After some stinging setbacks, a top analyst questions the high failure rate for Celgene’s drug pipeline

Mark Alles

When Mark Alles got the big promotion to CEO of Celgene $CELG two years ago, the company was a widely admired big biotech which had committed large portions of its revenue to building a pipeline through some of the most intense dealmaking activities in the industry. Today, its stock price is badly banged up, its whole pipeline strategy is in doubt and some analysts are starting to give some careful attention to determining what’s gone wrong.

Leerink’s Geoffrey Porges has been looking at that much lauded pipeline strategy, and he’s pointing to a record of setbacks and washouts that leaves him to conclude much has gone wrong. 

Investors have assigned very little value to the pipeline Celgene has, and our analysis of the productivity of Celgene’s R&D activity in the past 5 years suggests the current negative sentiment may be warranted….Since 2013 we find that two-thirds of the company’s named development programs (typically phase II or later) have failed, and of the ~20 named clinical development (non- marketed) NCE’s in Celgene’s pipeline charts in 2013 and 2014, only 1 has reached the market five years later. This long term R&D performance is consistent with the performance of Celgene’s stock, and potentially explains the low value accorded to the company’s portfolio of development stage programs, despite their commercial prospects, competitive advantages and technical promise.

Geoffrey Porges, Leerink

Looking over the past 5 years, says Porges, you’ll find only two drugs — Otezla and Idhifa — that came through the pipeline. Focus on 2013-2015, and you’ll see half of the experimental drugs listed in the pipeline have disappeared.

As a result, Celgene remains heavily overdependent on Revlimid, a situation that drew some high-level anger in the Trump administration after the company was called out for raising the price 20% over the past year — pursuing a strategy that Wall Street encourages and lawmakers hate.

Instead of getting better, the pipeline turnover rate is getting worse, says Porges.

Celgene has brought 15 and 11 new drug candidates to its pipeline in 2016 and 2017, respectively, compared to 2-6 candidates per year in 2013-2015. These new adds expanded Celgene’s pipeline by 71% and 38%, respectively, from the previous years. At the same time, prior pipeline assets also disappeared, with 7 candidates de-emphasized (presumably terminated) in each of 2016 and 2017, while this number was more moderate at 1-3 per year in 2013-2015. These programs originally accounted for one-fourth to one-third of the pipeline roster of compounds in the previous years. In total, Celgene has introduced 40 drug candidates to its pipeline since Q1 2013, and removed 20 candidates from its pipeline from Q1 2013 to Q1 2018.

Out of the 20 drugs that have disappeared from their pipeline (almost certainly effectively discontinued though not formally defined as such), 11 (55%) were dropped at phase 1, 5 (25%) at phase 2, and 4 (20%) at phase 3. It is understandable that phase 1 assets are typically riskier and are therefore likely to fail more frequently, but the dropout of phase 3 assets is concerning.

No wonder the stock is down 24% year to date and down 42% since the failure of mongersen last October. Porges points to the poor pipeline performance as a good cause for the decline in faith in the big cap stock.

One thing is certain: Unless Celgene finds a way to fire up its revenue again without angering elected officials, the pressure will continue to grow on Alles to prove he can meet the challenge. So far, he’s shaken up management and taken on more responsibility, as longtime insider George Golumbeski quietly exited. And the spotlight is squarely on the CEO.

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