Celgene Corp. (NASDAQ:CELG), best known for the psoriasis medicine Otezla and a number of cancer drugs, like Revlimid and Vidaza, sent the stock of Juno Therapeutics Inc. (NASDAQ:JUNO) up 55% on Jan. 17 when it was reported to be buying it. An acquisition probably won’t change a lot for CELG stock.
The rumored price for Juno would be $10-12 billion, not a big deal when Celgene is worth $80 billion, but Juno was only worth $5.6 billion on Jan. 12. Juno and Celgene are development partners on JCAR017, an immunotherapy for cancer known as CAR-T.
Juno would be Celgene’s second deal of the young year. It announced it would buy Impact Biosciences for up to $7 billion on January 8. Impact makes a kinase inhibitor that could treat a type of blood cancer called myelofibrosis.
Before you jump in on the CELG stock fun, however, watching drug companies flip billions of dollars around like poker chips, it might make sense to know something about what you, and Celgene, are buying.
CAR-T Risks
Chimeric Antigen Receptor (CAR) Therapy involves engineering new immune cells for patients, so their immune cells can treat their own cancers. Two CAR-T treatments have been developed for leukemia, and the technique holds promise in other areas.
But there are risks.
First, doctors must suppress a patient’s own T-cells with chemotherapy. Then, the patient may reject the new cells. CAR-T is not a slam-dunk. Juno had problems with it in 2015, the stock was at $20 per share in early 2017 (it was at $55 per share as 2018 began) and lawyers are still “investigating” the possibility of lawsuits over its past problems.
CAR-T is hot because Gilead Sciences Inc. (NASDAQ:GILD) bought another CAR-T outfit, Kite Pharma Inc., for $11.9 billion just a few months ago. Gilead still has an enormous stockpile of cash and market value from its success with Hepatitis C, and could be circling other companies in the space as well.
Problems with CELG stock
Celgene may also want to buy Juno in order to change the subject, away from the CELG stock collapse last fall when Pharmacy Benefit Managers (PBM) began objecting to the price of Otezla and the company could not meet its own revenue guidance. Celgene also found a dry hole last year with GED-201, a drug for Crohn’s Disease that failed in a late-stage trial.
The deal-making on drugs reminds me of early 20th century oil wildcatting. Success can be worth billions, as was the case with Gilead and Hep-C, or you could pour billions of dollars onto the research ground and come up with nothing.
For now, the CELG stock price is increasingly dependent on Revlimid for profits, which are pouring in. It earned $988 million, $1.21 per share, in the September quarter on revenues of $3.287 billion. It is due to report full-year numbers on January 25 and investors are expecting $1.92 per share of earnings, while hoping for $2.02 per share, on revenues of $3.51 billion.
The Bottom Line on CELG stock
Drug companies must succeed in many ways before promised billions pour in.
Candidate drugs must work, safely, before they’re approved by the Food and Drug Administration. Then the drugs must get past Pharmacy Benefit Managers, who are putting their feet down on prices. States are also objecting to price gouging, especially on cancer drugs.
There is risk all along the line, but so far, most drug companies seem to be holding up. The problem is that, no matter how good a new drug may be, you can’t have an unlimited draw from a limited pool of money. States and insurers are starting to make hard choices, as drug companies push the envelope on pricing.
There are more risks for CELG stock than just a failed trial.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
