Source: Flickr user DonkeyHotey.

Celgene (CELG) is on a spending spree that is reshaping its future, but investors are right to question whether or not the company's decision to fork over more than $8 billion in the past month is savvy or crazy. Perhaps it's a little bit of both.

A big bet on curing cancer
Last month, Celgene swapped out its collaboration on chimeric antigen receptor T-cell, or CAR-T, cancer therapies with bluebird bio for a new $1 billion CAR-T collaboration with Juno Therapeutics (JUNO) that includes a 10% equity investment.

The deal aligns Celgene with a leader in researching this potentially game-changing approach to curing cancer, but it comes with a big dose of risk.

Juno Therapeutics' most advanced drug is JCAR-015, a treatment for leukemia and lymphoma that's in phase 1 human trials. JCAR-015 has put up some solid data (so far), including an 87% complete response rate; however, that data reflects a tiny patient pool of just 38 people, so it's unclear whether or not those results will hold up in larger studies. Historically, the track record for that happening isn't very good. In the past, more than 90% of cancer drugs entering phase 1 trials never make it to market.

Because Juno Therapeutics' research can be described as "emerging" (at best), investors are right to worry that Celgene has just bet $1 billion on an idea that's far more likely to fail than succeed.

However, Celgene's decision to cozy up with Juno Therapeutics wasn't just about betting that JCAR015, or other drugs, succeed. It was also about protecting Celgene's multibillion-dollar revenue stream.

The majority of CAR-T research targets indications that contribute a big chunk of Celgene's expected $9 billion in annual revenue this year. Therefore, this deal is just as much about insulating Celgene's future revenue from a potential threat as it is locking up rights to a new drug. When you look at it this way, Celgene's $1 billion commitment is pretty short money.

Source: Celgene Corp.

Branching out into new markets
Celgene's launch of Otezla last year as a treatment for psoriasis is a clear demonstration of the company's commitment to diversify its product line-up away from cancer.

Celgene has reinforced that commitment with its recently announced $7.2 billion plunge into treating multiple sclerosis, a market that's worth $17 billion annually, and growing.

Specifically, Celgene is acquiring Receptos (NASDAQ: RCPT), a clinical stage company that is working on ozanimod, an oral drug for the treatment of MS relapses.

The deal positions Celgene head to head against MS Goliath Biogen and could lead to a battle for market share with Novartis' oral MS drug, Gilenya.

Clearly, Celgene's management thinks it can come out on top against these two heavyweights, and they have good reason to believe that.

In phase 2 trials, patients receiving ozanimod enjoyed a significant reduction in MS-related brain lesions with placebo-like side-effects. If phase 3 trials confirm that finding, it could position ozanimod as the best-in-class oral therapy -- a position that could be worth billions of dollars per year in sales.

Admittedly, there are still a lot of "ifs" associated with ozanimod's potential. Ozanimod's results were from mid-stage trials that were predominately designed to determine its impact on brain lesions, rather than a reduction in patient relapses, and ozanimod's pricey phase 3 trials will include more patients than its phase 2 trials, so there's no guarantee results will hold up and ultimately pave the way to an FDA approval.

Since Celgene is paying a whopping $7 billion to acquire Receptos (more than two times what it paid to buy its blockbuster cancer drug Abraxane), this deal is far from risk-free, especially considering that its size likely precludes Celgene from orchestrating any other acquisitions this year. Regardless, if ozanimod is successful, it could make a big impact on Celgene's sales down the line. Celgene estimates peak sales of ozanimod could be between $4 billion and $6 billion per year. If so, then this deal would decidedly go down in the history books as brilliant.

Calculated guess-work
In biotech, more than in other industries, there's a significant amount of educated decision-making that drives R&D and capex budgets. There's little certainty that what works in a lab will work in the field, and given that patents offer a limited product shelf life and competitors are always angling to reshape markets, companies like Celgene can't sit in place and expect to thrive. Instead, they need to continuously look into the future and make calculated decisions that may or may not pan out. In Celgene's case, these deals could prove to be transformative, and only time will tell if they pay off, but perhaps Celgene's past success means we should give management the benefit of the doubt.