Morgan Stanley Raises Price Target On Celgene, Still Highlights Several Risks

July 27, 2015

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In a report published Monday, Morgan Stanley analyst Matthew Harrison reiterated an Equal-Weight rating on Celgene Corporation (NASDAQ: CELG) but boosted his price target from $107 to $134.

Celgene opened the day above Harrison's $134 price target, but has fallen more than 2 percent to $131.85.

According to Harrison, the biotech company boasts increased promise after management announced several major deals in recent months. However, he maintained that the risks had also expanded. "We continue to see risks as underappreciated relative to valuation," he said.

Three New Deals

Harrison said that an acquisition of Receptos Inc (NASDAQ: RCPT) as well as deals with Juno Therapeutics (NASDAQ: JUNO) and AstraZeneca (NYSE: AZN) have substantially softened Celgene's downside. The analyst increased his low-ball price estimate from $85 to $105 as a result.

But he warned that Celgene's "[assumption] of robust contributions" from the Receptos pipeline could be too ambitious. He noted both clinical and commercial risks that could weigh down revenues from the newly announced acquisition.

Furthermore, Harrison highlighted the fact that Celgene's anticipated shift away from its anemia drug Revlimid to partnered products would likely increased COGS a decrease margins, "[significantly] lowering overall profitability."

Risks To Guidance

Celgene provided guidance of $4-6 billion in revenue derived from the Receptos pipeline. Harrison expects the figure to be closer to $4 billion, but admitted that "[he] [even] struggled to get to the bottom end of Celgene's range." He believes that the market for Celgene's products is too small to generate the level of revenue that the company has forecasted.

Aside from Receptos, Harrison expects about $3 billion in combined revenue from the Juno and AstraZeneca partnerships and another $3 billion from the sale of other products.