Inspired By Tesla: RBC Speculates On Go-Private Scenario For Celgene

As Tesla Inc TSLA explores an exit from the public markets, one Street analyst on Wednesday said Celgene Corporation CELG could pursue a similar path.

The Rating

RBC Capital analyst Brian Abrahams maintained an Outperform rating on Celgene with a $110 price target.

The Thesis

RBC predicted a go-private path for Celgene’s several months ago, noting the move would provide an immediate premium for shareholders and an attractive longer-term internal rate of return, Abrahams said in a note. (See the analyst's track record here.)

Private status, Abrahams said in the note, would better position the biotech to capture medium-term value from future Revlimid sales that the markets could underappreciate. At the same time, Celgene could cut general and administrative expenses and avoid valuation volatility as it moves beyond Revlimid, he said.

While the significant transaction size was previously expected to prohibit a leveraged buyout, Tesla CEO Elon Musk's statement that his company has secured funding for a similarly sized deal inspired fresh interest in a Celgene transition.

“Though the two companies are in completely different industries, and such funding has not been fully realized (or confirmed available), we believe this does potentially illustrate that performing such a transaction even on such a large company, to help better capture trapped value and/or insulate it from public-markets volatility as it seeks to overcome challenges, may not be completely unrealistic,” Abrahams said.

The analyst said he considers Celgene’s position increasingly less dire given that its underlying business has stabilized and progress has been made on its pipeline. Nonetheless, such a move would be expected to capture value for underappreciated commercial and pipeline products.

Price Action

Celgene shares were trading up 0.25 percent at $91.47 premarket Thursday.

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Photo courtesy of Celgene.