Celgene Competition Presentation
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Transcript of Celgene Competition Presentation
Sector Manager: Aidan O’Neill
Presented by: Jack Curtin, PJ McGrane, Robert Hatton, Dean McKenna
Healthcare sector presentation,
November 2013
CelgeneCompany OverviewCelgene is an American biotechnology and biopharmaceutical company, specialising in drug therapies for cancer, immunology and inflammatory.
With a corporate headquarters situated in Summit, New Jersey, they markets their products in three regions: the US, Europe and All other areas.
Share Price Performance
Segment breakdownKey FinancialsPrice: $160P/E: 45Forward P/E: 16.6Market Cap: $65.9 billionReturn on Equity (TTM): 25.8%Debt-to-Equity: 0.7
58%35%
8%
Regional Sales
USAEuropeAll Other
Investment Summary
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Inv Summary specific image
Investment Thesis
Investment Summary
1. Strong market positioningCelgene has a strong and proven reputation in the fields of oncology, hematology and immunology; they have leading products in each field. We expect each of these fields to grow in the future, with the bulk of growth being in Celgene’s main sales region, the US and Europe.
2. Promising pipelineCelgene’s pipeline is cleverly targeting underserved markets, with promising signs. Furthmore, they relentlessly seek to capitalize on the success of approved treatments by testing them for treatment of other conditions.
Company Overview
1 Founded in 1986.2 Specialises in drug therapies for cancer,
immunology and inflammatory.3 Targets Developed, Growing Markets.4 Major Products: Revlimid, Vidaza, Thalomid,
Abraxane and Istodax
Investment Summary
Celgene
Company OverviewCelgene was founded in 1986 and has a proven record of targeting growth markets. It operates in several key markets.
Investment Summary
Company Overview
Investment Summary
AcquisitionsYear Company Cost Outcome2012 Avila
Therapeutics Inc.
350 2013 earnings?
2010 Abraxis BioScience
2,900
2009 Gloucester Pharmaceuticals
640
2008 Pharmion Corporation
2,900
2003 Anthrogenesis
45
Company Overview
Investment Summary
Current Products
Industry OverviewOncology
Investment Summary
Industry OverviewKey Points:• 1 in 3 will be diagnosed with cancer• Survival rates have doubled in the past 40 years• Treatments are becoming more lengthy, complex and effective
Investment Summary
Industry Overview
Investment Summary
Haematology & Immunology
Multiple Myeloma rates
Industry OverviewKey Points:• Multiple Myeloma is more prevalent in the elderly, a demographic
expected to grow.• Complementary drugs: Revlimid, Pomalyst
Investment Summary
Industry Overview
Investment Summary
Key Points:• Psoriasis is the most prevalent autoimmune disease in the
U.S. • Psoriatic arthritis has no cure, but Celgene are close.• Rheumatoid Arthritis affects between 1-2% of the
worldwide population
Financial Analysis
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Ratio Analysis
Financial Analysis
Celgene Gilead Merck Amgen Industry Average
P/E 46.55 41.3 33.3 18.7 59.9Forward P/E
16.36 12.0 12.8 13.3
P/B 11.6 10.5 3.1 4.1 7.5P/S 9.46 11.8 3.4 5.0 8.1EPS 5.96 1.64 3.03 5.52 Return On Equity
26.1 32.30 11.47 22.82 13.7
Profit Margin
22.33 28.6 10.2 26.81 13.7
Div. Yield - - 3.47 1.59 Debt/EBITDAD/E 0.8 0.5 0.5 1.3 0.7
Revenue
Financial Analysis
58%35%
8%
Regional Sales
USAEuropeAll Other
67%
13%
10%
4%5%
1%
Product Sales
RevlimidVidazaAbraxaneThalomidPOMALYST/IMNOVIDOther
2007 2008 2009 2010 2011 2012 2013 20140
1000200030004000500060007000
Revenue $
Year
Mill
ions
Earnings
Financial Analysis
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TTM
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
Earnings per Share ($)
Key points:• Earnings have grown impressively since 2008.• EPS was $5.96 in 2013, guidance for 2014 is in the range
$7.00-7.20.• Bullish estimates based on expected revenue for Revlimid and
the rapidly growing Abraxane.
