Celgene Corporation (CELG-$97.21) Rating: BUY Target Price: $163.00
Fundamentals and Pipeline are Compelling; Adjusting 2016 EPS; Maintain BUY and $163 PT.
Investment Summary. Celgene shares were weak following 4Q:15 EPS. The
quarter and 2016 EPS were pre-announced and thus not likely the source of the
weakness. Rather, we think the market is seizing upon perceived negatives to sell off shares, such as potential for currency to clip 2017 EPS. The trajectory of Celgene's EPS growth is at the top of the industry, and the pipeline appears to us to have heft to maintain growth in the out-years. As such, we think minor adjustments in sales or EPS are not meaningful as the overall trajectory is positive, with industry-leading growth and modest clinical risk relative to peers. We continue to expect strong cash flow that could allow guidance to trend up through 2016, but if it doesn't occur, it is more a function of strategic deployment of cash to support the next generation of products, which we think is a net positive. We reiterate our BUY and $163 PT.
o Color on the Quarter. 4Q:15 EPS was positively affected by stocking for
REVLIMID but also absorbed a milestone payment of $70 million to OncoMed.
Foreign exchange impacted the quarter negatively ($16 million) though its
impact has been effectively muted with the internal hedging programs. Due
to stocking and gross to net adjustments, 1Q:16 is looking to show weaker
REVLIMID growth, but this is transitory, in our view.
o REVLIMID Continues to Grow. Revlimid has been a growth engine for
Celgene, and we continue to expect this to be the case, even with the loss of
an indication for low/intermediate non 5q del MDS. The overall growth rate is
being driven by multiple indications, and there are still others on the way, such
o Conservative Guidance, and Adjusting Forecast. Previous guidance was
reiterated, though we think the earnings power may be greater than the company
is publicly forecasting. Projected 2016 net product sales are $10.5-11.0 billion,
including $6.6-6.7 billion in REVLIMID sales, and EPS are expected to be in
the range of $5.50-5.70. We see these expectations as leaving room for currency
headwinds and milestone payments, which may not fully occur, in our view.
We have trimmed out 2016 EPS to $5.85 from $5.90, which is still ahead of
o Portfolio is Growing as is Pipeline. Other portfolio products, such as
POMALYST (+45%) and OTEZLA (284%), as well as ABRAXANE posted
nice gains, with additional country rollouts expected to contribute to growth. In
addition, a number of trials are expected to readout over the next 24 months,
including REMARC (REVLIMID in DLBCL) this year.
o Valuation. We use an equal weighting of P/E and DCF analysis to generate a
PT of $163 per share.
With a bearish market and a tough biotechnology tape, we see Celgene as a quality biotechnology name to own in 2016 and think that there is upside potential from earnings, and a de-risked long term picture with the REVLIMID/Natco patent settlement. With this generic settlement in the U.S. for Celgene’s flagship product, REVLIMID, in place, and modest 2016 guidance (which leaves room for upside, in our view) we think focus should return to the company’s strong fundamentals, which are driven by portfolio products such as POMALYST and OTEZLA. While we expect REVLIMID to maintain growth from new indications and increasing duration of treatment (such as triplet combinations, etc.), we believe it is the combination of EPS upside from new products and indications that will drive near-term growth. Additive to this are efforts to bring new products to market, both organically and through acquisition and licensing, that hold the potential to enhance long-term growth prospects, and most importantly, diversify dependence away from REVLIMID. Celgene has multiple product candidates with significant market potential, which provides a buffer from singleproduct/ candidate dependency. We reiterate our BUY rating and $163 PT.
While the last Orange Book listed patent expires in early 2027, the threat of generic competition earlier through patent challenge has been a weight on the shares, in our view. The settlement announced on December 22 provides Natco with a volume-limited license to sell generic REVLIMID in the United
States beginning in March 2022 (earlier than the 2023 patent expiration), with the first year limited to mid-single percentage of total capsules dispensed (we estimate 5-7%) for 12 months, increasing via an undisclosed formula on the anniversary of the generic launch (March) until 2025, when the volume tops out at one-third of total capsules dispensed. On January 1, 2026, Natco will be permitted to sell an unlimited quantity of REVLIMID, which is roughly 16 months ahead of the April 2027 patent expiration. We view this settlement as a major positive outcome for Celgene, as it removes multiple negative scenarios that have weighed heavily on the shares and included loss of 2027 exclusivity with full-blown generic competition in 2023.
