Celgene-Receptos: How Wall Street Is Reacting

Shares of Receptos Inc RCPT were trading higher by more than 10 percent during Wednesday's pre market trading session after it received an acquisition offer on Tuesday by Celgene Corporation CELG for $232 per share, valuing the entire transaction at $7.2 billion. Several of Wall Street's top analysts offered their initial take on Wednesday. JPMorgan: Transaction Adds ‘Potential Blockbuster Product' Cory Kasimov of JPMorgan commented in a note that Celgene is adding a "potentially very significant product" in Ozanimod that holds the potential to "materially move the needle" in 2020 and beyond. The analyst added that the timing of this catalyst is ideal as its Revlimid goes off patent around that time. Kasimov also stated that not only does Ozanimod have a "blockbuster potential", but it also has a "long runway" with IP into 2032. Morgan Stanley: ‘Not Sure What To Make Of This Deal' Matthew Harrison of Morgan Stanley commented in a note that on the one hand, Celgene would acquire "compelling" Phase II data in two indications with "sizeable" market potential. On the other hand, the analyst questioned if the acquisition "is a distraction from the elephant in the room." "When a management team is this aggressive at compiling assets (Juno, PD-L1, Ozanimod) that have launch dates (2019/2020E) which coincide with the bear case from patent risk on their key asset (i.e, Revlimid), we worry about the perceived risk to the franchise," Harrison wrote. "In absence of that risk, we believe this is a strategic deal that makes sense." Bottom line, Harrison noted that his interpretation of the signaling from the deal suggests "the potential for increased risks" for Revlimid and GED-0301. As such, the analyst is "much more neutral on this deal than we might otherwise be." Barclays: ‘Deal Makes Sense' Geoff Meacham of Barclays commented in a note that the acquisition "makes sense" as it: 1) diversifies away from Revlimid; 2) addresses large commercial opportunities that leverage I&I infrastructure; and 3) provides "meaningful value inflection milestones" in 2017 and 2018. Meacham also noted that the acquisition's price tag "looks fair" given the peak sales potential for Ozanimod (guidance of $4 billion to $6 billion) and its stage of development. "All this said, we don't think the deal provides an urgency to buy Celgene shares today given that key value-driving catalysts (Ozanimod in MS and UC, GED-0301 in CD, Revlimid in NHL, etc.,) are still more than 18 months away and there is likely only modest P&L upside in the near term," Meacham wrote. "Net-net, we are encouraged by the transaction rationale/continued pipeline expansion and we expect Celgene shares to reset higher."