What are they doing with their earnings?
Year Net Profit ($ billion)
2013 1,449
2012 1,456
2011 1,318
2010 881
2009 777
Assets
Financial Analysis
Key points:• Upward trend in cash, one we expect to accelerate.• Rising goodwill from acquisitions.
2008 2009 2010 2011 20120
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Total CashGoodwill
Liabilities & Equity
Financial Analysis
2009 2010 2011 20120
500
1000
1500
2000
2500
3000
3500
4000
4500
Long-term DebtCash & EquivCum. Acq.
Key points:• Large amounts of long-term debt have been incurred – financing
acquisitions and share buy-back schemes.• At the same time cash and equivalents have grown.• Equity is quite stable: retained earnings show robust growth,
treasury stock is high
Cash Flow
Financial Analysis
Key points:• High earnings growth drive Operations cash flows.• Acquisitions and share buy-backs create erratic Investing cash
flows.• Issuance of long-term debt create erratic Financing cash flows.• Net change in cash is reliable positive.
Year2013 9 Months 2012 2011 2010
Net Cash Flow from Operations 1675 2019 1776 1182
Net Cash Flow from Investment Activities -1443 -1554 378 -2107
Net Cash Flow from Financing Activates 104 -249 -1622 1177
Net Change In Cash 332 231 508 249
Free Cash Flow
Financial Analysis
09-3
09-6
09-9
09-
12
10-3
10-6
10-9
10-
12
11-3
11-6
11-9
11-
12
12-3
12-6
12-9
12-
12
13-3
13-6
13-9
0200400600800
Free Cash Flow ($ millions)
Key points:• Overall, the trend is growth.• Dips tend to match acquisitions, while peaks match returns from
these investments.• Despite a recent dip, FCF’s are remarkable - $1983 million.
Valuation
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Stock Price Analysis
Valuation
The stock currently trades around $160 and has a 52 week range of $96.30-174.66.
Historical P/E
Valuation
• Over the past 10 years, Celgenes P/E has converged closely with that of the S&P500.
• With a current P/E of around 46, Celgene is trading at around half of its 10 year average of 95.4, though this may be misleading.
2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
50
100
150
200
250
300
350
Historic P/E
CELG
S&P 500
DCF
Valuation
DCF & Football Field Analysis
Valuation
We recommend a target price of $195.
Risk analysis
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Financial Risk
Risk Analysis
• Increase in long term debt to 2771, 0 in 2009• Subsequent increase in debt/equity to .79,
above industry average of .66• Debt/assets healthier at .34, industry
average .30• No dividend payments• But, outlook is good due to strong cashflow
and growth potential• Cashflow ops/total debt .43, ind average .08
Operational Risk
Risk Analysis
• Risk of further consolidation of American wholesalers
• Difficulties surrounding integration of acquisitions
• Liability due to use of hazardous materials in research
• Currency risk, although it is hedged• IT breakdown• Legal risks• Improper conduct by employees, agents etc.
Strategic Risk
Risk Analysis
• No impending patent cliff risk, with both Revlimid and Thalomid patents not expiring until mid 2020s
• Vidaza is very open to generic competition with its patent already expired. Vidaza accounts for 15% of total revenue
Strategic Risk
Risk Analysis
• Velcade by Millenium is the main competitor to Revlimid, as market leader in 1st and 2nd line treatment
• Velcade successor, MLN9708, could pose a very serious threat in the future
• Elotuzamab by BMS and AbbVie also very promising, but still in phase III
• However, Revlimid may be prescribed in conjuction with these new drugs