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Celgene's Investments Are Soaring

By Todd Campbell - Jan 23, 2018 at 7:00AM

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The biotech Goliath's investment portfolio is paying off.

Celgene Corp.'s (CELG) acquiring its collaboration partner, Juno Therapeutics, for $9 billion, and that's fueling investor interest in Celgene's other collaboration partners. bluebird bio (BLUE 2.80%), Jounce Therapeutics (JNCE -8.50%), Acceleron Pharma (XLRN), BeiGene (BGNE 13.95%), and Agios Pharmaceuticals (AGIO 6.06%) are among the best performing of these other stocks, so let's learn more about them.

Expanding its moat

Celgene's Revlimid, the leading first- and second-line treatment, and Pomalyst, a leading third-line treatment, produce nearly $10 billion in annual sales, and that makes Celgene the king of the hill in this indication. Other companies, however, are launching new drugs for the indication that challenge its dominance, so Celgene's working with bluebird bio on next-generation multiple myeloma drugs to protect its market share.

A man sitting with his back against a wall with a piggy bank beside him as paper money falls down around him.


The companies are partnered on bb2121, a chimeric antigen receptor T-cell therapy being developed for use in the fourth-line and later setting. So far, bb2121 looks like a winner. In December, bluebird bio reported a 94% response rate to bb2121 in its early-stage study, and in January, bluebird bio's management said it hopes to have bb2121 on the market in 2019 if pivotal studies pan out. 

An approval in the fourth-line setting would give bb2121 a good shot at becoming a blockbuster drug someday, but it could generate even more revenue at its peak if other trials lead to its being used even earlier in treatment. The potential for bb2121, or its successor drug, bb21217, to someday supplant Revlimid and Pomalyst could entice Celgene to make a bid to buy it, too.

At least, that appears to be the thinking behind a 10% pop in bluebird bio's shares following news of Celgene's acquisition of Juno Therapeutics. Currently, Celgene and bluebird bio will share profit on U.S. sales of bb2121, and Celgene will pay bluebird bio royalties on sales overseas. 

The upside opportunity associated with bluebird bio isn't limited to bb2121, either. The company's also working on two other drugs outside of its collaboration with Celgene that are approaching commercialization. LentGlobin and Lenti-D phase 3 trial results should be available soon, and if the data is positive, then approvals in beta-thalassemia and cerebral adrenoleukodystrophy, respectively, could occur in 2019.

The potential for bluebird bio to have three distinct therapies on the market as soon as 2019 that have nine-figure potential arguably makes it the most intriguing one of Celgene's collaboration partners following Juno Therapeutics' acquisition. As of its 2016 annual report, Celgene also owned a 2% equity stake in bluebird bio.

A new approach

Celgene's 10.7% equity stake in Jounce Therapeutics has gotten more valuable. Jounce's shares have nearly doubled from their December 2017 lows ahead of phase 2 data for JTX-2011 this year.

JTX-2011 is a monoclonal antibody that binds to and activates the Inducible T cell CO-Stimulator (ICOS) protein found on the surface of certain T cells. Activating ICOS may stimulate an immune response against cancer that increases the effectiveness of other cancer drugs, including PD-1 inhibitors.

Jounce expects to have at least some data available from its ongoing monotherapy trial and a combination trial evaluating JTX-2011 alongside Opdivo, Bristol-Myers Squibb's multibillion-dollar PD-1 drug, in the first half of 2018. If phase 2 data is good, then JTX-2011's path to market could be quick, because its studies involve heavily pre-treated patients who have few remaining treatment alternatives available to them.

What makes JTX-2011 particularly intriguing is that it may help people regardless of where their cancer originated. Participants in its trial include patients diagnosed with six different solid-tumor cancers, including non-small-cell lung cancer and melanoma. The potential to use JTX-2011 across indications suggests that it could have more widespread appeal than other cancer drugs in development by competitors targeting only one indication.

If JTX-2011 is successful, then Celgene can get up to 40% of U.S. profit, and it will pay Jounce a royalty on ex-U.S. sales, unless, of course, Celgene acquires Jounce outright.

A billion-dollar blockbuster bet

Acceleron Pharma also has key data coming this year, and investors are bidding its shares up, too. Acceleron Pharma's shares have increased to nearly $45 from about $25 in June.

