Nomura Boosts Celgene Target, Downgrades Receptos After Merger News

In a report published Wednesday, Nomura analyst M. Ian Somaiya mentioned that the purchase of Receptos Inc RCPT by Celgene Corporation CELG represented a “great acquisition at a great price.”

Celgene has agreed to acquire Receptos for $232 per share in an all-cash deal that is expected to close in 3Q. Celgene would be financing the deal with cash on hand and about $5bn in new debt.

“We believe Celgene got a good deal given our projections for peak ozanimod sales of $6.2bn in MS and UC alone, putting the $7.2bn purchase price well below the 3-4x peak sales multiple we have seen in recent pharma/biotech deals. Crohn’s could add >$2bn to our model,” analyst M. Ian Somaiya wrote.

In the report Nomura noted the reasons for being bullish on the acquisition:

1. ozanimod could enable the inflammation & immunology franchise to double peak sales to $10bn and reduce reliance on Revlimid to drive future growth
2. acquisition price of <2x peak sales represents a steep discount relative to recent comps
3. purchase by international subsidiary could optimize use of OUS cash and relocation of ozanimod IP could reduce future tax obligations

Somaiya has a Buy rating on Celgene and raised the price target from $146 to $165. The analyst downgraded the rating on Receptos from Buy to Neutral, while raising the price target from $202 to $232.

The report added that additional large-scale acquisitions were now unlikely in view of management’s commentary around “needing to focus on execution and making sure company is able to deliver against its new financial targets.” Moreover, the acquisition would not result in a suspension of Celgene’s CELG’s ongoing share purchase program, of which about $2bn was remaining as of 1Q15.