RBC Capital Markets analyst Michael Yee and team explain why they think Celgene (CELG) is heading higher into 2015:
1. We think Celgene will go higher because Phase II Crohn’s data in October will look much better than Humira, plus it’s in oral form…we have a GED-0301 model and APP supporting $1B peak base-case and bulls are even higher than that.
2. Actavis (ACT) settlement: Based on recent commentary by Celgene and separate RBC notes on prior Actavis mgmt meetings, we expect rational market behavior. Case discovery ends in Feb ’15 and opens the door to settlement before Court begins mid-15.
3. We see 23+ partnered pipeline assets and are most positive on Phase I/II MOR202 anti-CD38 for myeloma with data in 2015, and others such as Acceleron Pharma (XLRN), Agios Pharmaceuticals (AGIO), Epizyme (EPZM), Concert Pharmaceuticals (CNCE) (just started Phase I for next-gen Revlimid).
4. Celgene continues buying back stock: $475M in Q2 and $2.1B YTD with $3.9B left. We have high confidence this will get completed by YE15 and they’ll open a new authorization.
5. We continue to think 2020 guidance will occur at some point after settlement. Our model can get to $10/share in 2020, so a 15-18x PE multiple can see $180 over the next few years. Bulls with more aggressive buybacks and more margin expansion can get even higher.
Yee and team raised their Celgene target to $115 from $100, 21% higher than today’s price.
Shares of Celgene have gained 0.5% to $94.89 at 12:04 p.m. today, while Actavis has dipped 0.1% to $244.28, Acceleron Pharma risen 1.4% to $29.15, Agios Pharmaceuticals has jumped 7.4% to $68.46, Epizyme has advanced 2% to $27.88 and Concert Pharmaceuticals is up 2.3% at $13.51.
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