Celgene Abandons Crohn's Drug; Could Others Take Its Spot?

Celgene (CELG) toppled to a four-month low Friday after it scrapped trials in Crohn’s disease — a late-stage failure that “throws some cold water” on the biotech’s efforts in treating inflammatory bowel disease.

XAutoplay: On | OffIn early trading on the stock market today, Celgene plunged as much as 10.9%, though it was down 10%, near 122.40, in more recent trades. Shares hit a low last seen in mid-June. More broadly, biotech stocks fell 1% in sympathy.

The decision to terminate a Phase 3 and an extension trial in Crohn’s disease followed an interim analysis. Celgene also said it won’t initiate another Phase 3 trial testing the drug, mongersen, in Crohn’s. The fate of a trial in ulcerative colitis is up in the air.

Leerink analyst Geoffrey Porges says it’s clear that mongersen failed to reproduce its earlier efficiency in this larger international trial. There were no safety imbalances in the interim analysis, Celgene said.

Celgene acquired mongersen, also known as GED-0301, in a $710 million deal in 2014 with private Irish company Nogra Pharma. It later bought immune- and metabolic-biopharma player Receptos in 2015 to hedge its bets on mongersen, Porges said.

Thursday’s news “throws some cold water on (Celgene’s) inflammatory bowel disease and business development strategies,” he said. But he suggested that investors take advantage of weakness in the stock.

“As much as there is a temptation to question the value of other investments the company has made, we tend to view this as a one-off, particularly bad investment decision by the then-inexperienced inflammation and immunology team at Celgene in 2014,” he wrote.

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Still, the disappointment is likely to cost Celgene up to $2 billion in long-term revenue and up to 4%-5% in value, Porges said. He cut his price target on Celgene to 156 from 159, but kept his outperform rating, noting that prospects still look strong for ozanimod.

Ozanimod, acquired with Receptos, is being studied to treat relapsing multiple sclerosis and ulcerative colitis. Celgene’s strategy in inflammatory bowel disease has been largely reduced to ulcerative colitis, though ozanimod has some potential in Crohn’s, Porges said.

RBC analyst Brian Abrahams estimates that the opportunity for mongersen in Crohn’s and ulcerative colitis could have been significant. He saw peak revenues of $2.4 billion for mongersen. The consensus had modeled peak revenue of $2.1 billion to $2.4 billion with sales starting in 2019.

But “ozanimod’s emergence suggests that Celgene should be able to capture the Crohn’s disease market with that drug instead,” Abrahams said. “We do not believe there are significant consensus estimates for ozanimod in Crohn’s disease at this point.”

Expectations for mongersen were low, he wrote in a note to clients. The news leaves room for higher-probability catalysts including cancer drug Revlimid in lymphoma, ozanimod in Crohn’s, ulcerative colitis and multiple sclerosis, and Otezla in ulcerative colitis.

Credit Suisse analyst Alethia Young, too, remained bullish on the prospects for ozanimod.

Mongersen “was a very different mechanism and we have greater confidence on ozanimod’s mechanism of action in inflammatory disease,” she wrote in a note to clients. She kept her outperform rating on Celgene stock, but lowered her price target to 145 from 156.

Abrahams and Young both noted that Celgene could look to buy something. Its flagship product, Revlimid, will lose patent protection over the next decade. Analysts are looking for Celgene to diversify beyond Revlimid, which accounted for more than 62% of sales in 2016.


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