As Celgene Outperforms, Are Challenges To Its Pipeline Being Overlooked?

Celgene Corporation CELG has gained about 15 percent from its mid-August lows. Against this backdrop of share price appreciation, Morgan Stanley said in a note Thursday that the consensus expectations underappreciate the potential for generic Revlimid as early as April 2020 and the challenges key pipeline assets such as GED-0301 and ozanimod could face.

As such, the firm downgraded Celgene from Equal-weight to Underweight, but maintained its price target at $120.

Analysts Matthew Harrison and David Lebowitz expect a full generic Revlimid to be launched as early as April 2020 even as the consensus targets a 2026 launch. Revlimid is Celgene's blockbuster drug to treat multiple myleloma and also anemia from myelodysplastic syndrome. The drug generated sales of $6.9 billion for Celgene in 2016.

The analysts believe an earlier-than-expected loss of exclusivity could have a 15-20 percent impact on Celgene.

Morgan Stanley noted that most investors believe the large partnered pipeline Celgene has, would insulate it from a Revlimid cliff. However, the firm believes 2018 Phase III represent the most viable Revlimid replacements.

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Morgan Stanley is of the view that the other projects such as PD-1, next-gen IMDs and early Phase I/II projects are too far away, especially if generic Revlimid comes early.

"On the major 2018 PhIII catalysts we remain concerned on GED-0301 clinical success due to our view of the PhII data and see commercial risks for ozanimod given toxicities from that drug class,"' the firm said.

That said, analysts acknowledged that there are near-term positive catalysts for Celgene. They expect positive momentum in Celgene shares to continue in the near-term based on full Phase III RADIANCE and SUNBEAM data for ozanimod in multiple sclerosis at ECTRIMS 2017, incremental details on the UC and Crohn's programs through year-end and the company's presence at ASH.

ASH is typically a positive driver into January broker conferences.