Celgene Corporation (CELG): The Issue with the Rejection of Relapsing MS Candidate Boils Down to Visibility

Cantor's Mara Goldstein says growth beyond 2020 for CELG just got cloudy with the FDA's RTF letter for ozanimod.


What has sent Celgene Corporation (NASDAQ:CELG) investors into a tizzy? As shares slip almost 8% in the market today, rising negative sentiment points to bad news in the form of an FDA letter: a refusal to file (RTF) relapsing multiple sclerosis asset ozanimod. The agency points to deficiencies in nonclinical as well as clinical pharmacology sections of Celgene’s application.

Cantor analyst Mara Goldstein notes that even though this could be just a short-term challenge at the moment facing CELG, the rejection of ozanimod’s new drug application (NDA) “hurts post 2020 visibility” for the company’s growth opportunities at play.

As such, the analyst reiterates a Neutral rating on CELG stock with a $112 price target, which implies a 26% upside from current levels. (To watch Goldstein’s track record, click here)

“The receipt of a refusal to file (RTF) letter from the FDA for ozanimod is perhaps a temporal issue, given the non-clinical nature of the RTF and the SPA supporting the application, but it makes it difficult, in our view, to see past the concerns of critical patent expirations. Revenue diversification is a strong counter to this, but we struggle with recent missteps, such as the RTF and the acquisition of JUNO (NC) as a substantial-enough cushion near term to mitigate patent expiry concerns. The portfolio is a strong cash flow engine and that provides optionality, in our view, suggesting the shares have value, but we see growth prospects post 2020 obscured,” Goldstein explains.

On a positive note, “Since ozanimod’s NDA is based on a SPA with the agency, we expect this to ultimately be resolved, delaying, but not necessarily derailing, the application, which is likely the driver behind CELG’s reaffirmation of its 2020 revenue and sales guidance,” adds the analyst.

What kind of path ahead now exists for the drug maker? In the best case scenario, Goldstein says should the Type A meeting CELG looks to have with the agency have an encouraging outcome, there could be prospective “clarity” by the middle of the4 second quarter of this year- even potentially sooner. All the same, Goldstein fears the challenge “places an overhang on the pipeline.”

Looking ahead, the analyst anticipates $35 million in revenue from CEL next year and $225 million by 2020- which though she says is “possible,” she admits her expectations are “likely a stretch,” especially contingent upon the “timing of the resolution.”

Ultimately, as far as Goldstein is concerned, the “issue” here is “not growth in 2020,” but rather growth beyond- and in this aspect, the analyst is uncertain. More visibility will be crucial to Celgene.

TipRanks highlights a large pool of optimism floating around the drug maker’s shares. Out of 25 analysts polled in the last 3 months, 14 are bullish on CELG stock with 11 playing it safe on the sidelines. With a healthy return potential of 39%, the stock’s consensus average target price stands at $122.81.

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