FirstWord Lists: Celgene springs a $710 million surprise in Crohn's disease – Pharma's biggest upfront licensing deals

Overshadowing its Q1 results announcement on Thursday, Celgene also confirmed a surprising, bold and potentially controversial in-licensing deal that is designed to push the company into the inflammatory market and build on the recent launch of Otezla.

The deal caught analysts and investors off-guard on a number of fronts. Despite being ready to commence late-stage testing (Celgene hopes to initiate Phase III studies by the end of 2014), little is known about the Crohn's disease treatment GED-0301 or the private company that has developed the compound up to this point – Nogra Pharma.
Furthermore, in paying an initial $710 million to secure rights for the oral antisense drug, Celgene has set a new benchmark in upfront investment for an in-licensing deal, according to data provided to FirstWord by Bloomberg Industries.

Celgene's expectations for GED-0301 are clearly high. In addition to the record-breaking upfront investment, the total value of the in-licensing deal could be worth $2.6 billion to Nogra. This eclipses the potential $1 billion investment that Johnson & Johnson was prepared to commit in order to secure Aragon Pharmaceuticals' prostate cancer treatment ARN-509 last year; that drug commanded the second highest upfront payment of the last 10 years – $650 million – according to Bloomberg Industries.

In an initial assessment of GED-0301, Bernstein analyst Geoffrey Porges suggested that despite Phase III readiness, the upfront payment "appears quite lavish for a technology such as RNAi and clinical indication historically associated with high development risk." Porges adds "antisense oligonucleotides have never been proven for oral administration, and the provenance of this particular invention is murky. Furthermore, there appear to be no other agents in development targeting Smad proteins."

On its Q1 results call, Celgene confirmed that strong data from a 166-patient Phase II study will be presented at a medical conference later this year and stated that its interest in the compound was driven by GED-0301's oral delivery, which could position it in a pre-biologic setting. Expanding on potential differentiation versus marketed Crohn's disease drugs, Celgene also pointed to GED-0301's safety profile, high response rate and the speed and duration at which patients had achieved remission in Phase II testing. Supporting its bullishness, the company described the auction process as "highly competitive."

Fleshing out the full financial architecture around GED-0301, Celgene suggested that conservative development cost estimates were between $250 million and $300 million over the next five years. Nogra – which is domiciled in Ireland, which therefore provides a favourable tax position on the drug – will receive tiered double-digit royalties based on sales.

The deal should have a number of knock-on effects and provides Celgene with "the most comprehensive pipeline in biotech," says Ian Estepan, senior portfolio manager at Spectra Group. With Biogen Idec also providing a number of key pipeline updates as it announced its Q1 results (coupled with likely increased visibility on Gilead Sciences' pipeline over the next 12 months), investors will be pleased to see a catalogue of future catalysts given the sector's recent difficulties.

Celgene for its part has commanded admiration for a licensing strategy that encompasses both late-stage products, such as GED-0301, and start-ups; CEO Bob Hugin confirmed in the past few weeks that the company owned some 14 percent of the industry's 'recent' IPOs.

However, this deal – one of the biggest in industry history – is likely to remain under scrutiny until Phase II data is presented despite Celgene's prior transactions having generally proven to be value-enhancing over time, notes Porges. His concerns are not limited to the molecule itself but also Nogra Pharma which has "no obvious track record of drug discovery or development success or commercialization performance and are not really comparable in their scientific relationships and reputation to most of Celgene's other "blue-chip" collaborations".

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