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Celgene (CELG) has recently licensed an early-stage myeloma and leukemia drug from Munich-based German company MorphoSys and bought a stake in the company. The compound, called MOR202 will be in competition with Johnson & Johnson (JNJ) and Genmab's (OTC:GNMSF) monoclonal antibody daratumumab. Like J&J's promising daratumumab, Celgene's drug is also targeting the CD38 molecule found on multiple myeloma cells.

Multiple myeloma is a cancer of the plasma cells. Although it accounts for only about 1 percent of all cancers, it is the most important blood cancer in the U.S. and second in Europe.

According to estimates by the American Society of Cancer, approximately 21,700 new cases of multiple myeloma was diagnosed and 10,710 deaths occurred in the U.S. in 2012. At present, no cure is available.

MorphoSys

Celgene is paying MorphoSys $92 million in upfront license fee plus acquiring 60 million new shares in the company. Celgene is getting worldwide rights to the compound called MOR202.

The drug currently is in a Phase I and IIa trial in patients with relapsed or refractory myeloma. MorphoSys and Celgene will collaborate on the development of the new drug in multiple myeloma and other indications and share costs on a one-third/two-third basis.

MorphoSys will co-promote the product in Europe, sharing costs and profits equally there. In areas outside of Europe, MorphoSys stands to receive tiered, double-digit royalties.

The value of the total package, including milestones plus royalties, plus profit share in Europe is $818 million, rivaling what Big Pharma companies would pay for a high-profile experimental drug program these days.

A little less than a year ago, Johnson & Johnson paid Danish company Genmab $55 million upfront, along with an $88 million equity stake, to license its CD38 program, daratumumab, in a deal worth up to $1.1 billion. Just weeks ago the Phase I and II drug earned a "breakthrough drug" status from the FDA.

Celgene's deal requires U.S. anti-trust clearance under the Hart-Scott-Rodino act and it will close when this is complete, which is expected to happen in the next couple of months.

MorphoSys is responsible for completing the ongoing Phase I and IIa trial, upon completion of which the responsibility for further development will switch to Celgene.

HuCal

Behind MorphoSys's success of discovering new compounds stands the unique HuCAL (Human Combinatorial Antibody Library) technology, which is able to generate billions of distinct fully human antibodies created entirely in the lab without using animals.

HuCAL was wholly owned by MorphoSys until January 2013 when it was sold to Bio-Rad Laboratories (BIO), a large California-based company.

The HuCAL antibodies are produced in bacteria, and the large library is screened with a technique called phage display to select antibodies with the highest affinity to the targeted antigen.

Trial

CD38 (abbreviation for cluster of differentiation 38), is found on the surface of many immune cells (white blood cells), including CD4, CD8, B lymphocytes and natural killer cells. In humans, the CD38 protein is encoded by the CD38 gene, which is located on chromosome 4.

The MOR202 antibody finds the CD38 protein on the surface of the multiple myeloma or leukemia tumor cells and once attached, the MOR202 attracts natural killer cells in the body to identify and kill the tumor cells.

In the Phase I dosing trial MOR202 was intravenously infused up to 2 cycles.

In the Phase IIa trial the drug is tested as a monotherapy and infused up to 4 cycles. In Phase IIb MOR202 is intravenously infused in combination with injected Velcade or oral Revlimid with Dexamethasone, a steroid.

Competition

In recent years, drugs such as Thalomid from Celgene, Velcade from Johnson & Johnson and Takeda and Revlimid from Celgene have transformed the outlook for myeloma patients and extended the median survival range for them to over seven years.

Despite these advances, including the recent approvals of Kyprolis from Onyx (ONXX) and Ono Pharma and Pomalyst from Celgene, myeloma remains incurable for most patients, therefore new treatments are urgently needed.

Daratumumab: Daratumumab is a treatment for patients who have received at least three prior lines of therapy including a proteasome inhibitor like Velcade and an immunomodulatory agent like Revlimid or who are resistant to both.

Daratumumab is currently in Phase I and II trials. In one of the trials, it is tested in combination with Velcade and dexamethasone and in the other, in combination with Revlimid and dexamethasone in patients with relapsed or refractory multiple myeloma.

Elotuzumab: In the past 20 years, a number of monoclonal antibodies have been developed, but virtually none of these had anti-myeloma activity by itself. For example Elotuzumab, currently jointly developed by AbbVie (ABBV) and Bristol-Myers Squibb (BMY), is effective in combination with others, yet has minimal effect as a single agent.

In comparison, both Daratumumab and MOR202 show activity as single agents in early studies. This would allow for their use alone, with no requirement for combination. This feature makes them ideal for maintenance therapy after the initial treatment or transplant.

Two Phase III studies of elotuzumab at 10 mg/kg dose are ongoing in patients with previously-treated and newly-diagnosed multiple myeloma.

In June results from a Phase II study were presented, which applied Elotuzumab in combination with Revlimid and Dexamethasone in previously-treated multiple myeloma patients.

Median progression-free survival of 33 months reached after longer-term follow up in patients treated with elotuzumab 10 mg/kg plus Revlimid.

Elotuzumab targets a cell-surface protein called CS1 that is highly expressed on multiple myeloma cells.

Investors' summary

Celgene has reported total sales of $1.42 billion for the first quarter of 2013, a 15 percent increase from the same period in 2012.

Revlimid sales, its main product, were up 16 percent to $1.0 billion and were driven by overall market share gains and increased duration of the therapy.

Newly approved Pomalyst's first quarter sales were $29 million. Following the approval on February 8, U.S. sales were $22 million. Sales in Europe from early access programs were $7 million.

The older drug Thalomid's sales were $57 million in the first quarter, representing a 26 percent decrease year-over-year. Compared to the fourth quarter of 2012, sales declined 21 percent.

The blood cancer field is Celgene's specialty and the deal with MorphoSys appears to be a defensive move against fast moving Johnson & Johnson.

Mark Alles, vice president and Global Head of Oncology at Celgene stated:

"Strategic investments in next generation medical innovation make it possible for physicians to turn incurable cancers like multiple myeloma into chronic, more manageable diseases. This collaboration with MorphoSys enables us to rapidly advance a promising therapeutic antibody in a disease where significant progress is being made, but where patients continue to need new treatment options."

Source: Celgene Vs. Johnson & Johnson: The Race In Blood Cancer