A new deal giving Celgene Corp. strategically important rights to a PD-1 inhibitor developed by Beijing-based Beigene Ltd. will tightly bond the companies' fortunes in both the U.S. and China, putting Celgene in charge of development and commercialization of a key Beigene asset, while Beigene takes charge of selling Celgene's top products in China and advancing new ones.

Summit, N.J.-based Celgene agreed to pay $263 million to in-license the candidate, BGB-A317, for the treatment of solid tumors in the U.S., Europe, Japan and rest of world outside Asia, while Beigene retained exclusive rights for the development and commercialization of BGB-A317 for blood cancers globally and for solid tumors in Asia (with the exception of Japan). As part of the deal, Celgene is also investing about $150 million in Beigene, taking about a 6 percent stake in the company and pledging to collaborate with it on up to eight registrational studies for the candidate in solid tumors, including studies currently being planned by Beigene.

As the deal moves ahead, Beigene stands to earn up to $980 million in regulatory, development, and commercial milestone payments.

The deal could give Celgene, which had once positioned itself as a complementary partner to early immuno-oncology entrants, greater flexibility and control as it pursues its own combination therapies to better compete with the likes of Merck & Co. Inc.'s Keytruda (pembrolizumab) and Bristol-Myers Squibb Co.'s Opdivo (nivolumab). Though an attractive area for research, recent deaths in Merck trials combining Keytruda with Celgene's Pomalyst (pomalidomide) or Revlimid (lenalidomide) have shown it is not without risk.

Beigene's shares (NASDAQ:BGNE) hit an all-time high on news of the deal, pulling back just a bit to close 26.8 percent higher at $66.28 on Thursday. Celgene's shares (NASDAQ:CELG) lost $1.25, to close at $131.95.

BGB-A317 is being developed both as a monotherapy and in combination with other therapies for the treatment of solid tumors. It is currently in two pivotal trials in China, one in bladder cancer and another in relapsed or refractory classical Hodgkin lymphoma. Global pivotal studies of BGB-A317 are planned for initiation in 2018, the partners said. Beigene has long suggested its drug is differentiated from the currently approved PD-1 antibodies because the ability to bind to Fc gamma receptors has been specifically engineered out, a feature that could potentially minimize negative interactions with other immune cells. Further late-stage trials could give it an opportunity to prove that on a large scale.

Beigene's acquisition of Celgene's China business, another component of the deal, comes with a 10-year exclusivity arrangement on distribution of the company's approved and launched products in China, Abraxane (nab-paclitaxel) and Revlimid – those generated about $65 million in 2016 sales together – as well as Vidaza (azacitidine), which is approved in China but not yet launched.

The transfer of ownership could prove to be a win for the companies, helping Beigene establish a commercial presence ahead of the potential launch of its own portfolio, and giving Celgene a ticket out of direct responsibility for selling brand-name medicines in China, a growing challenge for big foreign drugmakers facing challenges to premium pricing there.

The agreement also provides Beigene with China commercialization rights to Celgene's phase II avadomide (CC-122), a pleiotropic pathway modulator, for the potential oral treatment of hematological cancers, as well as potential access to Celgene's future pipeline compounds for the China market. In addition, if Celgene decides to commercialize a new oncology product through a third party in China during the first five years of the deal's term, Beigene has a first right of negotiation to obtain the right to commercialize the product.

Beigene founder and CEO John Oyler said the alliance "provides substantially more resources and enables broader development of BGB-A317 globally than would have been possible if we had gone this alone" and nothing short of "truly transformative," for Beigene. The strategic partnership will help Beigene become a commercial-stage company and, he said, a leader in "the nascent but emerging innovative biotech sector in China."

Celgene CEO Mark Alles said the acquisition of BGB-A317 "significantly accelerates and expands our opportunity to develop and deliver novel T-cell checkpoint inhibitor-based therapies in solid tumor cancers to patients worldwide and adds to our ongoing PD-L1 FUSION program in hematological malignancies."

Before really understanding the scope of the program, it will be important to understand how big an R&D commitment Celgene is looking to make for PD-1 and whether or not it's looking to bring in other hot immuno-oncology targets for combination regimens, Evercore ISI analyst Umer Raffat wrote.

That potential appetite for further in-licensing or acquisition could pan out well for Oncomed Pharmaceuticals Inc. and its Celgene-partnered anti-TIGIT (T-cell immunoreceptor with Ig and ITIM domains) program, Jefferies analyst Maury Raycroft suggested, writing that "though Celgene has several options they could advance, we believe Oncomed's anti-TIGIT makes sense on MOA and strategically." Anti-TIGIT is an investigational immuno-oncology therapy intended to block suppression of the immune system in tumors and enable immune system antitumor activity, similar to marketed checkpoint inhibitors that target the PD-L1/PD-1 axis. (See BioWorld Today, Dec. 4, 2013.)

Partnering with Celgene will also provide BGB-A317's development program with easy access to many more potential combination agents within Celgene's arsenal, such as inducible T-cell co-stimulator and cell therapies, Cowen & Co. analyst Eric Schmidt wrote. Celgene expects to provide an update on its plans sometime after the deal closes, he said.

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