What is happening at Celgene Corp.?
The question was top of mind among analysts, investors and industry pundits after the Summit, N.J.-based biotech disclosed late Tuesday that the FDA issued a refuse to file (RTF) letter on the new drug application (NDA) for ozanimod to treat relapsing multiple sclerosis (MS). The oral selective sphingosine 1-phosphate 1 (S1PR1) and 5 (S1PR5) receptor modulator, the crown jewel in Celgene's $7.2 billion acquisition of Receptos Inc., had a five-year consensus sales forecast of $1.63 billion, according to Cortellis Competitive Intelligence.
As filing timelines slip, and with Celgene facing many unanswered questions, that forecast looks foggy. The uncertainty swirling around the company drove its shares (NASDAQ:CELG) deep into the red, dropping early to $87.11 – a level not seen since October 2014 – before closing a penny above that at $87.12 for a loss of $8.66, or 9 percent. Nearly 27.9 million shares were exchanged, or about four times the stock's three-month average volume.
On a hastily arranged conference call, Celgene officials admitted "disappointment" – Mark Alles, chairman and CEO, used the word four times – and not only with the FDA's response, which was blamed on nonclinical and clinical pharmacology sections in the NDA deemed insufficient to allow a complete review. While affirming the 2020 top- and bottom-line targets Celgene issued in October, "the complexity in some of the disappointments make it difficult to be predicting our future," Alles said.
The ozanimod embarrassment is the latest in a string of upsets for Celgene.
In October 2017, the company halted the phase III REVOLVE trial of mongersen (GED-0301) in Crohn's disease (CD), as well as an extension study, citing a recommendation of the data monitoring committee following an interim futility analysis. Celgene also decided against initiating the phase III DEFINE trial in CD and said it would review the full phase II mongersen dataset in ulcerative colitis (UC) to determine the next steps in that indication. (See BioWorld, Oct. 23, 2017.)
Celgene paid $710 million up front to acquire privately held Nogra Pharma Ltd. and get its hands on mongersen, an oral antisense DNA oligonucleotide targeting the Smad7 protein. Regulatory and development milestones were set to add up to $815 million across multiple indications, with sales milestones potentially reaching more than $1 billion. But analysts raised eyebrows when Celgene declined at the time to divulge details about the phase II data that led to its decision. (See BioWorld Today, April 25, 2014.)
Days after the mongersen miss, the company's shares swooned in response to third-quarter financials that showed slow growth for Celgene's arthritis/psoriasis drug Otezla (apremilast), resulting in lowered long-term targets. On Oct. 26, 2017, Celgene shares closed at $99.99 for a loss of $19.57, or 16.4 percent, (See BioWorld Today, Oct. 27, 2017.)
Earlier last year, Celgene played coy with ozanimod data, too. In February, the company declared success in the phase III SUNBEAM trial evaluating the efficacy and safety of ozanimod, reporting that SUNBEAM met the primary endpoint: reduction in annualized relapse rate (ARR) for ozanimod compared to weekly Avonex (interferon beta-1a, Biogen Inc.).
Beyond that, details were scant. Celgene said only that improvements in ARR were "statistically significant and clinically meaningful" for both ozanimod arms compared to the intramuscular Avonex. In addition, both doses of ozanimod outperformed Avonex on several secondary endpoints, including number of gadolinium-enhancing MRI lesions and number of new or enlarging T2 MRI lesions at month 12.
For the most part, analysts gave Celgene a pass, concluding that all was well. (See BioWorld Today, Feb. 21, 2017.)
'We would expect some delays'
In the aftermath of the RTF, Celgene said it will request a type A meeting with the FDA, which requires a response from the agency within 30 days, to determine what additional information will be required to resubmit the NDA. On the call, company officials repeatedly pushed back on requests for details, though Alles conceded that other regulatory filings could be affected.
"We're evaluating the impact of this decision from FDA in the context of our [marketing authorization application] and other international filings," he said. "We don't yet appreciate whether there'll be a delay, but we would expect some delays as we sort through this. It's just unclear at this point what that would look like and how long."
Alles insisted that "we understand FDA's position and what we need to do," and Jay Backstrom, chief medical officer and head of global regulatory affairs, emphasized the company has "ongoing [clinical pharmacology] programs that can be used to help address" the FDA's concerns.
Company officials declined to characterize the scope of that work, though they said that new pivotal trials will not be a prerequisite to refile the ozanimod NDA. And they stood in lockstep behind long-term clinical and commercial prospects for the asset.
"Despite this delay, ozanimod remains a promising growth driver for Celgene's future," Alles said, adding that the RTF letter in relapsing MS is not expected to affect the timing and conduct of the ongoing pivotal program for ozanimod in UC.
Alles also pointed to Celgene's $7 billion bid for Impact Biomedicines Inc. and its $9 billion move to take over Juno Therapeutics Inc. – both disclosed in January – in reaffirming the company's 2020 guidance of $19 billion to $20 billion in revenue and adjusted diluted earnings per share of greater than $12.50. (See BioWorld, Jan. 9, 2018, and Jan. 23, 2018.)
