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By Beth Senko, CFA
READ THE FULL CASI RESEARCH REPORT
We initiated coverage of CASI Pharmaceuticals, Inc. (CASI) with a target price of $8.17. CASI is establishing its footprint as a leading provider of high-quality proprietary, licensed and ANDA pharmaceuticals to the rapidly evolving Chinese market. We believe that 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 China as a sustainable opportunity and is investing with this in mind. With a robust, diverse pipeline, commitment to investing in new opportunities and ample cash, we believe that CASI Pharmaceuticals will firmly establish itself over the next several years as a leading player in China. Longer-term the Company aspires to expand sales outside of China and neighboring countries to the US and other markets.
FINANCIALS: The opportunity for CASI is significant; the Company is well funded with a solid business strategy, growing product portfolio and strong experience management team. We expect that the Company will invest and manage with the long-term in mind, which may keep a lid on potential margins, but will result in consistent and sustainable results for investors.
On March 29, 2018, CASI reported full-year 2018 results and filed its 10-k. The Company’s net loss grew to $27.2 million from $10.8 million in 2017. The key factor was a significant increase in G&A. 2019 is likely to be a transitional year as the Company begins its commercial rollout. As a result, we expect costs as a percent of revenues to be higher than long-term estimates. Our model calls for 2019 revenues of $5.8 million, which we expect to come from both Evomela and ANDA portfolio sales. In 2020, we forecast revenues of $20.8 million, driven by growth in Evomela and ANDA portfolio sales as well as the likely introductions of Marqibo and Zevalin. By 2023, we look for sales to exceed $165 million. We expect CASI to move to GAAP profitability by 2021 and increase steadily from there. Our model shows $16.5 million in net profit ($0.18 per share) in 2021, growing to $41.8 million ($0.45 per share) by 2023.
CASI is well funded with c. $85 million in cash and marketable securities on its balance sheet and only $1.5 million in debt.
VALUATION: Our initial valuation is $8.17 per basic share, based on sum-of-the-parts risk-adjusted NPV for each of its products less corporate overhead. The ANDA portfolio comprises the vast majority of our NPV valuation at $748 million. We expect the Company to continue to make deals in this space and have modeled for $500 million in annual sales by 2045. We value the licensed drugs at $90 million. Our corporate overhead assumption is $158 million on a discounted basis through 2045.
SENSITIVITIES: Our valuation and model are closely tied to successful execution in a market that is highly competitive and has been long-plagued by an unpredictable bureaucracy. However, China has taken a number of steps in the past few years to reclassify and clarify regulatory pathways for drugs in addition to increasing staffing and lowering outstanding applications, and, so far, CASI’s first product, Evomela, seems to have moved smoothly through the regulatory system. China is also working to improve reimbursement for high-need drugs so that they are more affordable to citizens. To us, CASI’s main risk is successfully gaining meaningful market share – particularly for its generic drugs. The Company intends to compete by focusing on high-need drugs (such as those for hepatitis B) and building a reputation for reliable high-quality products at a reasonable cost.
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