Multiple growth drivers and de-risked REVLIMID patent cliff De-risked REVLIMID patent cliff
While we have used P/E and the opportunity for organic growth to drive multiple expansion as a way to value Celgene shares, we also believe that due to the company’s strength in generating cash flow, evaluating the shares on a DCF-basis is warranted. On a P/E basis, we think the shares could trade to 20x our 2017 EPS forecast of $7.49, or $150. But on a DCF basis, we see value at $177, which accounts for the increase in debt burden offset by a rising long-term growth rate. Using an equal weighting of these two valuation methodologies takes us to a PT of $163 per share. We continue to think that an industry-leading P/E multiple is warranted given accelerating double-digit EPS growth through 2020, strong cash flow, upside from the portfolio (REVLIMID, POMALYST, ABRAXANE, OTEZLA), and strategic value as a leading hematology company.
VERY RARE INTERVIEW - ZIOP Chairman and XON CEO RJ Kirk will be on CNBC with Meg T on Closing Bell between 3 pm and 5 PM....definitely ZIKA virus and Oxitec will be definitely be talked about but she has wanted to talk to Kirk about MD Anderson and ZIOP for over a yr so I am hoping maybe its a longer interview including something anything on ZIOP. Definitely though will hit Zika.
As someone said its trading less than max possible on TWO Merck targets. 8 are coming. MD Anderson deal and NCI deal and Dr Cooper as CEO and $163 million in cash priced in at ZERO
Thanks - sure does appear like Sleeping Beauty 2.0 TCR is the future in Solid Tumors....will eclipse CAR T quickly imo...Rosenberg is a gene therapy STUD at NCI - was most featured gene therapy Dr in the Cancer PBS special by far
In the cell - amazing - this will change cancer science - thanks for posting this how did you find this?
It was very good data - Cooper is a great speaker and he will also reveal what else is going on at MDA that is technically now ZIOPs - as posted on IV...this is what the street is missing
This plus JP Morgan will bring ZIOP to all time highs. As pointed out on the other board this has dipped 6 times to 6's, 7's, 8's, 9's...and every time it has come back to all time highs....its channel traders and the ridiculous 35 million short interest. But soon when the 2.0 Sleeping Beauty is released and either an IL-12, TCR deal or buyout.. Back again to ALL TIME HIGH...this time it does not stop at $14s
What is more likely is GSK, Merck, Roche or BMY but Kirk does have that ace in the hole to crush the shorts if he wants he definitely said publicly its one or the other - third party or XON buy - its clearly why they did the dividend. Merck makes the most sense but I hear GSK is DESPERATE to get into the immunotherapy space and MD Anderson partner is VERY attractive
its off and has to be turned on with no cytokine storm...FDA will require a switch
I am adding - there is ZERO chance ZIOP can remain independent as the only really untethered immunotherapy play in the sector....Merck Germany likely but BMY, AZN, CEGL, GSK, Roche, NVS could cause a bidding war
Amazing results....I was one who had no idea MDA/ZIOP had Sleeping Beauty 3 yr old data - incredible...safer and cheaper and now similar efifcacy
CELG top pick for 2016 per Barrons and 100 positive presentations at ASH....118-120 this week imo
CELG left BLUE for JUNO and this will not weigh on CELG who had over 100 presentations - many very good....webcast starts at 8 PM in 10 mins or so....This plus Barrons will bring CELG to 118 this week at least imo
Scam - ridiculous report
Word is a big short covered and is now sure its going higher - went long...maybe partially through buying calls
Sleeping Beauty 2.0 will rival KITE and JUNO efficacy but is MUCH safer, inert (off) turned on daily by taking an oral ligand, is cheaper and less complex (off the shelf down the road)
I was expecting half of these patients to pass away - they live weeks after failed therapy - here they lived 150 days already and going strong. And that is on the lowest dose. Big news. Expect a deal soon
Amazing really - by January they will have proof they titrated IL-12 - everyone said it couldn't be done. IL-12 is powerful and ZIOP can control and regulate it and turn it on and off in the brain. ZIOP is going a good deal higher - at least a triple by JUNE imo
Read this and then read it two more time....hits the key points. ZIOP is about to change cancer medicine as the world knows it