Celgene Corp. will make a significant investment toward its ambition of becoming an inflammation and immunology leader with the acquisition of Receptos Inc. for $7.2 billion, net Receptos’ cash of more than $600 million.

One of its challenges will be competing in increasingly crowded therapeutic areas, given the focus by nearly every big pharma on immunology and inflammation.

The deal, announced after market close July 14, will give Celgene ozanimod, a potential best-in-class oral, once-daily selective sphingosine 1-phosphate 1 and 5 receptor modulator (S1P) that it says could add billions in sales to its top-line ([A#14150715008]). The drug is in Phase III testing for two indications, ulcerative colitis and relapsing multiple sclerosis, and has potential in others, according to Celgene. [See Deal]

“The Receptos acquisition is aligned with our strategic imperative of building a leading immunology and inflammation franchise,” CEO Robert Hugin said during a same-day conference call announcing the deal. Annual peak sales of ozanimod in UC and MS alone could reach $4 billion to $6 billion, he predicted. And the mechanism of action could have potential in other diseases as well like psoriasis and lupus.

As a result of the transaction, Hugin said Celgene is raising its 2020 revenue targets by $1 billion to more than $21 billion and raising adjusted earnings per share targets in 2020 to $13 per share. In January, the company said it expected to achieve $20 billion in revenues by 2020 and earnings per share of $12.50.

The company’s heritage is in oncology, but Celgene has been increasingly building up its inflammation and immunology pipeline and portfolio. In 2010, the company unveiled the therapeutic area as a major new growth pillar, based largely on the development of apremilast for psoriasis Also see "Celgene Makes A Play For Inflammation & Immunology Stake With Apremilast" - Pink Sheet, 8 April, 2010..

Apremilast has since been approved by FDA, in March 2014 for psoriatic arthritis and in September 2014 for psoriasis; the PDE4 inhibitor is marketed as Otezla and generated $60 million in sales in the first quarter.

Then, the company in-licensed a mid-stage potential first-in-class drug for Crohn’s disease last year, paying handsomely to do so. Celgene paid $710 million up front in exchange for rights to Nogra Pharma Ltd.’s oral antisense therapy mongersen (GED-0301), which is now in Phase III development for Crohn’s disease ([A#14141023003]).

Ozanimod will be a third key late-stage asset in the pipeline.

“With the addition of Receptos’ programs, we now have three molecules, Otezla, GED-0301 and ozanimod in Phase III development spanning four indications, and by year end, we will have nine Phase II programs in a variety of important indications ongoing,” President-Global Inflammation and Immunology Scott Smith said. “We are very encouraged by the breadth, depth and potential of this evolving pipeline.”

An Eye On Celgene’s Budding I&I Portfolio

Drug And Indication

Development Phase

Otzela (apremilast)/PDE-4 inhibitor

Psoriatic arthritis and psoriasis

Marketed

Ankylosing spondylitis

Phase III

Behcet’s disease

Phase III

Rheumatoid arthritis

Phase II

Atopic dermatitis

Phase II

Ulcerative colitis

Phase II

GED-0301/Smad7 antisense oligo

Crohn’s disease

Phase III

Ulcerative colitis (planned)

Phase I

Ozanimod/S1P1 modulator

Multiple sclerosis

Phase III

Ulcerative colitis

Phase III

Ulcerative colitis (planned)

Phase I

RCP-4046/IL-13 inhibitor

Eosinophilic esophagitis

Phase II

Sotatercept/ACT2RB fusion protein

Renal anemia/bone

Phase II

CC-292/BTK inhibitor

B-cell mediated diseases/RA

Phase II

CC-220/CELMod

Lupus

Phase II

CC-90001/JNK inhibitor

Idiopathic fibrosis/liver fibrosis

Phase I

Source: Celgene; July 14, 2015

The Price Is Right

Analysts hailed the deal as a win for Celgene, despite skepticism generally over the high valuations of many recent deals.

“We see a strong strategic and operational fit that could significantly diversify Celgene’s revenue base, and we believe the acquisition provides investors with increased confidence in Celgene’s emerging second major franchise in inflammatory and autoimmune disease,” Leerink analyst Howard Liang said in a July 15 research note.

