Otezla divestiture range $7-10bn | BMY Message Board Posts

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Msg  595 of 750  at  6/24/2019 12:35:17 PM  by


Otezla divestiture range $7-10bn

From BofA/ML....
Otezla valuation valn ranges: $7-10bn,
high end contingent on IP outlook
Otezla divestiture range $7-10bn, patent-variable
Following BMYs update that it will need to divest Otezla (psoriasis) in order to
consummate the Celgene merger, we provide our DCF assumptions for Otezla as a
stand-alone asset to determine: 1) potential divestiture proceeds; and 2) non-GAAP EPS
contribution. Assuming generic entry following Otezla
s key composition of matter
patent (ends Dec 2023 vs. 2028 listed in 10K, more below), we estimate Otezla cash
flows could be worth ~$7.3-7.7bn (depends on GM; CELG is not aware of meaningful
royalties). More bullish, if terminal patents are validated in court, our DCF supports
~$10bn valuation (discussed below), although we believe buyers would be reluctant to
pay for cash flow streams at-risk of patent invalidation. Other key assumptions include
~70% current product-level operating margin which we assume a buyer would manage
for cash flow near the tail end of the product life cycle. Otezla is currently subject to
patent litigation although no patent trial date has been set. Last, we note the
contribution of Otezla to 2020E non-GAAP EPS is ~46c or 7% of our BMY-CELG pro
forma EPS. We note that divestiture should not impact outlook for pro forma valuation
as pro forma assumes BMY secures fair value for the asset. We maintain Neutral on
BMY given balanced risk reward.

Incremental +$2.5bn to NPV if exclusivity extends to 2028
Otezla has a composition of matter patent (101) listed on FDA orange book, which will
expire in December 2023 versus terminal patent (
638) covering a purified version of the
composition and expires Feb. 2028. Based on our review of the two patents, we view
both patents similar to each other as both describes the composition of the active
ingredient, preparation, and method of treatment use, but with one key difference:
(2023) describes an impure mixture of multiple forms inclusive of the active
pharmaceutical ingredient (API), whereas
638 (exp. 2028) is focused on a pure isoform
of the API. Given overlapping nature of the two patents, we conservatively model
generic entry in 2024. However, if we are wrong, we estimate Otezla cash flows could
be worth an incremental ~$2.5bn (or ~$10bn total) assuming exclusivity through
February 2028E. We have not reviewed Otezla patents in sufficient detail necessary to
assume asset duration beyond the more conservative assumption of 2024E.

Valuation assumes Otezla is plug-and-play asset
There are several companies who currently play in the psoriasis market through the sale
of biologics (injectable) for moderate to severe psoriasis. In theory, Otezla would be
complementary to existing biologic franchises as it is used in less severe patients
looking for an oral and safe treatment option before advancing to biologic therapy. This
is important to our DCF calculation which does not assume a buyer builds out a new
commercial infrastructure. Current biologic manufacturers for psoriasis include ABBV,
BHC, JNJ, LLY, and NVS. 


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