After a tough few months for the Big Biotech, sources are telling the Financial Times that Celgene is looking to buy out some biotech names with deep ties to the company.
In the wake of Novartis’ near $9 billion deal for Fierce 15 winner AveXis and its rare disease work this morning, and a few months after Celgene also recently jumped into the warming M&A waters with a similar-sized deal for CAR-T biotech Juno, the company is still, apparently, ready for more.
According to people “briefed on its plans”, and talking to FT journos, Celgene is “hunting for acquisition targets with promising drugs to offset the loss of patent protection on its top medicine [namely, Revlimid].”
Specific names have been put forward, according to the sources: immuno-oncology biotech and Fierce 15 winner Agios, which Celgene already backs, and Jounce, another Fierce 15 winner, which recently got off a $104 million IPO last year, and also focuses on immuno-oncology.
Agios would be a much bigger buy, with a market cap currently sitting at $4.2 billion, given that, unlike Jounce, it has an approved med in the form of Idhifa, which last fall won the FDA’s backing to treat relapsed/refractory AML patients with an IDH2 mutation. The drug is partnered with Celgene.
Meanwhile Jounce’s market cap is just under $600 million, although it does come with a big, backloaded biobucks deal with, you guessed it, Celgene.
“Celgene’s business model recently has involved a massive level of partnering instead of M&A,” said one person who has advised the company, as quoted by the FT, adding that the company saw the partnerships as a kind of “option” on a full-blown takeover.
He added: “They do have to exercise some of those options, and Wall Street is looking for more M&A.” Celgene, naturally, isn’t commenting on the rumors.
The people also told the FT that Celgene may even push into an area of medicine “where it does not have much of a presence, like neurology,” although specific names were not mentioned here.
This all comes as Celgene has seen missteps and setbacks in key experimental meds, such as ozanimod, which in February got an embarrassing, and potentially long-delaying refuse to file letter from the FDA for the med in multiple sclerosis.
The drug, which is gunning for several indications and came through a $7.2 billion buyout of Receptos, could be worth as much as $5 billion at peak, but delays and concerns over its future have left investors worried.
Celgene, with a market cap of $65.4 billion, has seen value wiped off over the past six months: In October it was trading at $146 a share, but this has dwindled to just $87 last week. Its shares took a big hit in October when it scrapped a phase 3 trial of inflammatory bowel disease drug GED-0301 after it failed to clear an interim futility review. Celgene paid $710 million upfront for the drug back in 2014, and adds to the growing list of M&A deals that haven’t hit the sweet spot.
These setbacks from past deals has also hit sentiment, with Jefferies analyst Michael Yee telling investors in a note last fall: “[There is] growing negative sentiment around Celgene’s ability to do [business development] and 'good deals' since many partner/acquisition deals have not fully played out great and there's mixed views on their success at this point so could the “model” not be working.” This may be why Celgene is considering deals with biotechs it already knows and has deals with, given that the risk should be lower.
Ronny Gal, analyst at Bernstein, told the FT that Celgene could spend up to $20 billion on acquisitions if it found the right targets. “The biggest issues they have are the mishaps in the pipeline, and that the threat to Revlimid now looks closer. Investors think Celgene is not done with acquisitions by a long shot.”
And this all comes amid the looming patent cliff for its blockbuster cancer drug Revlimid, which made a massive $8.2 billion last year, making up 63% of Celgene’s revenue. But copycat drugs are coming from next decade, and this could decimate sales, with Celgene seemingly getting a little more edgy about what will replace that lost revenue.