It's usually a bad sign when your big pharma partner passes on programs it licensed just a few years earlier to a start-up biotech. That wasn't the case when Pfizer Inc. (NYSE:PFE) handed assets it picked up from Cellectis SA (NASDAQ:CLLS) on to a new start-up that's getting a lot of attention.

In fact, shares of the French biotech spiked, albeit briefly, after Pfizer announced a handoff to newly formed Allogene Therapeutics, a biotech start-up headed by a couple of guys who made their last round of early investors incredibly wealthy. Could they do the same for Cellectis shareholders?

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A better mousetrap?

Cancer therapies that would have seemed like science fiction several years ago are producing results right now, but there's probably a better approach. The first treatments based on chimeric antigen receptor T cell (CAR-T) involve removing immune cells from a patient and then shipping them off to a separate site to be re-engineered.

After a few weeks of training to recognize specific targets often found on cancer cell surfaces, the cells are ready to be sent back and infused into the same patient. Kymriah, from Novartis (NYSE:NVS), and Yescarta, from Gilead Sciences (NASDAQ:GILD), produce impressive results from an oncologist's perspective, but the long and expensive process will almost certainly hinder their launch. 

Cellectis caught Pfizer's eye years ago with an approach that aims to use T cells from healthy donors (as opposed to the patients) and make multiple batches of cells (that can be used in multiple patients). This process, known as allogeneic CAR-T development, could save time and boost margins. That's why Cellectis' early efforts also drew the attention of two very important players in the CAR-T space.

A winning pedigree

Pfizer's getting out of the allogeneic CAR-T development game, but it will keep a 25% stake in Allogene Therapeutics, a brand-new biotech founded by Arie Belldegrun and David Chang, the former CEO and head of research, respectively, at Kite Pharma. (The pair became tremendously wealthy after selling Kite Pharma to Gilead Sciences for a whopping $12 billion last year, around 20 times more than the company was worth following its initial public offering just four years earlier.)

Competent management is the cornerstone of any successful business, but it guarantees nothing in biotech. Around 95% of experimental new cancer drugs that begin human testing end up on a scrap heap. It's extremely encouraging to see two revered experts willing to develop Cellectis' candidates, but that doesn't make them less susceptible to surprises down the road.

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Safety issues

A CAR-T therapy called UCART19 is the only Allogene licensed candidate with human trial data, and the results are a bit mixed. During a trial involving pediatric patients with an aggressive form of leukemia, UCART19 wiped out the disease, but two children from a five-patient cohort died from a relapse, and a third died due to transplant-related complications. Cellectis also reported a patient's death during a separate UCART19 study with adult population.

Investors interested in Cellectis also need to be aware that the company stands to gain relatively little if Allogene succeeds with its candidates. Cellectis is entitled to royalties on any potential sales of drugs that emerge from the partnership, but the tiered percentage tops out in the single digits. Even if Allogene is unusually lucky with UCART19 and a handful of licensed candidates, Cellectis will need its wholly owned candidates to score some points as well. 

Unfortunately, the most advanced candidate that Cellectis still owns outright has some safety issues as well. Last year, the FDA placed a clinical hold on two studies with UCART123 following a patient death. Cellectis had to enact some safety protocols, but the FDA allowed trials to resume dosing last November. 

A buy?

At recent prices, Cellectis sports a $1.2 billion market cap, which seems a bit steep for a company without any products to sell. The company also owns a 79% stake in Calyxt, a U.S. agricultural biotechnology company that made its market debut last year and boasts a market cap of $426 million at recent prices. By the end of the year, Calyxt intends to launch a genetically modified soybean, developed using technology licensed from Cellectis, that produces healthier oil. 

Calyxt hasn't booked any product sales to date, but believes its premium-oil segment could potentially generate $8 billion in annual revenue. I'd strongly encourage investors to wait for actual sales of the high-oleic soybeans before assuming the company's stake in this business is worth much.

If Cellectis, or its Pfizer-backed partner, has indeed addressed safety concerns, and can prove it by not announcing another catastrophe in the quarters ahead, the stock could soar. At recent prices, though, the stock has a long way to fall if the FDA has to intervene again. While Cellectis belongs in any biotech investor's watch list, it would be better to view the action from a safe distance until we know more.