When Celgene (CELG) makes a mistake, it's a doozy.
The big biotech reported on Tuesday that it had received a Refusal to File letter from the U.S. Food and Drug Administration (FDA) for its New Drug Application (NDA) for ozanimod in treating multiple sclerosis (MS). A preliminary review by the FDA found that the NDA didn't have all the necessary information to move forward with a full review.
This was an unforced error by Celgene. And it happened for a drug that's key to the company's future. Celgene lost more than $6 billion in market cap in early trading on Wednesday as a result of the miscue. But should investors stay clear of Celgene stock after the big blunder, or is now a great time to buy?
How bad is the setback?
Celgene stated that "the FDA determined that the nonclinical and clinical pharmacology sections in the NDA were insufficient to permit a complete review." Unfortunately, that's not a lot of information to go on.
The good news is that the FDA didn't say there were problems related to safety or lack of efficacy that disqualified the application. That would have been a major shock, considering the solid results that Celgene reported from clinical studies of ozanimod in treating patients with relapsed MS.
What seems more likely in this case is that Celgene will need to include additional information in its NDA package. I doubt that any further clinical studies will be needed for this. Still, though, at mininum Celgene has to first meet with the FDA, gather the additional information, and then resubmit the NDA. That means a delay in potential approval for ozanimod.
Even a short postponement could hurt Celgene. Ozanimod was expected to be one of the top five new drugs launched in 2018. Celgene projects peak annual sales between $4 billion and $6 billion. The longer it takes to win approval and launch the drug, the harder it will be for ozanimod to gain traction in the market against rivals like Roche's Ocrevus.
The bigger picture
Celgene had a major pipeline setback in October when GED-0301 proved ineffective at treating Crohn's disease in a late-stage study. But sometimes such clinical failures happen. The GED-0301 flop didn't cause me to doubt the competence of Celgene's management team.
Receiving a Refusal to File letter from the FDA is a different story. It's an enormous embarrassment for Celgene. I don't remember Celgene ever receiving a Refusal to File letter in the past. Apparently, the company's regulatory team couldn't get its act together on a filing for what should be one of Celgene's biggest blockbuster drugs. To be frank, it raises serious questions about whether or not Celgene has the right people on board.
But there is a bigger story for Celgene. There's no reason to think that the error with the ozanimod NDA has any bearing on the rest of the biotech's pipeline. And that pipeline still looks impressive, in my view. Celgene has several promising candidates, including bb2121, CC-486, JCAR017, and luspatercept.
There's also no reason at this point to suspect that the chances of approval for ozanimod are in jeopardy. Celgene's chief medical officer and head of global regulatory affairs, Jay Backstrom, said that the biotech "remain[s] confident in ozanimod's clinical profile." I think that confidence is warranted, and still expect ozanimod to win FDA approval.
In addition, Celgene's current drugs continue to perform well. Revlimid should generate sales of around $9.4 billion this year, a 15% year-over-year increase. Pomalyst will likely bring in around $1.9 billion, up from $1.6 billion last year. Otezla should be on track to make $1.5 billion in 2018, a 17% jump over its sales last year.
Buy or bail?
I stood by Celgene when the company reported its late-stage failure for GED-0301. I continued to support the biotech after it missed revenue expectations in the third quarter of 2017. I thought that Celgene remained solid even after it lowered its outlook for 2020. But what about now?
In my opinion, this latest mistake is inexcusable. Changes need to be made in the biotech's management to make sure this type of unforced error never occurs again.
Having said that, I still think Celgene stock is a great long-term pick. Even though the company is certainly making it harder to stay bullish, my view is that Celgene's growth prospects outweigh the short-term setbacks. The stock is also dirt cheap, with shares now trading at only 8.6 times expected earnings.
Some might want to bail out on Celgene after its bone-headed mistake with the ozanimod regulatory submission. However, I think this big blunder makes the biotech an even bigger bargain.