The Ascent of CelgeneBy
Celgene’s $7.2 billion bid to acquire the biopharmaceutical company Receptos is the latest move by the company as it seeks to more than double its sales to $21 billion by 2020. So what is behind the growth strategy of Celgene? DCAT Value Chain Insights (VCI) examines the product and manufacturing positions of the company and its latest deals.
Celgene is positioning itself to be a top 20 pharmaceutical company with long-term sales estimates of $21 billion, up from 2015 projected sales of $9 billion to $9.5 billion. Celgene is building itself organically and through targeted acquisitions with an emphasis on treatments in oncology, immunology, and inflammatory disease. It is also seeking to expand its R&D and manufacturing footprint with a deal to acquire a former Merck & Co. facility in Summit, New Jersey. DCAT Value Chain Insights examines the growth strategy of Celgene.
Celgene on the rise
In 2014, Celgene posted total revenues of $7.670 billion, an increase of 18% year over year. Net product sales for the full year of 2014 were $7.564 billion compared to $6.362 billion for the full year of 2013. The company's top-selling product is Revlimid (lenalidomide), a drug for treating anemia caused by myelodysplastic syndrome as well as cancer of the blood, including multiple myeloma (plasma cell cancer) and mantle cell lymphoma. In 2014, Revlimid posted sales of $4.980 billion, or 65% of the company's total revenues. The company's next best-selling product was Abraxane (paclitaxel protein-bound particles for injectable suspension, albumin-bound) for treating breast cancer, non-small cell lung cancer, and pancreatic cancer. Abraxane posted 2014 sales of $848 million. Pomalyst/Imnovid (pomalidomide), an oral new molecular entity approved by the US Food and Drug Administration (FDA) and European Medicines Agency (EMA) in 2013 for treating multiple myeloma, posted sales of $680 million in its first-full year of launch. Vidaza (azacitidine), a drug for treating a bone marrow disorder, myelodysplastic syndrome, had 2014 sales of $612 million, a 24% decline due to increased generic competition. The company's NME of 2014, Otezla (apremilast) for treating active psoriatic arthritis, had sales of $70 million; the drug was approved by the FDA in March 2014. Other Celgene products, Thalomid (thalidomide) for treating erythema nodosum leprosum, a skin disease caused by leprosy and with dexamethasone to treat multiple myeloma, Istodax (romidepsin) for treating called cutaneous T-cell lymphoma and peripheral T-cell lymphoma, and an authorized generic of Vidaza had collective 2014 sales of $374 million.
Celgene is banking its near-term financial performance on continued uptick on its four main drugs (Revlimid, Pomalyst/Imnovid, Abraxane, and Otezla) for which the company projects blockbluster status. At the 33rd Annual J.P. Morgan Healthcare Conference held in January 2015, the company reaffirmed 2017 financial targets with projected net product sales of Revlimid at $7 billion, Pomalyst/Imnovid at $1.5 million, Abraxane at $1.5 billion to $2.0 billion, and Otezla at $1.5 billion to $2.0 billion. By 2020, the company projected that its 2020 net product sales are expected to exceed $20.0 billion, led by its hematology franchise ($14.8 billion), inflammation and immunology franchise ($3.0 billion), and oncology franchise ($2.2 billion). The projected 2020 sales would more than double the company's estimates for its 2015 performance, which it expects will be between $9.0 billion and $9.5 billion. In 2015, the company expects continued strong sales of Revlimid (projected 2015 sales of $5.6 billion to $5.7 billion) and Abraxane of $1.0 billion to $1.25 billion.
Alliances and acquisitions are key
A key element of Celgene's near-term and long-term growth strategy is to grow its portfolio in targeted therapeutic areas, an approach the company is achieving through organic growth as well as through alliances and acquisitions. Celegene projects that it could gain up to four additional new product approvals by 2020 through three key deals announced thus far in 2015: a pending $7.2 billion acquisition of the biopharmaceutical company, Receptos Inc.; a 10-year, $1 billion collaboration with Juno Therapeutics for immunotherapies; and an immune-oncology pact with AstraZeneca.
