent case vs Natco/Watson remains an important investor focus, and NJ Court has designated a Markman hearing date of Apr 29, 2014. This is sooner than our estimate of a late Q2 hearing. Moreover, it also follows closely after submission of Markman reports on Apr 8, and scheduled completion of fact discovery by Apr 21. In our view, this suggests the Court attributes significance to the case, and that the parties are also motivated to progress the case quickly. We continue to believe CELG has strength in breadth of its patents, as evidenced by Natco's seeking narrower interpretations of CELG's claims to leave them room to operate.
Outcome of Markman hearing could thus come as early as Jun 29, as it usually follows 60 days after the hearing date. While this suggests the stock could see increased volatility, there are two positive scenarios for CELG: that Markman outcomes favor them and the parties dismiss case with some form of settlement, or CELG proceeds to trial and wins. We believe Markman outcomes will be positive for CELG, which removes an important overhang and adds certainty that CELG will have an additional 8 years of Revlimid cash flows. We believe the ultra bear case of CELG losing completely and Revlimid only to 2019 is highly unlikely, as CELG and Natco/Watson would be motivated to reach a settlement for launch date somewhere in the early 2020s in that scenario.
Why do we believe CELG's patents are strong? Our layman's view is 1) CELG's claims are constructed according to generally accepted practices of patent claims and do not appear to be overly broad, 2) Natco's rendering of these claims do not necessarily a priori extend from their natural construction, and we await the Judge's interpretations, 3) we find limited readthrough from oral arguments made at recent Court of Appeals Federal Circuit
Cramer's Action Alert Charitable Trust just bought CELG Booyah
Excerpt from Bernstein report - 90% chance of prevailing on the longer term patent protection - stock is already discounted 30% because of this...
Current stock already prices in significant chance of patent loss in 2019. Based on the stock's closing price of $157 on March 6, we estimate that the stock is already discounting a ~30% chance that Revlimid will lose its patent protection by 2019 (i.e., 30% probability for Scenario 1, 70% probability for Scenario 2). We think the market's concern about Revlimid's patent protection is probably overblown; based on our research, Celgene probably has a 90% chance of prevailing with the longer patent protection.
We rate Celgene Outperform with a target price of $214. Celgene has transformed itself from its origins as a chemical company spin-out commercializing thalidomide to a leading specialty biopharmaceutical company developing a slew of breakthrough and derivative products mostly targeting poorly treated cancer indications. Their business has been built on the dramatic advances made in multiple myeloma, which still contributes 70-80% of the company's revenue and appears likely to grow sustainably in the 15% range for many years. Our forecasts incorporate a further doubling in Revlimid revenue through 2018, with even more upside possible from other indications such as Lymphoma and Leukemia and we remain confident that the company will enjoy continued patent protection in the US through the expiry of the polymorph ('800) patent exclusivity in the US in 2026.
Over the next three years, we expect Celgene to deliver ~30% EPS CAGR. The acquisition of Abraxis has boosted the company's long term growth outlook and extends its position into solid tumor oncology.
Beyond its current indications of breast and lung cancer, Abraxane is likely to grow in pancreatic cancer and possibly other indications. Other important pipeline opportunities include oral azacitidine (Vidaza); we remain lukewarm about th
Citi slide summarizing Revlimid Patent Case-"CELG confident worst case 2022-2024 & likely could extend to 2026/7...CELG says case going well..no plans to settle..believes patent estate much stronger than Natco anticipated"
Citi slide summarizing Revlimid Patent Case-"CELG confident worst case 2022-2024 & likely could extend to 2026/7...CELG says case going well..no plans to settle..believes patent estate much stronger than Natco anticipated"
Investors Have Been Focused on Celgene’s Revlimid Patent Case vs Natco
● With input from an external patent council we conducted a deep dive into the Celgene vs Natco Patent litigation.
One of the key long-term investor concerns for Celgene is whether Revlimid's patents will expire in 2019 or 2026/27 depending on the outcome of the patent case vs. Natco.
● Investors have been worried that once the Natco case gets started it will be a distraction and an overhang on the stock.
● Celgene is confident that under the worse case scenario, Revlimid will have exclusivity in the US until at least2022-’24 based on its entire patent estate and likely could extend to 2026/27 based on polymorph patents.
– In 2013 Revlimid sales were $4.3B and we model peak sales on $8.2B in 2023. To be conservative,our base case assumes loss of US exclusivity beginning in 2024 we maintain this opinion until wehave better visibility on the potential outcome of the polymorph patent litigation.
