Celgene (NASDAQ: CELG) seems to have become the Rodney Dangerfield of biotech stocks. It don’t get no respect.
The big biotech has shed nearly half its market cap since October 2017. Celgene has endured a string of setbacks, including a late-stage failure for Crohn’s disease drug GED-0301 and a Food and Drug Administration (FDA) rejection for ozanimod in treating multiple sclerosis (MS).
With a lot of negativity still surrounding the company, CEO Mark Alles spoke on Wednesday at the Bernstein Strategic Decisions Conference in New York. Here are four things Alles said that you’ll really want to know.
1. Lessons were learned from recent setbacks
Alles readily acknowledged that there has been more pressure on Celgene in recent months as result of the GED-0301 and ozanimod setbacks. He stated that the “regulatory misstep” with ozanimod was especially “frustrating and humbling.”
What has Celgene learned from these problems? Alles said that there is now “a more accountable structure” in place within the company. While Celgene still prizes empowerment of its team, he contrasted empowerment with autonomy. Alles thought that in a couple of cases, “a little bit more oversight would have led to a better decision.”
He specifically noted that in retrospect, Celgene should have conducted a randomized phase 2 clinical study of GED-0301 with a controlled placebo group.
2. Potential blockbuster drugs are in the pipeline
While Alles didn’t sound uncomfortable discussing how Celgene is moving past its recent problems, he undoubtedly preferred to talk about the company’s future — especially its pipeline. He was quick to point out that ozanimod is “back on track” with regulatory submissions in the U.S. and in Europe planned for 2019 Q1.
Two pipeline candidates received especially high praise from Alles. He said that CAR-T therapy JCAR017 could be best in class compared to current products from Gilead Sciences and Novartis. Alles added that the drug is “a very important product for the future.” He also referred to bb2121, a CAR-T therapy Celgene is developing with partner bluebird bio, stating that there has “never been a better product at this stage of development” for treating multiple myeloma.
Those weren’t the only pipeline drugs high on Alles’ list, though. He also highlighted myelofibrosis drug fedratinib, which Celgene plans to submit for approval later this year. Alles thinks that the PD-1 inhibitor licensed from BeiGene opens up more research opportunities for the company in treating cancer. In addition, he name-checked luspatercept, CC-486, and marizomib as important candidates for Celgene’s future.
3. Thoughts on potential Trump Administration changes
Alles mentioned that Secretary of Health and Human Services (HHS) Alex Azar singled out Revlimid in a recent speech as part of what some have referred to as a “naming and shaming” strategy to get drugmakers to rein in escalating drug prices. However, Alles said that Azar called out Revlimid because it’s the top reimbursed product among Medicare’s protected classes, which include drugs that the Medicare Part D program must cover. He later noted that Celgene was “aggressive” with price increases last year because the company “thought we had left value on the table.”
The FDA also included Celgene on its list of companies that are allegedly trying to prevent makers of generic drugs from accessing samples of some of their brand-name drugs. Alles’ response to this was that several of its products, including Revlimid, require stringent safety programs because of their potential adverse effects. He said that Celgene is “not about to reduce our standards” with respect to safety to sell its products for generic version testing.
As for some of the other potential changes related to the pharmaceutical industry, Alles said that Celgene is “completely aligned” with the Trump Administration about controlling out-of-pocket patient costs. He also said that the company is willing to negotiate outcomes-based contracts for its drugs.
4. The patent challenges for Revlimid will be fought
Alles began the discussion at the Bernstein conference with an acknowledgment that investors are anxious about the future loss of exclusivity for Revlimid, which continues to generate roughly 63% of the company’s total revenue. When asked about ongoing patent challenges to Revlimid, he replied that he wanted to be “very, very clear” that Celgene would fight to defend its intellectual property.
He refused to comment on ongoing litigation but did note that litigation with Natco continued for around five years before a settlement was reached. Alles admitted that many investors would love to see Celgene reach a settlement soon. However, he pointed to the tremendous free cash flow that Revlimid generates, adding that “every quarter of those cash flows I can maintain by not settling on terms that are unfavorable” helps Celgene accumulate a lot more cash.
Celgene completed two major acquisitions earlier this year, buying Impact Biomedicines and Juno Therapeutics. Alles hinted that more deals could be on the way — and that there’s a connection with protecting Revlimid’s intellectual property. He stated that one year of free cash flow from Revlimid gives Celgene flexibility to do “aggressive” business development that “could make a huge difference” over the long run.
What will it take for Celgene to regain the respect that it appears to have lost? A favorable settlement regarding generic challenges to Revlimid would go a long way to ease investors’ worries. Less reliance on price increases for its drugs would get HHS and the FDA off the company’s back.
And after the GED-0301 failure and the ozanimod fumble, Celgene’s pipeline must deliver the goods. After his remarks about several key pipeline candidates, Alles said that “Celgene is building its future as we speak.” How that effort progresses is more important than anything else in helping the company shed its status as the Rodney Dangerfield of biotech stocks.
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