MS Miss

Celgene's Execution Problems Are Beyond the Pale

Fumbling a key MS drug's FDA pitch raises bigger questions.

Fumble!

Photographer: Jennifer Stewart

Narrative matters in investing. And Celgene Corp. is creating a very bad one. 

The drugmaker announced Tuesday afternoon that the FDA has refused to review ozanimod -- a multiple sclerosis drug expected to be a major near-term growth driver -- for approval because of insufficient data in its regulatory submission.

The news, coming on the heels of several other recent disappointments, does not generate confidence that Celgene will navigate its many challenges especially well. Its shares fell 6 percent pre-market. 

Turn Down

Celgene shares are on a downhill roll

Source: Bloomberg

Pre-market 2/28 share price

The most damaging FDA rejections stem from trial data that reveal disqualifying safety issues or insufficient evidence of efficacy. That isn't the case here; Celgene says the FDA found "nonclinical and clinical pharmacology sections" of its submission insufficient. 

That seems correctable. Ozanimod will still likely be approved, and Celgene doesn't anticipate running another big trial. But this will substantially delay the launch of the medicine as the company meets with the FDA, updates its data, and resubmits the drug. 

It's a pretty shocking failure from Celgene's regulatory team given the importance of this medicine. The company has said ozanimod has the potential to generate $4 billion to $6 billion in annual sales. Multiple sclerosis is already a crowded market, and this delay gives rival Roche Holding AG's Ocrevus more time to continue its historically great launch and tighten its grip on the market. 

Ozanimod looks like a good drug, but has not produced such dramatically differentiated data that a huge market share is its birthright. Cheaper generic rivals and other in-development drugs are also potential threats. 

Flight Delay

A delay of uncertain length to the launch of ozanimod may force analysts to further reduce their estimates of its mid-term sales potential

Source: Bloomberg

This is bad news for Celgene in isolation, and it's worse in context. Just one of its drugs, Revlimid, accounted for 63 percent of the company's revenue last year. That drug will face generic competition in 2022 at the latest. It's increasingly uncertain the company can generate enough revenue from its other medicines and pipeline to make up for that eventual loss.

Celgene was forced to substantially cut its 2020 guidance in October, largely due to the failure of an expensively acquired Crohn's disease drug mongersen. The ozanimod delay puts even that reduced guidance at risk and heaps more pressure on the rest of its medicines and pipeline.

Celgene's $6.7 billion purchase of ozanimod and its developer Receptos Inc. is looking dicier, which raises questions about some of Celgene's other recent deals. It spent $8 billion in January to acquire Juno Therapeutics Inc., which develops cancer therapies using modified human immune cells. This is a complex market, and Juno's medicine will be late to it. Celgene also spent more than $1 billion in January on Impact Biomedicines Inc. and its blood-disease drug, which has safety questions and a possible rival in Incyte Corp.'s Jakafi.

Investors no longer assign much value to Celgene's pipeline -- its premium over big biotech peers has evaporated lately. 

First to Worst

Celgene was once the cream of the large-cap biotech crop -- no longer

Source: Bloomberg

Until Celgene proves its drug development and guidance can be trusted, that's perhaps as it should be. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Max Nisen in New York at mnisen@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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