Photographer: Anthony Kwan/Bloomberg

Biotech Deals Are Costly. So Are In-House Clinical Failures

Updated on
  • Celgene Q4 R&D costs to net sales at highest since 2000
  • Drugmaker had trial setback in Oct.; made 2 deals this month

Celgene Corp. just proved that while biotechnology mergers may cost billions, so does the failure of clinical research.

Research and development costs soared to $2.74 billion last quarter -- more than Celgene’s R&D spending for entire year of 2014 -- mainly due to the late-stage failure of a once highly anticipated Crohn’s disease drug last October. Relative to net sales, R&D expenditure was at the highest since the first quarter of 2000.

The recent clinical setback, and concerns about the eventual slowdown of Celgene’s top-selling blood cancer drug, Revlimid, have sent the shares plummeting by more than a quarter since its peak.

In a bid to smooth investors’ concerns, the Summit, New Jersey-based company kicked off 2018 with two splashy takeovers, including a $9 billion megadeal for Juno Therapeutics Inc. announced this week. With that deal, Celgene will gain research into a new class of cutting-edge cancer therapies known as CAR-T.

On Thursday, Celgene also confirmed a 2018 profit guidance that it had given earlier this month. The Juno acquisition isn’t included in the forecast and the purchase will likely reduce earnings per share by 50 cents, excluding some items, Celgene said.

Shares were little change at $102.68 at 10:12 a.m. in New York.

Celgene had bought the now-failed Crohn’s disease experimental treatment in 2014 for $710 million. Before last October, analysts anticipated annual sales would top $1 billion by 2023.

On a GAAP basis, R&D costs in the fourth quarter were about $1.6 billion higher than a year earlier. That amount is higher than the pricetag on Celgene’s other recent takeover, the acquisition of Impact Biomedicines Inc. for $1.1 billion in cash up front. Impact is developing a promising bone marrow cancer treatment; if the drug makes it all the way to the market and reaches some sales milestones, the deal could end up costing Celgene as much as $7 billion over time.

— With assistance by Karishma Motwani

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