Celgene (CELG) could go private in 2019 to avoid volatility as key cancer drug Revlimid begins to lose patent protection in the mid-2020s, an analyst suggested Wednesday.
A leveraged buyout at a 30% premium would be a “theoretical win-win for all parties,” RBC analyst Brian Abrahams said in a note. He assumes the deal would be financed with 70% debt and 30% equity at a 6% blended interest rate.
Celgene is in a tough position. It’s the third biggest biotech by market cap, valued at $69.4 billion. But shares are down 12% year to date. Its top two drugs, Revlimid and Pomalyst — both cancer treatments — are set to lose exclusivity in the mid-2020s.
“We model a takeout occurring in 2019 and the company being spun back out to the public markets in 2024 at which point we would expect more go-forward earnings stability as Pomalyst would be off-patent and Revlimid partially off patent,” he said.
Going private would allow Celgene to capture the value of Revlimid cash flows before the patent cliff that aren’t being appreciated by the public, Abrahams said.
The move would also help Celgene avoid volatility as it works through Revlimid litigation and settlements, and pipeline developments including refiling for approval of multiple sclerosis drug ozanimod, which has been delayed by U.S. regulators.
Further, Celgene could reduce some of its general and administrative costs.
“A buyer could gain shares at a significant discount,” he said. “Current shareholders could see an immediate premium to the stock price many believe could be difficult to achieve until the stock re-rates again, timing for which may be unpredictable.”
Multiple sclerosis drug ozanimod, anemia drug luspatercept and multiple myeloma drug bb2121 are key to Celgene’s success. On luspatercept, Celgene is partnered with Acceleron Pharma (XLRN). Bb2121 is being developed with Bluebird Bio (BLUE).
But a buyout could be unrealistic, Abrahams said. Leveraged buyouts greater than $10 billion are rare and the largest ever was $50 billion. The deal would likely have to be creative and involve Big Pharma involvement.
Getting Celgene’s board to accept a modest 25%-30% premium “is no sure thing.” And a merger would compromise Celgene’s corporate culture, research and development capabilities, and “reputation as a partner of choice.”
In morning trading on the stock market today, Celgene rose 1.3%, near 92.70. Biotech stocks were collectively down a fraction, though the group is ranked fifth out of 197 industry groups tracked by IBD.
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