● Celgene has noted that they believe that the case is going well and that they have no plans on settling withNatco.
– In fact, Celgene believes that their patent estate is much stronger than Natco anticipated.
● As the case is still in discovery, the Markman hearing is unlikely to occur before mid to late Q2:14.
● In Europe, Celgene’s patent estate lasts until 2022 for the composition of matter other patent extend theprotection period even further at this time, there are no generic challengers to Celgene’s patent estate.
Wells - Bio correction temporary...look to CELG who we see as undervalued long-term and for whom we believe sentiment has troughed
March 10, 2014
Biotech Correcting--Have We Reached The Bottom?
• Summary: In light of the biotech sector’s recent correction (BTK index -4% vs.
SPX +2% since 2/25), we sought to determine whether biotech valuations may
have justifiably normalized on relative and fundamental bases or whether further
correction could be expected. An analysis of PEG ratios, despite its intrinsic
limitations, does suggest that multiples have recently retreated back down to
those of the broader market when accounting for growth – after having
temporarily surpassed them in early-2014 – providing us some comfort that
additional downside risk from here may be limited. While a constellation of
recent incremental negative events for several large companies (likely
contributing to some of the downside) provides an important reminder of the
sector’s inherent risks, and was important to counterbalance some overoptimism,
in our view, we do not believe they significantly erode long-term fundamentals
nor should recent negative items in the Obama administration’s budget proposal
have an impact. We continue to believe higher valuations amongst large-caps can
be justified on a DCF basis and continue to see opportunities in certain smid-caps
which we believe became or remain overly discounted. Amidst this correction, we
would look at the following Outperform-rated names: CELG ($156.56) who we
see as undervalued long-term and for whom we believe sentiment has troughed;
VRTX ($79.94), as we continue to like upside/downside potential going into
TRAFFIC/TRANSPORT especially with shares down from recent highs; ITMN
($33.87), given recent significant de-risking from positive ASCEND results;
FPRX ($15.64), a small-cap with a differentiated biologic discovery engine and
promise in areas including immuno-oncology; and PCYC ($131.54), whose
ACADIA is focused on neurological and psychiatric diseases.
European filing, approval, and partnering in 2H14. We would also look for additional studies to start in schizophrenia. Options outlined on the call included a study with low dose atypical antipsychotic (recall pima' has a prior Phase II success in this indication with low dose risperidone), or possibly as a monotherapy. The ADP study should provide insights on potential to improve cognitive outcomes, which are currently an issue with atypical antipsychotics. Although we have seen earlier data in schizophrenia that we would characterize as provocative (see Meltzer HY, et al., Schizophr Res. 2012 Nov;141(2-3):144-52), use in schizophrenia as either a fixed dose combo or stand-alone drug to be administered with any atypical antipsychotic remains as upside to our model pending additional clarity on next steps forward with the clinical program.
DCF models. We model sales and royalties for PDP and ADP through 2025 (Exhibits 3 and
4) as the PDP treatment patent expires in 2026. However there is a pimavanserin composition patent issued in the U.S. that expires in mid-2027. Our PDP model remains unchanged from the prior version. For ADP, we model ~5.3mn and ~5.7mn Alzheimer's patients in the U.S. and Europe, respectively, in 2014. We project that 41% have psychosis or psychotic episodes (Am J Psychiatry. 2005 Nov; 162(11): 2022-30). Our peak revenues in 2025 are ~$700mn for PDP in the U.S., $170mn for PDP in Europe, ~3.2bn for ADP in the U.S., and ~$500mn for ADP in Europe. We discount PDP revenues in the U.S. at 20% given a limited amount of uncertainty for approval and commercialization, in our view. Our discount rate for PDP in Europe is 25%, given greater regulatory and commercial uncertainty, and for ADP we use 25% and 30% in the U.S. and Europe, respectively, to account for clinical risk in addition to regulatory and commercial risk. We discount costs at 15% due to the greater likelihood these costs are realized regardless of the outcome of the potential revenue generating programs. Any life-cycle extension efforts for pima’ that could emerge over the next 12-18 months remain as
upside beyond the current IP-based duration of the franchise.