In response to a question from Citigroup's Mohit Bansal, Peter Kellogg, executive vice president and chief financial officer, said the ozanimod setback didn't put pressure on Celgene to seek even more deals.
"We are very pleased with the pipeline and partnership portfolio that we have," Kellogg said. "We're in the process of building a very innovative and exciting pipeline for the next decade. And we're going to continue on that path."
"We've discussed and provided some context around an innovative pipeline of some 10 molecules that, between 2020 and 2030, we see adding incremental sales of some $16 billion," Alles added. "That optionality opportunity has already helped us absorb what is clearly a delay for ozanimod."
Analysts remained skeptical, leading Alles finally to comment on investor angst.
"We certainly appreciate that the events of, let's say, the last eight months have caused investors a lot of concern, and of course, it's reflected in the current value of the company," he said. "These are events related to, I think, largely the mission of Celgene where we are working very hard to find unique molecules against the most intractable unmet medical needs known to mankind. The discussion about GED-0301, I think, would be appropriate to have again. But we know that, that was a late-stage asset in Crohn's disease that the trial was stopped early for lack of efficacy. Otezla was a commercial discussion back in the third quarter. As we talked about coming out of all of 2017 and the fourth quarter, Otezla had a very nice rebound."
'How many self-inflicted wounds are excusable?'
For the most part, analysts did not challenge the approvability of ozanimod, but their patience with missteps at Celgene seems to be wearing thin.
"How many self-inflicted wounds are excusable?" Leerink Partners LLC analyst Geoffrey Porges asked in the headline of his report, predicting a delay of at least one year.
"This is yet another blow to investor (and analyst) confidence in this management team and their stewardship of the company's key operational activities," Porges wrote. "Ozanimod is a key growth driver for Celgene post-2020 and contributes needed diversification by becoming 15 percent of total product sales in 2025E, by our previous estimate. The product contributed more than $18/share in our [sum-of-the-parts], and this valuation has to be somewhat impaired by this disclosure."
Porges speculated that Celgene "made a decision to file this application at risk, despite late information that might have been more thoroughly disclosed and explored in the application, had the filing been postponed by a few months." Acknowledging the company's silence on specifics for the RTF, "Celgene's comments suggest that a Celgene-conducted small PK/PD study for ozanimod that was completed late last year and showed some anomalies (exposure or PK variances) which, when combined with the known safety liabilities of the S1P class, probably triggered the FDA to request more complete disclosure of this supplemental data, and potentially further exploration of these variances," he wrote.
In an email, Evercore ISI analyst Umer Raffat took that speculation one step further, suggesting that, on the basis of a small excretion balance study on single dose radiolabeled ozanimod, the FDA may be focused on metabolite characterization.
"This metabolite issue got my attention," he wrote, noting that Teva's Austedo (deutetrabenazine) filing in Huntington's disease "ended up with a complete response because of metabolite characterization. However, upon further review, FDA had concluded that the M1 and M4 metabolites of Austedo do NOT circulate at levels >10 percent of total drug exposure (which is the FDA standard), and thus, non-clinical studies of these metabolites weren't needed. Interestingly," he added, "in ozanimod's case, there are at least two metabolites which are both >10 percent on AUC. Thus, detailed characterization of these metabolites is likely needed."
Gilenya (fingolimod, Novartis AG), also an S1P receptor modulator, has only has one major metabolite, whereas ozanimod likely has at least two, Raffat added, making the case that the Celgene asset may have as many as four metabolites, potentially leading to issues such as food effect or differences in pharmacokinetics and renal clearance parameters.
"This is a clear setback," he pointed out, quickly adding that "we have no information" on the precise reason for the ozanimod RTF. If the issue simply stems from additional work to characterize metabolites, "there is no permanent impairment," he concluded.
However, "overall, the sentiment on this stock is perhaps one of the worst among all large cap biopharmas," Raffat maintained. "With that said, I do think that the ultimate catalyst for the year is whether CELG can land a settlement on Revlimid with Dr. Reddy's" – a prospect that he predicted showed "a high likelihood" of success.
Some analysts, like Piper Jaffray's Christopher Raymond, moved quickly to slash estimates for ozanimod, as they moved "to watch this play out from the sidelines." Others, like Brian Abrahams of RBC Capital Markets, Cowen's Eric Schmidt and Canaccord Genuity's John Newman, adjusted their models to account for a delayed but ultimately successful journey to market.
In a flash note, Jefferies analyst Michael Yee was perhaps most circumspect about Celgene's perilous balancing act. Reporting on feedback from the company's bulls, the RTF "likely ends up being a short-term disappointment," he wrote, noting that sentiment is already negative and the stock is near "no pipeline" value, making it a relatively cheap M&A target and, perhaps, ripe for activists.
"Like many other large caps and even CELG itself, which has gone through its periods of 'ups and downs,' a company with this much cash flow and pipeline can work its way out over time," Yee wrote.
The bear case? It's "hard to own the stock with all the recent disappointments," he wrote. "What is next after things like this happen, [and] what is the catalyst to get the stock up?"