Deutsche Bank analyst Robyn Karnauskas declared that the MS opportunity alone could be substantial enough to justify the price paid. “Mid cap biotechs generally trade at 3x to 4x of peak revenues, which would mean peak revenues of $1.6 billion to $2.2 billion would be enough to justify the price paid,” she said.

Celgene agreed to pay $232 per share in cash to acquire Receptos, a 17% premium over the stock’s closing price on July 13, but a significant premium over where the stock was trading a year ago. On July 14, 2014, the stock closed at just $37.75, with positive data Phase II data results and acquisition rumors driving its growth over the course of the year.

Receptos went public in 2013, with an offering price of $14 per share, so Celgene’s story represents a stellar payout for shareholders who bought in early.

MS Launch Could Come In 2018

Data from the two Phase III trials testing ozanimod in multiple sclerosis, RADIANCE and SUNBEAM RMS, are expected in the first half of 2017 and could support approval in 2018. Both studies are comparing ozanimod to the interferon Avonex (interferon beta-1a), marketed by Biogen Inc.

The Phase III TRUE NORTH trial in UC is under way with data expected in 2018.

Celgene had the benefit of reviewing the positive Phase II data on ozanimod in multiple sclerosis and UC, as well as 32-week efficacy data in UC that has yet to be disclosed and a safety update from the ongoing MS trials.

“We feel confident that ozanimod has the potential to be a game changer in UC and MS,” VP-Global Marketing, I&I Mark Kreston said during the call.

Ozanimod is a S1P modulator similar to Novartis AG’s Gilenya (fingolimod), heralded as the first oral treatment for multiple sclerosis when it launched 2010. Gilenya generated $2.5 billion in sales in 2014, with strong growth despite safety issues and the availability of new oral rivals. Cardiovascular risks are one of the concerns with Gilenya, however, which is not recommended in patients with heart conditions and requires cardiovascular monitoring upon initiation.

Celgene believes ozanimod could have cardiovascular and hepatotoxicity advantages over other S1P molecules because of its receptor selectivity and improved pharmacokinetics.

The drug has the potential to compete in the first-line in MS against the Gilenya and Biogen’s market leading oral Tecfidera (dimethyl fumarate), Kreston said, given that it has shown to have similar efficacy to those drugs with a cardiac and hepatic safety profile that is differentiated from Gilenya.

In UC, Celgene plans to target the more than 1.3 million patients with moderate to severe disease and expects ozanimod could compete as a first-line drug ahead of current injectable biologics like AbbVie Inc.’s anti-TNF Humira (adalimumab), Kreston noted. In Phase II testing, efficacy benchmarked favorably to Humira, he added.

Hugin pointed out the company is also “incredibly optimistic” about GED-0301. “These are different mechanisms,” he said. “And it’s very possible over time, you’re going to see sequencing and maybe even combination therapies. We think we have a great portfolio to really make a difference for patients in the whole IBD space.”

But immune and inflammatory conditions like psoriasis, Crohn’s disease and ulcerative colitis are expected to become increasingly competitive given the ongoing development in the space across the industry. As just one example, in psoriasis, where Otzela competes, the first in a new class of drugs, IL-17 blockers, debuted this year with the FDA approval of Novartis AG’s Cosentyx (secukinumab).

By 2020, the market for these indications could also include generic versions of Gilenya and biosimilar anti-TNFs. But Celgene said it believes ozanimod is differentiated enough to compete even against a generic of the same mechanism.

In addition to ozanimod, Receptos is also developing RPC4046, an anti-interleukin-13 antibody in Phase II development for eosinophilic esophagitis. AbbVie has an option to enter a global co-development collaboration on the drug following the Phase II results [See Deal].

For Celgene, the acquisition is the third recent major deal for the high-profile dealmaker, with the other two transactions both being in oncology. On June 29, the company announced a collaboration with Juno Therapeutics Inc. to pay $1 billion upfront in cash and equity in exchange for access to Juno’s promising CAR-T therapies and in April the company agreed to pay $450 million upfront to AstraZeneca PLC to study its PD-L1 inhibitor durvalumab in hematological malignancies Also see "Celgene Oncology Strategy: Seizing The Immuno-Hematology Opportunity" - Pink Sheet, 13 July, 2015..

Celgene Sets Sights On Becoming Inflammation and Immunology Power Player

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