XLRN Chart

XLRN data by YCharts

The rally in Acceleron's shares is in anticipation of phase 3 data for luspatercept, a beta-thalassemia and myelodysplastic syndromes therapy. Currently, there aren't any FDA approved anemia treatments for either indication, and red blood cell transfusions and off-label medications are commonly used to manage these diseases. If luspatercept's phase 3 results are positive and it eventually wins approval, Celgene will co-promote it in North America and pay Acceleron tiered royalties on overseas net sales. According to Acceleron's forecast, luspatercept could help tens of thousands of patients in what it estimates to be a multibillion-dollar market.

Celgene could decide, however, that it wants full control of luspatercept. Currently, Celgene owns 6.157 million shares in Acceleron or about 13.9% of its common stock outstanding, so it's not crazy to think a deal could happen.

Dropping anchor in Asia

Celgene orchestrated an intriguing arrangement with BeiGene last summer that landed it ex-Asia rights to BeiGene's PD-1 immuno-oncology drug, tiselizumab, and granted BeiGene marketing rights to Celgene's drugs in China for the next 10 years. Celgene also obtained a 5.6% equity stake in BeiGene -- a move that looks pretty savvy, given BeiGene's shares have rallied to almost $120 from $70 since July.

BeiGene and Celgene plan to conduct nine distinct trials of BeiGene's tiselizumab, and while it may be a while before trials produce data Celgene can use to win approvals outside Asia, BeiGene's goal is to apply for approval in China this year.

BeiGene has said Celgene's China business is profitable and that it hopes to use that sales team to market tiselizumab, as well as its other drugs. Among the most interesting drugs in its pipeline that are outside its collaboration with Celgene are a BTK inhibitor that BeiGene believes matches up favorably to Imbruvia, a multibillion-dollar medicine, and a PARP inhibitor that could someday compete globally against similar drugs that Tesaro, AstraZeneca, and Clovis Oncology market.

BeiGene plans to file for Chinese approval of its BTK-inhibitor this year and to begin a pivotal study of its PARP inhibitor this year, too. If its PD-1, BTK-inhibitor, and PARP-inhibitor trials lead to approvals, I think it could lead to Celgene buying more BeiGene shares in order to create wholly owned combination medicines.

Making the most of metabolism

Unlike the other four companies I've mentioned, Agios already has one drug on the market with Celgene: Idhifa.

Idhifa and a second drug, ivosidenib, which Agios owns 100% of the rights to and is still in trials, target mutated, metabolic enzymes isocitrate dehydrogenase (IDH) that can contribute to cancer tumor growth. IDH1 and IDH2 mutant enzymes are found in a number of tumor types, including acute myelogenous leukemia.

Agios and Celgene won FDA approval of Idhifa for use in patients with a mutated IDH2 protein last year, and while its sales totaled only $7 million in Q3 2017, that hasn't stopped investors from scurrying to buy up shares. 

AGIO Chart

AGIO data by YCharts

Agios thinks Idhifa and ivosidenib, which targets IDH1, can win a meaningful slice of this $2 billion market. We could find out if that forecast is right as early as next year, because an FDA decision on ivosidenib is expected later this year. Overall, Celgene seems to think Agios drugs can be winners. It plans to help conduct a phase 3 study in front-line AML this year, and as of Q3 2017, Celgene owns about 12% of Agios' outstanding shares.

While trial failures could derail the rallies these stocks are experiencing, Celgene's got a lot of potential wins in this list, and perhaps that will make it the biggest winner overall, regardless of what happens with each of these companies individually.


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Stocks Mentioned

Celgene Corporation Stock Quote
Celgene Corporation
AstraZeneca PLC Stock Quote
AstraZeneca PLC
$66.90 (3.80%) $2.45
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$78.96 (1.64%) $1.27
Clovis Oncology, Inc. Stock Quote
Clovis Oncology, Inc.
$1.70 (-2.30%) $0.04
bluebird bio, Inc. Stock Quote
bluebird bio, Inc.
$4.40 (2.80%) $0.12
Agios Pharmaceuticals, Inc. Stock Quote
Agios Pharmaceuticals, Inc.
$22.57 (6.06%) $1.29
Acceleron Pharma Stock Quote
Acceleron Pharma
Juno Therapeutics, Inc. Stock Quote
Juno Therapeutics, Inc.
Jounce Therapeutics Stock Quote
Jounce Therapeutics
$2.80 (-8.50%) $0.26
BeiGene Stock Quote
$177.99 (13.95%) $21.79

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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