Amid mounting questions, Celgene keeps spending

Celgene is keeping its business development team busy even as faith dwindles in its ability to keep sales growing. Its latest deal involves paying Prothena an initial $150m for access to three preclinical neurodegenerative disease candidates, a bold early-stage bet that is fairly typical of the big biotech.

In fact, since 2010 Celgene’s up-front commitments to deals have surpassed its cash generation, and the company has spent more on licensing this decade than any other biopharma group. At the same time it has become one of the sector’s most prolific corporate venture investors, EP Vantage analyses reveal. Discovering whether this money was well spent will take some time, however (see table below).

The early stages of development of many of the deals Celgene pursues means that, for now, investors are being asked to keep the faith. The Prothena transaction and another neuroscience deal struck with Vividion earlier this month are perfect examples of this.

Celgene has made its interest in neurodegenerative disease and protein homeostasis perfectly clear. Both are addressed by these deals, so neither move should come as a surprise. But on the surface these initial payments, both of which include a large equity component, look rich for such early assets.

Even though Celgene can easily afford them in isolation, the company’s activity levels over the past few years means that its outgoings add up to a substantial sum.

Celgene's dealmaking – since 2010
Deal type Count Amount committed up front ($bn) Total deal value ($bn)
M&A* 26 23.46 30.54
Licensing 45 3.99 19.67
Total 71 27.45 50.21
Celgene's vital stats
Cumulative cash flow 2010-17 21.56
Projected cash flow 2018-22 47.30
Current enterprise value 70.54
Source: EvaluatePharma. *M&A includes company acquisitions, majority/minority stake purchases and option deals.

Allocation of capital is hugely important to shareholders. Like most large companies Celgene has a large share buyback programme under way – almost $4bn in shares were repurchased in 2017 – but it does not pay a dividend.

Investors must therefore look for share price appreciation, but over the past six months they have witnessed the exact opposite. Celgene stock has crashed 39% since September amid concerns about sales growth and two major pipeline setbacks – the clinical failure of mongersen and the regulatory failure of ozanimod. Both of these were acquired for substantial sums – $710m and $7.2bn respectively – casting doubt on the company’s due diligence.

Given the frenzied business development activity of the past few years, these concerns are not unfounded. By up-fronts paid, Celgene has shelled out far more than its nearest big pharma cousin (Buyers of cancer assets fan the licensing deal market, 7 September 2017).

And, while it does not seem to have established a distinct venture unit, Celgene can now be considered an enthusiastic corporate investor in private financings, having been involved in nine rounds last year and 11 in 2017 (The rise and rise of the corporate venture arms, 30 August 2017).

But the sheer number of deals that Celgene has struck, and the very early nature of many of them, means that an overall assessment of progress is impossible. It is notable, however, that several of Celgene's biggest licensing gambles have failed. As well as mongersen, a substantial deal with Oncomed looks to have come to naught - lead candidate demcizumab is abandoned at any rate - while an antibody collaboration with Morphosys was ended in 2015. Both deals saw Celgene hand over around $100m to the partners in up front fees.

In terms of progressing projects through the clinic its M&A record looks even poorer; since 2010 only Abraxis has yielded any obvious return on investment.

Drug development is a risky business, and Celgene is clearly visible for the sums it is prepared to commit; many in the industry would like to see similar levels of support for early-stage research from other cash-rich biopharma groups. And, should any of these bets pay off, Celgene’s return could be huge.

But not all investors are prepared to take such a long view. If the company’s biggest and boldest M&A move, the $9bn acquisition of Juno, shows any sign of being a sunk cost, Celgene’s reputation could take a fatal blow.  

To contact the writer of this story email Amy Brown in London at AmyB@epvantage.com or follow @ByAmyBrown on Twitter

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