In a move to enhance its inflammation and immunology portfolio, in July 2015, Celgene agreed to acquire Receptos Inc., a biopharmaceutical company developing drug candidates for immune and metabolic diseases, for $7.2 billion (net of cash) or $232.00 per share in cash. Receptos’ lead product is ozanimod, an oral, once-daily, selective small-molecule sphingosine 1-phosphate 1 and 5 receptor modulator (S1P) targeted for treating inflammatory bowel disease (IBD), ulcerative colitis (UC), and relapsing multiple sclerosis (RMS). The drug is in Phase III development for UC with data expected in 2018. Phase III trials for RMS are ongoing, and data are expected in the first half of 2017 to support a RMS approval in 2018. Additionally, ozanimod is being studied to treat irritable bowel syndrome. In an investor call outlining the deal, Celgene estimated that pending approval in all indications, peak sales opportunity for ozanimod is between $4 billion and $6 billion.
Ozanimod is a selective immune-inflammatory modulator of the G protein-coupled receptors sphingosine 1-phosphate 1 and 5, which are part of the sphingosine 1-phosphate (S1P) receptor family. Treatment with S1P receptor modulators interferes with S1P signaling and blocks the response of lymphocytes (a type of white blood cell) to exit signals from the lymph nodes, sequestering them within the nodes. The result is a downward modulation of circulating lymphocytes and anti-inflammatory activity by inhibiting cell migration to sites of inflammation. Patents supporting ozanimod were exclusively licensed to Receptos from The Scripps Research Institute. Receptos is also developing RPC4046, an anti-interleukin-13 (IL-13) antibody for (EoE), an allergic/immune-mediated orphan disease, as well as other pipeline and pre-clinical stage compounds.
Celgene's bid to acquire Receptos is structured as a two-step merger, has been approved by the boards of directors of both companies and is subject to customary closing conditions and antitrust review and is expected to close later in 2015. In addition to acquiring ozanimod, the proposed acquisition of Receptos would also provide Celgene with RPC4046, an IL-13 antibody in Phase II development for treating eosinophilic esophagitis, an orphan disorder with no FDA- approved drugs.
Another key deal for Celgene in 2015 was a potential $1 billion, 10-year alliance with Juno Therapeutics, announced In June 2015, for the development and commercialization of immunotherapies. The two companies will leverage T cell therapeutic strategies to develop treatments for patients with cancer and autoimmune diseases with an initial focus on chimeric antigen receptor technology (CAR-T) and T cell receptor (TCR) technologies. Under the collaboration, Celgene has the option to be the commercialization partner for Juno’s oncology and cell therapy auto-immune product candidates, including Juno’s CD19 and CD22 directed CAR-T product candidates. B-Cell Maturation Antigen (BCMA) is excluded as a target in this collaboration. For Juno-originated programs co-developed under the collaboration, Juno will be responsible for research and development in North America and will retain commercialization rights in those territories. Celgene will be responsible for development and commercialization in the rest of the world, and will pay Juno a royalty on sales in those territories. Also, Celgene has certain co-promotion options. Celgene will initially be eligible to select two programs, excluding CD19 and CD22, to be subject to a global profit sharing agreement under which the companies will share worldwide expenses and profits equally, except in China, and additionally, subject to additional obligations, Celgene may select a third program. Juno will have the option to enter into a co-development and co-commercialization agreement on certain Celgene-originated development candidates that target T Cells. For any such Celgene-originated programs co-developed under the collaboration. The parties will share global costs and profits with 70% allocated to Celgene and 30% allocated to Juno, and Celgene will lead global development and commercialization, subject to a Juno co-promote option in the US and certain EU territories.
Upon closing, Juno will receive an upfront payment of approximately $150 million, and in addition Celgene will purchase 9,137,672 shares of Juno’s common stock at $93.00 per share. In conjunction with this stock purchase, Celgene will receive the right to nominate a member to Juno’s board of directors. Also, during the 10-year term of the collaboration, Celgene will have the right to purchase additional equity in Juno during specified windows and at specified market premiums subject to satisfaction of certain conditions by each party including Juno opting in on select Celgene programs, such that, at a maximum, Celgene could own up to 30% of Juno’s common stock then outstanding. Also, Celgene has entered into a standstill agreement and agreed to certain lock-up provisions on its share ownership. This transaction has been approved by the boards of directors of both companies. Celgene and Juno currently expect to complete the transaction during the third quarter of 2015, subject to the expiration or termination of applicable waiting periods under all applicable antitrust laws and satisfaction of other usual and customary closing conditions.
