GED-301 in focus in 2H16; solid 2Q16 update
■ Solid quarter on top and bottom line results with a guidance raise: Celgene beat Revlimid expectations by $23M and total product revenues by $68M. EPS beat as well by 6c. Revlimid guidance was raised by $100M as they continued strength from duration gains of triplet regimens like SWOG777. Bottom-line guidance was increased by 5-15c. We are at $6.88B for 2016 Revlimid sales vs. guidance of $6.8B. We are moving our Celgene valuation to a DCF from a blend of P/E and DCF, but our TP remains $140.
■ GED-301 upcoming catalyst is main focus in 2H16 around Aug/Sept with potential data presentation as early as Oct if submission timelines work: Much of the call was dominated by GED-301 upcoming 12 week data questions. Celgene says it's increasingly likely that we will get a top-line release and that would be around Aug/Sept. In addition to that, we may see the data presented at UEGW in Oct (in Vienna) if they can make those deadlines. Looking at mucosal healing (which is very objective) will be key at 12 weeks as we do think if we see activity at 12 weeks that we will likely see it at the 52 week final endpoint.
■ GED-301 expectations remain low and if data looks robust at 12 weeks we would expect investor confidence to increase on the event. We think the stock could move $6-8/share: We viewed the Ph2 data for GED- 301 more favorably than investors. We already assume 75% probability of success to a 2021 revenue stream of $1.3B for Crohn's. We think investors may be closer to 25% success and if these data were positive might assign 75% credit which is how we get to $6-8/share. 100% success for GED-301 would be worth ~$18/share in our valuation
■ We think product sales for key hematology products likely have room for upside to guidance estimates with time. It is hard to ignore how duration for Revlimid continues to improve and the company notes they have not YET seen much impact from the Pollux Darzalex study. We certainly think that this study will have a favorable impact on Revlimid duration. With that being said, we think 2020 guidance is intact even if all lymphoma trials fail and they have to make up the $1-$1.5B. However, we do think 1) REMARC showed Revlimid's activity in lymphoma, and 2) the follicular studies have better early proof of concept, and 3) Rev and Rituxan have synergies. We might expect Celgene to discuss 2020 guidance post results in 2017 from Relevance and Augment (their FL trials). Maintain Outperform.