We See a Solid Pipeline for Undervalued Celgene

We See a Solid Pipeline for Undervalued Celgene

Karen Andersen: Investor sentiment on narrow-moat Celgene appears to be at an all-time low, following the failure of a key Crohn's disease drug and FDA approval delays for multiple sclerosis drug ozanimod. But we see a solid pipeline with multiple data and launch catalysts through 2020. Shares recently traded at more than a 30% discount to our $116 fair value estimate.

Pipeline setbacks have brought investor focus back to core drug Revlimid, which generates more than 60% of Celgene's revenue today and is vulnerable to generics between 2022 and 2027. But we think the market is fixating on Revlimid declines, and our projections for the firm's pipeline are higher than consensus.

Key drugs include liso-cel, which is a cell therapy to treat lymphoma that should launch in 2019. The drug appears to have safety and efficacy advantages to other cell therapy options, and we assign it peak sales north of $2 billion. Another cell therapy program, bb2121, has shown impressive data in multiple myeloma, the same disease that Revlimid treats today.

We think bb2121, anemia drug luspatercept, and MS drug ozanimod are all poised to launch in 2020, and each of these therapies have peak sales potential of more than $2 billion. Also, we expect Revlimid will continue to produce healthy cash flows over the next five years, allowing the firm to easily absorb additional acquisitions without raising debt ratios.

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Karen Andersen, CFA

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Karen Andersen, CFA, is a sector director, AM Healthcare, for Morningstar*. In addition to leading the sector team, she covers biopharma firms in the US and Europe, focusing mostly on large-cap firms with foundations in biologic or gene-based medicines.

Before joining Morningstar in 2005, Andersen received a master’s degree in business administration from the Jones Graduate School of Business at Rice University, where she served as senior healthcare analyst for the M.A. Wright Fund and earned the distinction of Jones Scholar. She also holds the Chartered Financial Analyst® designation.

She ranked first in the biotechnology industry, and had the highest score overall, in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

Andersen holds a bachelor’s degree in biochemistry from Rice University, where she graduated magna cum laude. She is also a member of Phi Beta Kappa. She has scientific research experience in academia at both Rice University and the University of Queensland in Australia. She also worked in the healthcare industry, both at genetic testing firm Integrated Genetics (now part of LabCorp) and as a research assistant at Lexicon Genetics (now Lexicon Pharmaceuticals).

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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