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CASI: A Change in Strategy

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By Beth Senko, CFA

NASDAQ:CASI

READ THE FULL CASI RESEARCH REPORT

CASI Pharmaceuticals (NASDAQ:CASI) signaled a shift in its business strategy in March – focusing its efforts on its hematology franchise and deemphasizing its ANDA portfolio. This change scales back CASI’s initial broad-reaching goal to be the leading provider of high quality proprietary, licensed and ANDA pharmaceuticals to the rapidly evolving Chinese market.

CASI’s decision was made in response to a change by the Chinese government to further narrow its list of key non-proprietary drug suppliers. CASI is unique in its understanding of how to pursue opportunities in China while minimizing the pitfalls that often plague US-listed China-focused companies. CASI’s management sees its opportunity as long-term. We agree with CASI’s decision as it will likely result in the best combination of revenue growth and solid profitability while moderating capital needs over the intermediate term.

CASI’s ANDA portfolio was a significant driver in our valuation. We expected the Company to continue to make deals in this space and have modeled for $500 million in annual sales by 2045. The generics market in China is highly competitive, but quality of locally manufactured products is often a concern. We are lowering our sales expectations for the ANDA portfolio to $185 million by 2045 and our valuation to $163 million. Our new valuation for CASI is $2.89. While this change is significant, we believe that there is room for upside as the company moves its licensed and proprietary hematology portfolio closer to commercialization.

We are reducing our 2020 revenue estimate from $20.8 million to $12.5 million to account for the move away from the ANDA portfolio. We forecast $7.1m in Evomela sales for 2020 and total sales of $12.5 million assuming approval and commercialization for Marqibo and Zevalin. Our 2020 earnings expectation goes from ($0.21) to ($0.25).

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