■ Assuming approval (PDUFA for psoratic arthritis March 21), the company intends to target Otezla at patients failing methotrexate, ahead of biologics. Celgene will price Otezla at a discount to biologics (which run about $25K net of payer discounts, according to management). The company initially expects Tier 3 formulary positioning, the same as biologics. However, over time and as volume grows,Celgene expects to negotiate Tier 2 positioning (in exchange for a discounted price), which would imply a step edit whereby patients would be required to fail Otezla before they could get biologics. We note this would require a change in physicians’ common treatment paradigm of adding a biologic to methotrexate upon failure, which seems to us to be a challenge, though management asserted this change in the paradigm would be achievable with the availability of a new treatment option.
■ Management noted that only one-third of 11-12K prescribing physicians currently prescribe systemic therapies, and sees the non-prescribing docs as a major opportunity for Otezla.
■ The company submitted a combined MAA for PsA and Psor against placebo comparator, which it expects to be adequate for regulatory approval. Management does anticipate active comparator data will be needed for certain pricing negotiations in Europe, however, and expects to get results from a Phase III trial of Otezla vs. Enbrel in psoriasis by YE:14 to aid in these discussions. Otezla will be priced significantly lower in the EU vs. the US.
■ Investor interest continues to be high in the Revlimid IP challenge by Natco, though Celgene remains confident in its many patents. A Markman hearing will be no sooner than H2:14.
■ The company remains on track to file for a Revlimid label expansion for newly diagnosed myeloma by the end of Q1. The company is confident in EMA approval based on the strength of Revlimid’s data in MM-020 with the Rd regimen, where SPMs are not an issue.
■ As the first non-melphalan based front-line regimen approved in Europe, Celgene expects Rd to become the standard of care over time. While the long-term incremental revenue opportunity is significant in the EU, Celgene cautioned that time required for regulatory review and country-by-country price renegotiation means that revenue contribution from newly diagnosed myeloma in Europe will likely be modest even as late as 2017.
■ In the U.S, Celgene continues to see increasing average treatment duration for Revlimid in the wake of (1) Pomalyst approval (because physicians now have an option for patients progressing on Revlimid) and (2) the MM-020 data (supporting treatment to progression).
■ Revlimid’s Phase III non-del(5q) MDS data are expected in H2:14. With Revlimid currently selling about $250-300MM per year in the small del(5q) MDS subpopulation, success in non-del(5q) MDS could expand the MDS opportunity to $1.2B, upside that is not in CELG’s guidance. A 200-patient Phase II trial suggested activity, with a 26% rate of transfusion independence.
■ Celgene believes it is only in the “second inning” of Abraxane’s uptake in pancreatic cancer. The company divides the market approximately into thirds: (1) patients receiving gemcitabine combinations; (2) patients receiving gemcitabine monotherapy (frailer patients); and (3) patients receiving experimental regimens. Abraxane is being taken up most rapidly in the first segment, though the company expects eventually to take some share in the second, as physicians learn how to best give the drug. There is some hint that Abraxane may even be taking share from FOLFIRINOX, though this trend is quite early and uncertain as yet.
■ Management continues to highlight its Acceleron partnership as a key pipeline program, with potential in beta-thalassemia, MDS, and CKD-mineral bone disorder. Data for sotatercept (ACE-011) in CKD are expected at the NKF meeting in April.
■ Management noted the treatment of ibrutinib-failure CLL as a possible path to market for its Btk inhibitor, CC-292. At this year’s ASH meeting, data from three early trials in rrCLL are expected: (1) CC-292 + Revlimid, (2) CC-292 + Rituxan, and (3) Revlimid + ibrutinib.
Must read Cowen report - Updates From Meeting With Celgene Management - 2nd inning of Abraxane PC uptake....Expect EU RLI front line app w MM-020...Otezla required before bioloics some day?
Must read Cowen report - Updates From Meeting With Celgene Management
Equity Research Company Quick Take
CELGENE March 4, 2014 OUTPERFORM (1)
Updates From Meeting With Management
The Cowen Insight
Last night's dinner at our Health Care Conference focused on launch plans for Otezla in psoriatic arthritis (PDUFA March 21), Revlimid's pending filings for label expansion to newly diagnosed myeloma, Abraxane's uptake in pancreatic cancer, and pipeline highlights. We believe CELG is on a solid long-term growth trajectory, and that continued strong financial performance will drive shares higher.
