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Seeing as it contributes more than 60% of total revenue, it is no surprise that $6 billion blood cancer drug Revlimid has captured the attention of Celgene (CELG) investors. With four of the seven approved drugs in Celgene's product lineup treating some form of blood cancer (Revlimid, Pomalyst/Imnovid, Vidaza, and Thalomid), one would imagine the next blockbuster drug in Celgene's pipeline would also be in oncology. Surprisingly, however, the most exciting drug in Celgene's pipeline is an autoimmune drug. I'm talking of course about Celgene's potential best-in-class S1P receptor modulator, ozanimod.
A little backstory
In July of last year, Celgene announced it was making a $7.2 billion acquisition of Receptos -- mainly in order to get its hands on Receptos' lead candidate, ozanimod. Ozanimod is part of the exciting new category of S1P modulators for treatment of autoimmune diseases. S1P modulators function by activating the S1P1 receptor expressed on white blood cells, which in turn has the net effect of decreasing the number of white blood cells in the blood. Autoimmune diseases occur when the immune system misidentifies its host as a foreign invader and attacks, so decreasing the concentration of white blood cells in the blood should have the effect of reducing the severity of these diseases. In 2014, Receptos made headlines with the announcement that ozanimod (formerly called RPC1063) had met its primary endpoint in a phase 2 trial as treatment for relapsing multiple sclerosis (RMS).
Why ozanimod is a big deal
Ozanimod is currently being studied by Celgene in a phase 3 trial for RMS as a once-daily oral treatment. RMS has traditionally been treated with a host of injectable drugs or oral medications with significant side effects. For example, Sanofi's Aubagio has been known to cause serious, life-threatening liver problems, and Biogen's twice-daily oral Tecfidera has been associated with increased risk of a rare and serious brain infection called PML. Finally, Novartis' Gilenya, another S1P drug on the market for MS, carries warnings on its label about the potential for heart problems, infections, and liver damage. In its phase 2 trial for RMS, ozanimod not only was able to meet its endpoint (reducing the total number of MS lesions between the 12th and 24th week of treatment) but, more importantly, demonstrated a similar adverse event profile to placebo. Ozanimod therefore has the potential for best-in-class safety with a once-daily oral dosing.
How ozanimod could affect Celgene's future
Behind only the inflammatory conditions, such as rheumatoid arthritis, the MS market is the second most valuable indication worldwide for drugmakers. Worth $17.2 billion in 2014, the MS treatment market is forecast to reach $20 billion by 2024. While estimates vary, Celgene's management has projected peak sales of ozanimod between $4 billion and $6 billion annually. Ozanimod's two Phase III multiple sclerosis trials are expected to read out in the first half of 2017 with the potential to support an approval the following year.
Additionally, fresh off of positive phase 2 data in the TOUCHSTONE trial, Celgene is currently enrolling patients into its phase 3 trial for ozanimod in ulcerative colitis. In light of estimates putting the number of patients having moderate-to-severe ulcerative colitis at 1.3 million, this indication could offer another significant boost to the growth engine that is Celgene's pipeline. Ozanimod's ulcerative colitis data should be available in 2018, which Celgene believes could make ozanimod the first S1P treatment approved for this indication.
The addition of ozanimod to Celgene's product suite diversifies the company's revenue streams away from a sole focus on blood cancers, which I believe is an intelligent move for the long run. The combination of ozanimod's potential, along with management's guidance of $21 billion in revenues and $13 in earnings per share by 2020, I believe, makes Celgene a very attractive holding for the long-term investor.
