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Celegene: "Unexpected" Abraxane Development Should Add $550 Million To Sales

 November 12, 2012 02:28 PM

(By Mani) Celgene Corp. (NASDAQ: CELG) said the Phase III trial of Abraxane in pancreatic cancer showed a statistically significant survival benefit, sending its shares up as much as 10 percent.

Meanwhile, competitor Clovis Oncology, Inc. (NASDAQ: CLVS) announced negative data in the same area, which led to a 37 percent drop in the shares of the oncology company.

"We believe that this (Celgene's) was an unexpected positive result and anticipate the stock to rally on the data," Oppenheimer analyst Boris Peaker said in a client note.

[Related -Celgene Corporation (NASDAQ:CELG): Why Should You Invest In Celgene In 2014?]

Summit, New Jersey Celgene did not announce detailed data, which it may show at the American Society of Clinical Oncology meeting in January 2013, but analysts estimate survival benefit of 1.5-2 months based on prior results.

"At this time we estimate the pancreatic cancer indication to add ~$500-550M in WW sales to Abraxane, which we estimate to add ~$3/share to CELG valuation. However, given the unexpected outcome, we estimate the stock to rally $4-5/share or more," Peaker said.

Meanwhile, investors will primarily be interested in the survival results and compare it to FOLFIRINOX (11.1 months vs. 6.8 months for gemcitabine).FOLFIRINOX is a trial of a combination of chemotherapy drugs fluorouracil [5-FU], leucovorin, irinotecan and oxaliplatin or standard single-drug treatment, gemcitabine.

[Related -Celgene Corporation (CELG): How Q3 Earnings Will Fare?]

Approximately 50 percent of eligible patients choose FOLFIRINOX due to this survival benefit. If, Abraxane only adds 1.5-2 month to overall survival (OS), it is unlikely to capture share from FOLFIRINOX.

On the other hand, if Abraxane adds four months (6 months for gemcitabine and 10 for Abraxane), then Abraxane may capture a large fraction of FOLFIRINOX patients and result in sales of $1 billion plus in this indication.

"Our model suggests $400M peak sales for Abraxane in pancreatic cancer in the US assuming no cannabalization of FOLFIRINOX's share," Peaker noted.

There are approximately 40k new cases of pancreatic cancer in the US annually. Out of these, about 75-80 percent of patients undergo chemo treatment and the most common therapy is FOLFIRINOX. FOLFIRINOX has the advantage of an impressive survival.

"Our consultants suggest that ~50% of chemo patients elect FOLFIRINOX therapy, and the utilization of this combo is limited by its toxicity," the analyst added.

The combination of the above factors implies ~13-14k of patients eligible for Abraxane + Gemcitabine therapy. Combining these assessments with Abraxane pricing of ~$951/100mg per vial results in a US sales potential of $350-400M in the 2020-2024 timeframe.

On the flip side, opportunities outside of the US will be limited due to Abraxane's very high price that is about 25-30 times of generic taxol.

"We anticipate the EU to be much more price sensitive and as such estimate EU sales to be 40% of US, or ~ $150M," said Peaker who seesthe pancreatic cancer indication to contribute about $550 million in sales to Celgene in 2020.

Without the pancreatic cancer indication, analysts assumed Celgene's revenue to be $7.6 billion in 2015, and the pancreatic cancer label adds another $300 million in 2015.

"On the bottom line, the increase is from a GAAP EPS of $6.50 to $6.72 ($8.26 to $8.53 non-GAAP), or a 3.3% increase. Based on the stock's price of $71/share (which in our view incorporated a low probability of success in this indication), we believe that the pancreatic cancer indication adds ~$2-3/share," Peaker said.

Meanwhile, due to the fact that the majority of the Street assumed a negative outcome from this trial, the estimates would be revised higher and the stock is expected to rally $4- $5.

Celgene, which discovers, develops, and commercializes treatments for cancer, has a key sales driver in the form of Revlimid. Revlimid, an oral immunomodulatory drug for the treatment of patients with multiple myeloma and myelodysplastic syndromes, has a strong growth outlook, and analysts estimate a 14 percent sales growth over the next three years.



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