In conjunction with Cowen’s 34th Annual Health Care conference, we hosted a dinner with Celgene’s COO, Perry Karsen, and VP of IR, Patrick Flanigan. Investor focus remains heavily on Otezla’s pending launch in psoriatic arthritis; Celgene believes it can eventually secure payor step edits requiring failure on Otezla before patients can get biologics. Revlimid’s refiling for label expansion to newly diagnosed myeloma is an important driver of future growth; less well appreciated is the potential for the non-del(5q) MDS Phase III (data H2:14) to increase Revlimid’s opportunity by nearly $1B, not reflected in current guidance. Additionally,management believes Abraxane still has much room to grow in pancreatic cancer, and highlighted several pipeline programs.
■ Assuming approval (PDUFA for psoratic arthritis March 21), the company intends to target Otezla at patients failing methotrexate, ahead of biologics. Celgene will price Otezla at a discount to biologics (which run about $25K net of payer discounts, according to management). The company initially expects Tier 3 formulary positioning, the same as biologics. However, over time and as volume grows,Celgene expects
The Next Wave. A feature of our thesis on shares of Celgene is diversification of risk (multiple products launching) and the early-stage pipeline. We believe the pipeline has the opportunity to add value over the next 12-24 months as compounds advance. Celgene's pipeline has been under the radar, in our view, behind the launches of Pomalyst, ABRAXANE in pancreatic cancer and Otezla. We believe that the company has a "next wave" and as visibility grows on the pipeline, value should accrue to the shares.
· We Like the Shares; Reiterate BUY. We maintain our $186 PT, which is based on a P/E multiple of 20x our 2015 EPS forecast of $9.30, a figure that is consistent with other large-cap biotech stocks. We think the shares have several attractive features, including portfolio diversification, revenue and EPS growth, cash flow and share repurchase.
Cantor Fitz full comments- Countdown to PDUFA for Otezla (apremilast) - Reiterate BUY/ $186 Target. PsA Market is Primed. The Next Wave-Pipeline/ We Like the Shares here...
March 5, 2014
Celgene Corporation (CELG - BUY - $186.00)
Countdown to PDUFA for Otezla (apremilast) - Reiterate BUY and $186 Price Target
· PDUFA is March 21st. The PDUFA date for Otezla (apremliast) for psoriatic arthritis (PsA) is approaching, with the official date of March 21st. We believe that approval will occur within this time frame, and Celgene will be ready to launch Otezla in fairly short order, marketing the drug to rheumatologists with a sales force of roughly 100 reps. Following the launch in PsA is a PDUFA date in late September for psoriasis, a much larger market overall vs. PsA. Our sales forecast for 2014 is currently $198 million, which is ahead of Bloomberg consensus of $105 million.
· PsA Market is Primed. We think that the PsA market will be a solid fit for Otezla given the dissatisfaction with current drugs and currently formulary guidelines that acknowledge the limitations of existing drugs such as methotrexate in favor of biologic agents. Given Otezla's profile, we think the drug has a good chance of widespread use, whether as a "methotrexate without monitoring", or an alternative to biological therapy. Further, patient demand, we think, will play a role, given that the results of a multi-year study published in JAMA Dermatology in August 2013, 45.5% of PsA are dissatisfied with current treatments, and may discontinue treatments with biologic therapy due to adverse events.
· The Next Wave. A feature of our thesis on shares of Celgene is diversification of risk (multiple products launching) and the early-stage pipeline. We believe the pipeline has the opportunity to add value over the next 12-24 months as compounds advance. Celgene's pipeline has been under the radar, in our view,
ACAD secondary upsized from 5.3 mln shrs to 6.4 mln by JP Morgan/Jefferies due to demand...slight discount $28.50 the norm (nice considering it was recently in low 20s & price is greater than the $28.19 when announced)...last 2 ACAD secondaries stock took off afterwards..once Baker Bros confirmed participant …. Zoom!
Syndicate Alert on ACAD
News Breaks March 4, 2014 21:29 EDT ACAD
ACADIA 6.4M share Secondary priced at $28.50 The deal size was increased to 6.4M shares from 5.3M shares. Jefferies and JPMorgan acted as joint book running managers for the offering.
