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CASI: Raising target price on pipeline progress

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By Beth Senko, CFA

NASDAQ:CASI

READ THE FULL CASI RESEARCH REPORT

After some disruption to business in the first quarter from the pandemic, CASI Pharmaceuticals (NASDAQ:CASI) again raised its target for Evomela sales in 2020. Management believes sales are likely meet or exceed $14 million in 2020, compared with its previous guidance of $10 million. In addition, the Company completed its planned move to a lower-cost supplier for Evomela and COGS declined from 95% in the first half to 43% in the third quarter. Longer-term management expects COGS for Evomela to be less than 30%. We are fine-tuning our estimates for 2020-21 and raising our target price from $2.89 to $3.50.

2019 was a year of firsts for CASI: the successful launch of Evomela in China, progress towards gaining regulatory approval for Zevalin and expansion of CASI’s robust product portfolio with the licensing rights to Juventas Cell Therapy’s anti-CD19 CAR-T therapy, CNCT19; its investment in CID-103 (also known as TSK011010), an anti-CD38 monoclonal antibody; and an agreement with Pharmathen to develop and distribute octreotide LAI in China.

The Company expects to complete Phase I trials for CNCT19, its in-licensed anti-CD19 CAR-T therapy in early 2021, followed by a pivotal phase II trial to be completed by the end of 2021 and NDA filing in early 2022. If this timeline holds and the drug is approved, CASI believes its product will perform comparably to other anti-CD19 CAR-T therapies at a much more affordable cost because it will be manufactured locally. CASI estimates that the annual patient pool for this therapy in China is 30,000-50,000.

Financial Results

CASI Pharmaceuticals’ third quarter continued the return to normalcy for Evomela sales, a new lower-cost supply contract for Evomela, continued progress in advancing several candidates in its hematology pipeline.

Evomela sales totaled $4.2 million in the quarter and $10.2 million for the first nine months of 2020. For the year, the Company now expects sales of at least $14 million, up from previous guidance of $10 million. Cost of goods were $1.8 million, or 43% of revenues in the quarter, down from 95% of sales for 1H20. Cost of goods sold earlier in the year were impacted by a transitional supply agreement and certain non-recurring charges associated with the startup production. We have been targeting gross margins of 55-60% over the long-term; however, on its 2Q call, management said it expects COGS under the new contract to be about 30% - implying a gross margin of 70%. While the Company did not achieve that margin for the full third quarter, we expect Evomela gross margins will continue to improve with higher volumes.

Research and development for the quarter totaled $2.8 million up from $1.8 million in the year-earlier period. Higher research costs reflect start-up costs associated with new hematology candidates. In addition, the Company made milestone payments to Juventas of $10.3 million and $0.6 million to Parmathen.

General and administrative was $5.3 million in the quarter down considerably from $8.1 million in the year-earlier period. In 2019, G&A included investments for the launch of Evomela. Costs related to Evomela sales are now in a separate sales and marketing expense line, totaling $2.0 million in 3Q20 and $4.8 million for nine-months ended September 30.

In total, CASI reported a net loss of ($0.14) per share, or ($16.7 million) in the third quarter, compared to ($0.10) per share, or ($9.8 million) in the year earlier period.

We are raising our 2020 revenue estimate from $10.4 million to $14.1 million to account for renewed strength in Evomela sales. At the same time, we are lowering our EPS expectations to reflect the milestone payments. Our estimate for 2020 is now ($0.38). Our estimate for 2021 drops slightly to ($0.18) from ($0.16). Despite these small changes, we are raising our valuation for CASI from $2.89 to $3.50 reflecting both more shares outstanding from the recent equity offering and the cash raised. We continue to believe that there is meaningful upside to our estimates and valuation as we get closer to 2022.

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