Is Celgene killing the traditional biotech partnering formula?

Celgene has been a disruptive player on the biotech dealmaking scene for years. Armed with some big money, CEO Bob Hugin and his deal chief George Golumbeski have roiled the market paying handsome, some would say ridiculous, upfront prices to buy into experimental drug projects. And yesterday's $1 billion front-loaded deal to buy into Juno's CAR-T and TCR programs--$150 million upfront and $850 million for 10% of the company's stock at more than double the going share price--instantly and predictably spurred a backlash among some of the top analysts in the industry over the frothy figures in play.

Typically, a big player will put up a significant amount of cash upfront to partner on a major product and then stretch out the bulk of the payments for milestones related to clinical, regulatory and sales successes. But Celgene ($CELG), well known for its flexibility on deal terms and voracious appetite for new tech, has helped throw that partnering formula out the window with two marquee deals that have assumed most of the risk upfront: its $710 million upfront to partner with Nogra and now the $1 billion buy-in at Juno ($JUNO).

"From an investment standpoint the typical milestone driven deal terms stagger future payment obligations to decreases in risk and clarification of commercial potential; these new deals by Celgene throw all the cash up front with no possibility of any recovery if the programs slow down, stumble or fail," frets Bernstein's Geoffrey Porges. "This deal looks even more surprising, and risky, than Celgene's $710mm+ largely front loaded purchase of the rights to GED0301 from Nogra Pharma in 2014."

During the Twitter debate that followed the news, I commented that it was too early to tell if Celgene had paid too much for the buy-in. I've followed Juno from its inception--not that long ago--and find it fascinating that they've made such rapid progress on hematological malignancies while facing lethal side effects and a real challenge at breaking into solid tumors, which would dramatically expand the market. Rivals, meanwhile, are plotting to overthrow the two leaders, Juno and Novartis ($NVS), by replacing the autologous tech--taking cells from patients and adapting them to fight cancer--with an allogeneic or off-the-shelf approach that would push the pioneers to the sidelines.

Even if Juno wins, it could lose, much like Dendreon ($DNDN). And Novartis is not the kind of competitor you dismiss. It moves fast and spends big when it is looking for a market advantage. Juno, though, is already focusing on next-next-gen projects of its own. And it clearly has all the money it needs to succeed.

This is like driving the Indianapolis 500 with improvised explosive devices littered along the track; very high risk, very high reward. Celgene wins big or loses big, but it's #tooearlytotell, I tweeted.

"Cop out," replied an unusually restrained Adam Feuerstein on Twitter. Feuerstein was needling me in a polite way, but he dropped the mannerly approach in a column titled: Celgene is Desperate or Insane to Pay Ultra-High Premium for Juno Partnership.

"Celgene's investment feels desperate unless a competitive bidding process forced the company to open the wallet super wide," noted the scribe from TheStreet. And to back up his point, he turned to another analyst:

"Bottom line is we like that Celgene is making a big commitment to CAR-T as we think this will be an important hematological platform in the future--but certainly would agree with the likely pending consensus view that the price tag is also big," writes RBC Capital analyst Michael Yee in a note.

Paying too much for a biotech asset these days has become par for the course in the U.S. during these boom times. But Gilead ($GILD) showed that you can pay too much for an asset and still come out way ahead. That's a lesson that has not been lost on some players who aren't willing to wait around for the numbers to come back down to earth.

At least you won't have to wait a decade to find out who won or lost. The way cancer drugs are being advanced in the clinic these days, oncology R&D looks more like a sprint than a marathon. In the meantime, the rules around partnering are changing--at least for now. And that makes Celgene the most popular player at the table. -- John Carroll (email | Twitter)

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