March 3, 2014 16:02 EDT ACAD
ACADIA files to sell $150M in common stock
Jefferies LLC and J.P. Morgan Securities LLC are acting as the joint book-running managers for the offering. Cowen and Company, LLC is acting as the lead manager for the offering
CEO of Total about to appear on CNBC (3:45pm eastern)
Agree great move - stock was just in low 20s so a raise here makes sense - I bet it will be presold and happen quickly - historically this stock has run nicely weeks after the secondary - I think 30s is coming by end of qtr
Piper on HALO - Recent CEO Addition, Raise, Set Up Eventful 2014 - Overweight $20 target
Halozyme Therapeutics, Inc. (HALO) Overweight
Recent CEO Addition, Raise, Set Up Eventful 2014
Halozyme reported 4Q13 financial results and provided an update on its development programs. In our view, management is clearly focused on the PEGPH20 program in oncology, and we believe this is also the case with many investors. We will be watching with interest the selection of the next indication. Revenues from SC Herceptin and HyQ haven't reached a level of significance, being early in launch. Management indicated 3-4 quarters would be needed to get a meaningful trend. Year end cash was $72mn and Halozyme completed a $108mn equity financing this month. Cash burn guidance is $45-55mn for 2014 and we model no further financings prior to profitability. We reiterate our Overweight rating and $20 price target on Halozyme.
• PEGPH20 in focus. Recall that 2 Phase II studies of PEGPH20 in advanced pancreatic cancer are ongoing: A Halozyme study looking at PEGPH20 + Abraxane with a PFS primary endpoint and a SWOG study looking at PEGPH20 + FOLFIRINOX (OSendpoint). The Abraxane study should finish enrolling in 2H14, likely providing data in 1H15, we expect. We expect breast cancer might be the next logical study given the large market size, high % of high-HA patients (70%), and some tangential experience with hyaluronidase in this setting through the Roche studies of SC Herceptin (though we note of course the dosing and hyaluronidase itself would be quite different in a therapeutic study, so we won't attempt to extrapolate the HannaH data). Regardless, we are encouraged for PEGPH20 in pancreatic cancer given the prior data and current management's experience in oncology, despite the difficulty of the indication.
• Other pipeline candidates progressing apace. Data from both the potentially-label- updating study of Hylenex use with insulin pumps and the HTI-501 study in cellulite remain intact for this quarter. The insulin pump study has moved from a 4-month to 6-
month endpoint (A1C levels). The HTI-501 program will need additional preparatory work to file an IND in the U.S. We expect the company will await the outcome of the ongoing Phase I/II study to decide next steps for the program, which may involve partnering. We expect a positive decision for SC MabThera by mid-year given the positive opinion from the CHMP at the end of January. An FDA decision on HyQuvia should also come around mid-year.
HALO - BMO - Clearer Direction on PEGPH20 & HYLENEX - raise target from $17 to $24 (ongoing enrollment of a ph 2 study of ABRAXANE/ GEMZAR +/- PEGPH20 in pancreatic Ca)
Target $24 (raised from $17)
Clearer Direction for PEGPH20 and HYLENEX on 4Q13 Call
HALO reported 4Q13 operating results, with an update on key initiatives late yesterday. Loss per share of ($0.19) was in line with ($0.19) consensus with YE13 cash balance of $71.5M and an additional $107.8M raised in 1Q14. With a focus on clinical program development, highlights included recent EMA approval and the launch of HERCEPTIN SC, positive CHMP recommendation for MABTHERA SC, ongoing launch of HYQVIA in the EU, refiling of HYQVIA BLA in the US, and progress with clinical programs for PEGPH20 in cancer, HYLENEX in diabetes, and HTI-501 for cellulite. Proprietary development of PEGPH20 in cancer remains a priority, with ongoing enrollment of a randomized phase 2 study of ABRAXANE/ GEMZAR +/- PEGPH20 in pancreatic Ca, a recently initiated phase 1b/2 study of mFOLIRINOX + PEGPH20 in pancreatic Ca, and plans for study in an additional cancer in 2H14. Incremental data from the HYLENEX insulin pump phase 3b study are expected in 1Q14 with discussions ongoing with FDA on requirements for specific diabetes labeling. Finally, HTI-501 phase 2 data are also expected in 1Q14 with strategic options under review.
Impact & Analysis
We are maintaining our Outperform rating on the shares of HALO and increasing our price target to $24 following review of 4Q13 results. Following regulatory success for HYQVIA, HERCEPTIN SC, and MABTHERA, we expect upside potential from new revenue contribution as well as validation to support higher value deals. With greater upside from proprietary programs, we are encouraged by a more cogent plan for PEGPH20 development in cancer and specific HYLENEX label expansion for insulin pump use.
Valuation & Recommendation
We arrive at our $24 PT on 25x our 2018 EPS of $1.63 and discounting 20