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Instant Analysis: Celgene Pays $600 Million for Swiss Biotech

By Eric Volkman – Oct 3, 2016 at 10:03AM

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The buyout of EngMab is complimentary to the company's cancer drug portfolio and pipeline.


What happened?

Celgene (CELG) is at it again. The acquisitive company agreed to pay $600 million for Switzerland-based EngMab.

Privately held EngMab is a biotech that concentrates its efforts on T-cell bispecific antibodies (TCBs). As EngMac explains, "TCB binds simultaneously to a target on a tumor cell and to the T-cell receptor complex, leading to killing of the malignant cell." 

Does it matter?

Celgene is particularly strong in oncology, so EngMab should fit nicely into its operations. Celgene's Revlimid blood cancer treatment has been an excellent performer of late, with sales growing by 18% on a year-over-year basis in the first half of this year (although it's concerning that it comprised over 60% of the company's sales for the period, a rather heavy concentration).

Regardless, Celgene knows cancer drugs, so we can assume it's placing an informed -- and potentially lucrative -- bet on EngMab. Despite EngMab being in very early stages, the acquisition should be seen as a step towards diversification for Celgene to eventually reduce reliance on Revlimid for revenue. EngMab fits well within Celgene's research on B-cell maturation antigen (BMCA). As Celgene explained, "Through this acquisition, Celgene is now uniquely positioned to pursue BCMA development opportunities using both CAR-T and CD-3- redirected killing platforms. Both approaches and assets provide the opportunity for best in class assets." 

Looking at Celgene's balance sheet, the company had over $6.4 billion in cash and short-term investments at the end of its most recently reported quarter, so the deal is well within its means. (Although, it must be said, the company's long-term debt position topped $14 billion). 

Given that Celgene has lately spent billions to buy some of its pricier assets, this deal is relatively small and thus shouldn't batter the finances too badly. All in all, from what we know so far, it seems like an opportunistic buy of a company with encouraging potential.

Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has the following options: short October 2016 $95 puts on Celgene. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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