J.P.Morgan Upgrades Rating on Celgene Corporation (NASDAQ:CELG) from Neutral to Overweight. Here is Why

Biotechnology Equity Analysts Cory Kasimov AC, Brittany Terner, Whitney G Ijem and Morgan T Haller of Investment House J.P.Morgan upgraded their rating on Celgene Corporation (NASDAQ:CELG) from Neutral to Overweight and slapped a $152 price target on the stock.

According to the report ”We are upgrading CELG to Overweight from Neutral based on the company’s increasingly attractive valuation, impressive BD strategy, and overall strong fundamentals. While a lack of obvious clinical catalysts has previously kept us on the sidelines, we view CELG as one of the most fundamentally sound biotechs that has done a nice job of addressing next decade revenue gaps through BD. With the recent market pullback, we believe CELG’s current valuation is simply too compelling to remain on the sidelines. We acknowledge that there’s a potential dearth of clinical catalysts pre-2H16, but CELG now trades at a 2016e P/E multiple of 19x despite a best in biotech 2 year and 5 year EPS CAGR of 26% and 24%, respectively. Bottom line, with a solid fundamental base business, a strong management team, and an aggressive BD strategy, we believe the recent weakness in biotech presents a compelling investment opportunity.”

Celgene Corporation (NASDAQ:CELG) headquartered in Summit, New Jersey, is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation.

The Company seeks to deliver truly innovative and life-changing drugs for our patients. Our vision as a company is to build a major global biopharmaceutical corporation while focusing on the discovery, the development, and the commercialization of products for the treatment of cancer and other severe, immune, inflammatory conditions.

The report states that ”We have an Overweight rating on CELG shares. While there is a lack of stock moving catalysts in the near term, we view CELG as one of the most fundamentally sound biotech companies in the industry. We are confident in the company’s execution and think management has done a nice job of addressing next decade revenue with BD. With CELG’s cash flow generation we believe further BD optionality is also intriguing, leaving room for upside potential. Overall, we believe the fundamentals for Revlimid and other key franchises (Pomalyst and Abraxane; we are more cautious on the Otezla ramp) are very much intact, and see CELG’s partnered products and recently acquired potential blockbuster assets as important contributions to longer-term growth.

J.P.Morgan price target of $152 is based on a DCF analysis. Given that exclusivity for a majority of CELG’s currently marketed products ends sometime in mid-2020s, we project cash flows to 2023. Post-2023, we assume a 5- year intermediate growth rate of 3% and then apply a terminal growth rate of 1.0% to cash flows in 2028. We assume a 10% discount rate, which is generally in line with what we use for other large cap biotechs.

On September 25 CELG announced the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) has adopted a positive opinion for an expanded indication of VIDAZA® (azacitidine for injection) for the treatment of adult patients aged 65 years or older with acute myeloid leukaemia (AML) who are not eligible for haematopoietic stem cell transplantation (HSCT). The expanded indication now covers patients who have > 30% myeloblasts according to the WHO classification; previously, the indication covered AML patients with < 30% blasts.

Myeloblasts are white cells in the bone marrow; in AML, their functioning is disrupted and results in numerous non-functioning white cells, which can potentially interfere with the body’s ability to control infections and can lead to anaemia and haemorrhages.

President of Celgene in Europe, Middle East and Africa (EMEA) Tuomo Pätsi said “Celgene is committed to bringing innovative medicines to patients with haematological diseases including AML. With the positive CHMP opinion for VIDAZA in AML, Celgene has an opportunity to advance the treatment options available to patients with AML. And, we will continue to focus on meeting the unmet needs of patients with myeloid disease, as we have several partnerships and development programs that will build on what we are learning about treating these diseases.”CELG


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