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Celgene Could Be the Best CAR-T Stock to Buy, Not Gilead Sciences

By Todd Campbell – Oct 20, 2017 at 6:31AM

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Celgene's partnership strategy gives it exposure to multiple companies' research on next-generation cell therapy.

Gilead Sciences' (GILD -2.19%) recently approved Yescarta could be a billion-dollar blockbuster cancer-cell therapy, but the company could face stiff competition from Celgene (CELG) someday. Celgene has successfully used research and development (R&D), acquisitions, and partnerships to become one of the world's biggest oncology biotech companies, and the use of this strategy could catapult it ahead of Gilead Sciences in chimeric antigen receptor T-cell therapy (CAR-T).

Cashing in on collaboration

Celgene expects to report over $13 billion in sales this year from its lineup of top-selling drugs. If it hits that goal, it would represent 16% growth from 2016.

Scientists collaborate together in front of a screen showing a double helix and scientific data.

IMAGE SOURCE: GETTY IMAGES.

Celgene's growing riches are boosting its profit, while also fueling a robust collaboration strategy with cell-therapy companies bluebird bio (BLUE 11.05%) and Juno Therapeutics (JUNO). Both biotechs are at the cutting edge of cell-therapy research, and each has promising CAR-T therapies advancing through clinical-stage trials.

So far, the CAR-Ts underway at these companies are producing impressive efficacy and safety data. If those results are duplicated in pivotal studies, they could become best-in-class cell-therapy options.

This summer, bluebird bio stole the show at the closely watched American Society of Clinical Oncology conference with data on bb2121, a drug that it's developing in collaboration with Celgene. In early-stage trials, bb2121 delivered a 100% response rate in multiple myeloma patients who had previously failed a median seven prior treatments.

Those results are potentially game changing in this indication because these patients have few existing treatment options. If bb2121 eventually wins a Food and Drug Administration (FDA) green light, it could be a big moneymaker for Celgene, given that Celgene's Revlimid and Pomalyst already dominate early-line treatment in multiple myeloma. Revlimid sales were $2 billion and Pomalyst's sales were $391 million in Q2 2017.

Juno Therapeutics also revealed data earlier this year that should have the attention of industry watchers. The company's JCAR017 works similarly to Gilead Sciences' Yescarta, but safety data in its trials could make it a better option if it's eventually approved.

CAR-T therapies are associated with life-threatening side effects, including cytokine release syndrome (CRS) and neurotoxicity. As of June, however, only one of 44 patients in JCAR017's study had developed a severe case of CRS, and just 18% of patients suffered from severe grade neurotoxicity For perspective, 13% of patients in Yescarta's trials had severe CRS and 28% had a severe neurological event.

If Juno Therapeutics' duplicates JCAR017's data in pivotal trials, it and Celgene, which has ex-U.S. licensing rights to JCAR017, could challenge Yescarta's market share. JCAR017's final data is expected to be in the FDA's hands in 2018.

Investor takeaway

Cell therapy appears on track to become standard treatment for advanced blood cancer, and research is ongoing that could allow its use in solid tumor cancers, too. Celgene's relationship with bluebird bio and Juno Therapeutics puts it in the enviable position of having exposure to these advances at bargain prices when compared to the $11.9 billion Gilead Sciences spent buying Kite Pharma.

If bb2121 is approved, Celgene will only pay up to $230 million in milestones, yet it will get 50% of bb2121's profit if bluebird bio exercises its co-commercialization option. If bluebird bio doesn't exercise its option, Celgene will get a bigger share and pay bluebird bio royalties on sales, instead.

In the case of Juno Therapeutics, Juno will commercialize JCAR017 in North America and Celgene will pay the company royalties in ex-U.S. markets where Juno Therapeutics doesn't exercise its co-commercialization option. Celgene owns about 10% of Juno Therapeutics' stock, though, so it won't be left out in the cold if JCAR017 is a U.S. sales success. It only cost Celgene $1 billion to license Juno Therapeutics' CAR-T research and buy its equity in the company.

Admittedly, there's no guarantee that research at bluebird bio and Juno Therapeutics pans out. Nevertheless, given Celgene's past successes and its small financial commitment to these promising therapies, I can't help but think Celgene offers investors the best balance of risk and reward in this emerging class of drugs.

Todd Campbell owns shares of Celgene and Gilead Sciences. His clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Bluebird Bio, Celgene, and Gilead Sciences. The Motley Fool has the following options: short October 2017 $86 calls on Gilead Sciences. The Motley Fool recommends Juno Therapeutics. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Celgene Corporation Stock Quote
Celgene Corporation
CELG
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$61.69 (-2.19%) $-1.38
bluebird bio, Inc. Stock Quote
bluebird bio, Inc.
BLUE
$6.33 (11.05%) $0.63
Juno Therapeutics, Inc. Stock Quote
Juno Therapeutics, Inc.
JUNO

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