Earlier this year, AstraZeneca formed an exclusive $450 million collaboration agreement with Celgene for the development and commercialization of AstraZeneca’s investigational immunotherapy, MEDI4736. MEDI4736 will be assessed both as monotherapy and in combination with other AstraZeneca and Celgene potential and existing cancer medicines. Over time, the collaboration could expand to include other assets. Under the agreement, Celgene will make an upfront payment of $450 million to AstraZeneca in relation to MEDI4736. Celgene will lead on development across all clinical trials within the collaboration and will take on all research and development costs until the end of 2016, after which they will take on 75% of these costs. Celgene will also be responsible for global commercialization of approved treatments. AstraZeneca will continue to manufacture and book all sales of MEDI4736 and will pay a royalty to Celgene on worldwide sales in hematological indications. The royalty rate will start at 70% and will decrease to approximately half of the sales of MEDI4736 in hematological indications over a period of four years.
The AstraZeneca collaboration is one of several oncology pacts by Celgene. In 2013, Celgene and OncoMed Pharmaceuticals, a clinical-stage biopharmaceutical company, formed a potential $3.3 billion agreement to jointly develop and commercialize up to six anti-cancer stem cell product candidates from OncoMed’s biologics pipeline, including demcizumab, with which Celgene obtained an exclusive option. The deal included $177.25 million in an upfront fee and equity stake with more than $3 billion in milestone payments for these cancer stem cell programs in development at OncoMed. For demcizumab, these payments could total up to approximately $790 million, and include an undisclosed payment for achievement of pre-determined safety criteria in Phase II clinical trials. For the anti-DLL4/VEGF bispecific antibody, option exercise, development, regulatory and commercial payments could total up to $505 million. For the other four biologics, each program is eligible for approximately $440 million of option exercise, development, regulatory, and commercial payments. OncoMed could also receive more than $100 million in option exercise, development and regulatory approval payments for the small molecule program. The total payments include milestones for regulatory approvals in multiple indications per program. OncoMed retains worldwide rights to certain targets in multiple pathways that do not become collaboration programs with Celgene. Oncomed recently partnered with Eli Lilly to test demcizumab, OncoMed’s anti-DLL4 antibody, in combination with Lilly’s Alimta (pemetrexed for injection) and carboplatin for the treatment of first-line advanced non-small cell lung cancer (NSCLC).
In August 2014, Bristol-Myers Squibb partnered with Celgene to evaluate a combination therapy of Bristol-Myers Squibb's Opdivo (nivolumab) and Celgene's nab technology-based chemotherapy Abraxane (paclitaxel protein-bound particles for injectable suspension) (albumin-bound), in a Phase I study. Earlier this year, Celgene also agreed to buy an equity in Mesoblast Limited, a Melbourne, Australia-based company specializing in regenerative medicines. Under the agreement, Celgene will purchase 15.3 million ordinary shares in Mesoblast for $45 million. addition, Celgene has a six-month right of first refusal with respect to Mesoblast's proprietary mesenchymal lineage adult stem cell product candidates for the prevention and treatment of acute graft versus host disease (GVHD), certain oncologic diseases, inflammatory bowel diseases, and organ transplant rejection.
In October 2014, Celgene and Sutro Biopharma, a biopharmaceutical company based in South San Francisco, California, formed a strategic collaboration and option agreement to discover and develop multispecific antibodies and antibody drug conjugates (ADCs). This new agreement follows the December 2012 collaboration between the two companies and focuses on the field of immuno-oncology. The scope of the collaboration allows the parties to systematically interrogate the immuno-oncology space, including established targets, such as PD-1 and PD-L1, as well as novel targets, using Sutro's cell-free biologics development platforms, Xpress CF and Xpress CF+. During the collaboration, after an initial period, Celgene will have the exclusive option to acquire Sutro, including rights to all Sutro-owned programs at that time, on pre-specified terms. Under terms of the agreement, Sutro will receive upfront payments totaling $95 million, which include an equity investment. Sutro may also receive up to an additional $90 million during the initial research term, including payments for manufacturing-related and productivity milestones. Celgene has the option to extend the collaboration beyond the initial research term in exchange for an additional payment. Across all product candidates, Sutro is eligible to receive more than $1 billion in total payments, upon achievement of clinical and regulatory milestones for product candidates and royalties on product sales resulting from the collaboration.
