EUR 850.00 For Business Accounts Only

Morningstar | CELG Updated Forecasts and Estimates from 31 Jan 2019

We're maintaining our $120 per share Celgene fair value estimate, based on our estimate of the value of the terms of Bristol's pending acquisition, and we continue to see Celgene's stand-alone business as supporting a narrow moat. Shares continue to trade at a significant discount to our Celgene valuation despite the pending deal, as we think investors are nervous that Bristol could be a takeout target itself, which could derail the acquisition. Not only does the deal have a $2.2 billion breakup fee that would benefit Celgene shareholders if the deal turns south, but we also continue to view Celgene's stand-alone fair value estimate at $116 per share, as near-term product launches help to counter the upcoming hit from generic versions of Revlimid. Finally, we think the market's valuation of Celgene and Bristol will improve as the year advances, as several catalysts should improve confidence in prospects for Celgene's late-stage pipeline.

Celgene reported solid 2018 results, with overall top-line growth mirroring the 18% growth of the firm's $9.7 billion multiple myeloma drug Revlimid. Adjusted EPS growth of 19% reflected the ability of heavy share repurchases to counter the additional weight of R&D stemming from the Juno acquisition. Our forecast is consistent with management's roughly 12% top-line growth guidance for 2019 (centered on 12% growth for Revlimid) and 21% adjusted EPS growth (partly from operating margin improvement).

As we discussed in our recent Healthcare Observer, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating," Celgene has several upcoming catalysts due to its strong late-stage pipeline, which includes five drugs poised for U.S. launches through 2020. Ozanimod is still on track to be refiled with the FDA in MS in the first quarter, as non-clinical studies required for resubmission are now complete. Fedratinib has already been filed in myelofibrosis and should receive approval later this year. Luspatercept had positive phase 3 data details at ASH in 2018 and should be filed in the first half of the year. For the CAR-T therapies, we expect liso-cel to be filed in the second half of the year in DLBCL, and data from bb2121's KarMMA trial in multiple myeloma is likely around the end of 2019. For more details on our analysis of Celgene, please see "Celgene: Winning the Fight to Preserve a Post-Revlimid Moat."