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Is This a Potential $7 Billion Waste for Celgene Corporation?

By Motley Fool Staff - Jan 8, 2016 at 8:19AM

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With Biogen licensing a similar drug for less money, did the pharmaceutical giant pay too much?

Celgene (CELG) made a significant move in July when it announced a $7 billion acquisition of Receptos in order to get its hands on promising multiple sclerosis drug Ozanimod.

However, biotech competitor Biogen (BIIB -0.29%) may prove Celgene wrong. A new MS drug similar to Ozanimod, but licensed by Biogen for much less money, may become Celgene's stiff competition. This leads healthcare analysts to ask: Did Celgene pay too much money to get its hands on Ozanimod?

The full podcast can be listened by clicking here. A full transcript follows the video.


This podcast was recorded on Dec. 16, 2015.

Kristine Harjes: There is one more drugmaker deal that I want to highlight, and that one is Celgene and Receptos. What was the story here?

Todd Campbell: This is, if you look at all of these deals, and there's so many to consider, this is one of my favorite deals, especially if you're a growth investor who's interested in getting involved in a company that maybe didn't acquisition. That could really pay off over time. This is not a small deal, but it is certainly much smaller than Pfizer's deals.

Celgene agreed to pay, or paid $7.2 billion to buy Receptos -- to get its hands on a multiple sclerosis drug named Ozanimod. And Ozanimod has already finished phase 2 trials in which it significantly reduced brain lesions, but it did so with a safety profile that was very similar to placebo.

Now that's pretty remarkable because the market from MS drugs is shifting dramatically toward drugs that are taken orally rather than injected, and those drugs -- Tecfidera is the market share leader. Another was Novartis' Gilenya, another one is Sanofi's Aubagio -- these drugs generate out billions of dollars a year in sales. And this drug could conceivably be safer than those drugs with similar efficacy.

Harjes: So one question mark for me with this deal happened a little bit afterwards. When they initially announced it, I was like, "Oh, OK. That sounds great." And then in thinking about it, there was some news that was released that Biogen licensed a pretty similar drug to Ozanimod that's also being studied for multiple sclerosis and some other autoimmune diseases. And they licensed it for only $60 million upfront and about half a billion dollars in potential milestones. Which is kind of a head-scratcher to me that Biogen could get basically the same drug, maybe, have not compared them in clinical trials. Who knows? Maybe the Receptos drug is way better. But I don't know. It leaves me thinking that maybe Celgene overpaid.

Campbell: It's so hard to tell, but I will tell you this -- when you come through phase 2 and you have results that are as good as this, and you have a management team that's as successful as Celgene at ferreting out good potential values, needle-moving values -- I tend to fall in the camp of "let's give management the benefit of the doubt on this one." Could this other drug also put up very strong numbers in late-stage trials? It's possible. But right now in my opinion the evidence supports this being the better option.

Harjes: Yeah, I think you make a point there where Celgene management has proven that it does know exactly what it's doing.

Kristine Harjes has no position in any stocks mentioned. Todd Campbell owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool recommends Biogen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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