What happened

Celgene (NASDAQ:CELG) is down 10.2% at 12:09 p.m. Friday after announcing yesterday after the market closed that it was stopping a clinical trial testing GED-0301 (mongersen) in Crohn's disease because the drug doesn't appear to be helping patients.

So what

The decision comes after the data monitoring committee reviewed interim results during a futility analysis of the "overall benefit/risk" of GED-0301. Celgene noted that there were "no meaningful safety imbalances identified," so the issue must have been on the efficacy side.

In addition to stopping the phase 3 RESOLVE trial and the SUSTAIN extension trial that patients can transition into from RESOLVE, Celgene said it doesn't plan to run DEFINE, a second phase 3 trial that hasn't started yet.

Pills and pen on a paper that reads "Diagnosis: Crohn's disease"

Image source: Getty Images.

There's still some hope for GED-0301 since it's also in a phase 2 trial in another inflammatory disease called ulcerative colitis. Celgene is going to wait for that data before deciding whether it's going to scrap the drug entirely.

This was a costly mistake for Celgene, which paid $710 million to privately held Nogra Pharma to get the drug. The only good news is that Celgene smartly set up the deal with milestone payments of $815 million, at least some of which it presumably won't have to pay with the failure in Chron's disease.

Now what

While a failure is bad news for any biotech, Celgene has enough drugs on the market and in the pipeline that losing GED-0301 shouldn't be a major problem.

In fact, Celgene has drugs in its pipeline that could treat the same diseases. Ozanimod is already in a phase 3 trial in patients with ulcerative colitis, and Celgene plans to start a phase 3 trial in Crohn's disease soon after reporting positive phase 2 data earlier this month. Celgene is also testing Otezla, which is approved to treat plaque psoriasis and psoriatic arthritis, in a phase 2 trial in patients with ulcerative colitis that should read out data by the end of the year. If the trial is positive, Celgene would start in a phase 3 program next year.

Success by Ozanimod and/or Otezla would deaden the blow from GED-0301 substantially.

Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.