During the collaboration, Sutro will be responsible for discovery and early pre-clinical development of all collaboration multispecific antibodies and ADCs, as well as the manufacturing of pre-clinical product candidates. The collaboration also contemplates a clinical and commercial supply agreement between Sutro and Celgene for collaboration products. Celgene may assume responsibility for global development and commercialization and will have worldwide rights to all collaboration products, with the exception of certain collaboration products for which Sutro retains US development and commercialization rights, in the event Celgene does not exercise its option to acquire Sutro. For product candidates not licensed to Celgene under the collaboration, Sutro retains worldwide rights, in the event Celgene does not exercise its option to acquire Sutro. In 2012, Sutro and Celgene entered into a collaboration to design and develop ADCs and bispecific antibodies for two undisclosed targets and to manufacture a proprietary Celgene antibody.
In other deals, in January 2015, Celgene formed a collaboration and licensing agreement with the biopharmaceutical company, Zymeworks, for the research, development, and commercialization of bi-specific antibody therapeutics enabled using Zymeworks' proprietary Azymetric platform.Bi-specific antibodies developed using the Azymetric platform resemble conventional mono-specific antibodies; they assemble into a single molecule with two different Fab domains comprising of unique heavy and light chain pairings. In April 2015, Celgene agreed to acquire Quanticel, a drug-discovery company focused on single-cell genomic analysis of human cancer for $100 million upfront and $385 million in contingent payments upon achieving research, development, and regulatory milestones.
Celgene’s manufacturing activites
Celgene uses a combination of internal and external manufacturing facilities to produce its products. Celgene owns and operates a manufacturing facility in Zofingen, Switzerland which produces the active pharmaceutical ingredient (API) for Revlimid and Thalmoid and also uses contract manufacturers for back-up API supply, according to the company's 2014 annual filing. The formulation, encapsulation, packaging, warehousing, and distribution for Revlimid and Thalmoid are performed at Celgene's drug product manufacturing facility in Boudry, Switzerland. The company used third-party drug product manufacturing service providers and packaging service providers to provide backup manufacturing and packaging services. The API for Abraxane is provided by two sources and further manufacturing is performed at Celgene's facility in Arizona and by third-party manufacturing. The API for Pomalyst/Imnovid is supplied from two sources with primary manufacturing services performed at the company's Boudry manufacturing facility.The company uses a number of third-party drug product manufacturing service providers and packaging service providers to provide backup manufacturing and packaging services for this product. The API for Vidaza is supplied by two suppliers with manufacturing and packaging services provided by a number of third-party service providers.
Earlier this year, Celgene Corporation agreed to acquire Merck & Co. Inc.’s former site in Summit, New Jersey, which includes research and development facilities, laboratory and support buildings, manufacturing capabilities, storage, warehouse buildings, and administrative office space. The site has approximately 850,000 square feet of administrative office space and 450,000 square feet of R&D space. Celgene is currently based in Summit, New Jersey, at another nearby location. The site, being acquired by Celgene, has a long history in the pharmaceutical industry. The site has been occupied for R&D, laboratory and pharmaceutical manufacturing uses since 1937. The site was occupied by Ciba Geigy and it became part of Novartis as part of the1997 merger between the pharmaceutical operations of Ciba-Geigy Corporation and Sandoz Corporation, which became Novartis. Novartis later sold the facility to Schering-Plough in 2000, and Merck & Co. acquired Schering-Plough in 2009.
Earlier this month, Siegfried Group sold a production building at its facility in Zofingen, Switzerland to Celgene as part of an agreement signed by the companies in 2006. Siegfried will continue to support Celgene in manufacturing pharmaceutical ingredients (APIs) and intermediate products as well as in related analytics and other technical services.