How would you like to have an investment manager who quadrupled your initial investment over the last 10 years? That's the return that Celgene Corporation (CELG) achieved. But Celgene is a biotech, not an investment manager, right? Actually, it's both. The company has invested billions of dollars with acquisitions and strategic partnerships that could keep those high returns flowing for years to come. Here's why you should let Celgene invest your money, too.
Celgene's latest acquisition came just days ago. On Dec. 2, Acetylon Pharmaceuticals announced that it had agreed to be acquired by the big biotech. The deal will give Celgene worldwide rights to Acetylon's selective HDAC6 inhibitor programs, including lead early stage drug candidates citarinostat and ricolinostat. Financial terms of the acquisition weren't released.
Prior to that, Celgene bought Swiss biotech EngMab in October. That deal cost $600 million. With the EngMab buyout, Celgene picked up a B-cell maturation antigen (BCMA) program that should help advance the company's myeloma prospects.
The acquisition that really showcases Celgene's investing prowess, however, was its purchase of Receptos last year. Celgene bought Receptos for $7.2 billion. That represented a premium of only 12% over Receptos' valuation at the time.
What did Celgene get for that investment? Ozanimod. The experimental drug is currently in two late-stage studies, one targeting multiple sclerosis and the other targeting ulcerative colitis. Celgene thinks that if ozanimod wins approval in both indications, its peak annual sales could be $4 billion to $6 billion. Even below the low end of that range, ozanimod's potential would easily justify the price Celgene paid for Receptos.
What's really impressive about Celgene's research and development strategy, though, isn't its acquisitions. Instead, it's the biotech's partnerships and collaborations.
The range of the biotech's collaboration and partnership deals is quite diverse, including small companies like Agios, Array BioPharma, bluebird bio (BLUE 15.11%), Epizyme, Juno Therapeutics (JUNO), and Oncomed along with a major drugmaker, AstraZeneca. This model appears to be a shrewd one for Celgene.
In most of its collaboration deals, Celgene pays a relatively small amount upfront (although one that is usually very appealing to the partner) to gain an option for one or more of the partner's development programs. As additional data becomes available, Celgene can evaluate whether or not moving forward makes sense. If it chooses to exercise its option and all goes well, the big biotech could have a new addition to its portfolio with less risk than if it had developed the drug itself.
For example, Celgene forged a partnership with Bluebird back in 2013. Earlier this year, Celgene exercised its option for an exclusive license to Bluebird's CAR-T therapy BB2121 after reviewing clinical data. While it's still too soon to know if this investment pays off for Celgene, things look good so far. Bluebird announced very promising efficacy and safety results in late November from a small early stage study of BB2121.
Not all winners
Of course, not all investments are winners. That's true for Celgene like it is for any investor.
Prior to the Receptos acquisition last year, Celgene spent $1 billion to buy 10% of Juno Therapeutics. That amount reflected a premium of more than double Juno's value at the time. In exchange, Celgene also gained worldwide marketing rights to the smaller biotech's CAR-T candidates.
Since then, things haven't gone very well for Juno -- or for Celgene's $1 billion investment. Juno's shares have sank over 50% since the deal with Celgene was signed. One major reason: The U.S. Food and Drug Administration (FDA) placed a clinical hold on a study of CD19 candidate JCAR015 after three patients died. That hold was later lifted, but Juno voluntarily put the the study on hold in November after additional safety concerns were identified.
Don't count Juno out, though. Celgene's investment could still pay off nicely. The big biotech shelled out $50 million earlier this year to license Juno's JCAR015 and JCAR017 candidates outside of North America and China. Celgene is clearly banking on regulatory and commercial success for the CD19 drugs. The company's optimism could still be proven correct despite current safety concerns.
Picking great stocks can be challenging, and stock-picking in the biotech world is even harder, especially among clinical-stage biotechs. With the acquisitions and partnerships that Celgene has done and will no doubt continue to do, buying Celgene's stock allows you to benefit from the company's scientific expertise in finding some of the best smaller biotechs on the market.
Celgene expects to grow earnings by 23% annually over the next several years. I expect the company will achieve that goal, thanks in no small part to its smart dealmaking. If you're looking for a good investment manager who will find good stocks to buy on your behalf, Celgene could be the way to go.