Today Leerink is publishing its second of two notes on Celgene Corporation’s (NASDAQ:CELG) ozanimod that focuses on the product’s value; in its current forecast the firm estimates that ozanimod is worth $19/ share (13% of its PT) in the base case scenario in its model. This financial work follows the firm’s clinical deep dive on ozanimod and the other S1Ps in development. It is now near-certain that ozanimod works in relapse-remitting multiple sclerosis (RRMS), but short term and long term safety will determine whether the drug becomes a category leader in S1Ps, and a dominant drug in two inflammatory disease (IBD) categories, or whether it becomes a niche product marginalized by commoditized generic versions of Gilenya (fingolimod). Should the former scenario emerge, the firm believes ozanimod could contribute $4.6bn in revenue by 2022E (~15% of the firm’s total revenue forecast), growing to $5.5bn by 2025E, and could be worth $25/share to Celgene (non-PoS adjusted). Today Ozanimod contributes $19/share in the firm’s model, and in the non-differentiated (downside) scenario, this is reduced to $12/share. The full phase III RRMS results presentations at ECTRIMS in October will be significant events for the stock, and will be an important event for investors to confirm the potential for ozanimod to achieve differentiated labelling within the second-generation S1P class. Reiterate Outperform rating and $150 PT.
Ozanimod Key Component of Immunology and Inflammation Diversification Strategy (I&I). As of 2017, Celgene continues to derive ~75% of total revenue from the hematology drug Revlimid (lenalidomide) and its derivatives. The pipeline drugs luspatercept and the immunology and inflammation (I&I) portfolio of drugs offer much-needed revenue diversification over the next decade, the latter of which the firm forecasts to grow to over 20% of Celgene’s total revenue by 2022E. Ozanimod currently consists of 45% of the firm’s 2022E forecast I&I revenue, and this contribution could be considerably higher if the IBD trials are de-risked with positive pivotal data and its probability-of-success (PoS) increases from the current 65% in its company model.
RRMS Filing in H2 Imminent; Upside Based on Label Reveal In 2018. With the release of positive top-line data from both RRMS pivotal trials earlier this year, Celgene has formally guided to regulatory filings for ozanimod by the end of the year. Celgene’s announced base case for their internal models and 2020 revenue targets is a class label in terms of first dose monitoring similar to Gilenya. However, Celgene and the asset’s original developer Receptos have characterized the safety and cardiovascular profile of the drug throughout development using a consistent dose titration scheme at treatment initiation, and Celgene anticipates having discussions with regulators to avoid class labelling, and first dose monitoring obligations, in their product label.
Safety Data Comparisons Favor Ozanimod Over Late-Stage Second-Generation S1Ps; Best Shot at Reduced Monitoring Requirements. A review of the safety data in the published phase II RRMS trials of second-generation S1Ps ozanimod, siponimod (NVS, MP), and ponesimod (JNJ, OP) favors ozanimod across all three key adverse event categories. Ozanimod had the lowest reduction in first dose heart beat at only 2 beats per minute (bpm), bradycardia and atrioventricular (AV) block events of all degrees were much lower in the ozanimod cohorts than the other two molecules, and the rate of LFT elevation was lower for ozanimod than listed on Gilenya’s label, and than the two other clinical S1Ps in phase II trials.
As a sensitivity analysis to the firm’s model, removing the ozanimod revenue from its future forecasts lowers its DCF value by $19/share. Its NPV for ozanimod today based on cash flows out to 2031 (current patent runs to 2029) for both RRMS and IBD gives $19/ share for its base case forecast. This analysis uses a 65-75% operating margin (SG&A and COGS only) at peak and also includes future R&D expenditures for the IBD trials until 2021. Adjusting this analysis for two variables, RRMS market share (6% to 13%) and IBD revenue PoS (50% to 100%), gives a range of values between $12/share (undifferentiated RRMS label, 50% IBD PoS) and $25/share (class leading MS share and 100% IBD PoS). This suggests that the full data presentation at ECTRIMS could be associated with changes in perceived value of +/- 5% for Celgene’s stock.