What happened

After reporting that luspatercept met its primary endpoint in reducing blood transfusions in patients with myelodysplastic syndromes (MDS), shares of Acceleron Pharma Inc. (NASDAQ:XLRN) are zooming 42% higher at 11:30 a.m. EDT Friday.

So what

In collaboration with Celgene Corp. (NASDAQ:CELG), Acceleron Pharma is developing luspatercept, an erythroid maturation agent (EMA) that addresses chronic anemia in MDS and beta-thalassemia by promoting the production of healthy red blood cells.

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On Thursday, management reported that luspatercept met its mark in a phase 3 study for MDS, a group of rare, cancer-like, bone marrow disorders characterized by an inability to produce enough healthy red blood cells.

The company plans to unveil the specific data at a future conference, but it did say
luspatercept "achieved a highly statistically significant improvement in the primary endpoint of red blood cell (RBC) transfusion independence of at least 8 consecutive weeks during the first 24 weeks compared to placebo."

Also, luspatercept met a key secondary endpoint of its study, delivering "a highly statistically significant improvement in RBC transfusion independence of at least 12 consecutive weeks during the first 24 weeks."

Now what

MDS and beta thalassemia patients rely on regular red blood cell transfusions, but those transfusions increase the risk of organ-damaging iron overload and patients' quality of life is significantly impacted by them. Some patients can use Epogen and Procrit, which stimulates bone marrow to make red blood cells, but many people aren't eligible to take those drugs, and responses to them are usually temporary.

Celgene labeled luspatercept as a potential $2 billion per year in peak-sales drug, so the trial success is a big win for Acceleron Pharma. It can receive up to $185 million in future development, regulatory, and sales milestones and it will split profit in North America. Outside of North America, Celgene will pay it low- to mid-20% royalties on sales.

The two companies plan to report more data from the study later this year and file for FDA and European Union approval in the first half of 2019. Based on that timeline, luspatercept could begin generating sales for the companies in late 2019 or early 2020, depending on the exact timing of luspatercept's regulatory applications.

The potential to launch a multibillion-dollar drug could mean that Acceleron Pharma's $2.2 billion market cap following today's run-up is still too low. Investors shouldn't bank on approval (a lot often goes wrong in biotech), but it probably shouldn't be ignored altogether that Celgene already owned about a 13% equity stake in Acceleron Pharma as of Dec. 31, 2017. Whether Celgene decides to acquire Acceleron Pharma outright at some point is anyone's guess, but given the peak sales opportunity, it's possible.

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