Celgene (CELG) stock closed lower by 10.76% on Friday, after the company reported that it would terminate its Crohn’s disease studies. It was supposed to press on to another phase 3 clinical trial, but the latest data has caused it to rethink that strategy. You can't really blame Celgene for doing so, after all, the overall risk-benefit profile wasn't impressive enough to warrant further testing. While this latest piece of news is disappointing, I think that the reaction was highly overblown. Considering the fact that Celgene is still in good shape, despite this trial failure. For starters, its drug mongersen (which just failed a phase 3 trial in Crohn’s disease) is being tested in ulcerative colitis as well. This gives Celgene another opportunity with this drug. Secondly, the company has another drug known as ozanimod that is being tested in patients with inflammatory bowel disease. Celgene even boasts a pipeline full of other inflammatory clinical candidates, therefore, the story behind Celgene is not over. In my opinion, the sell off was irrational. There is still plenty of good reason to own Celgene even after this trial failure.
Phase 2 Discontinuation
Celgene had decided not to press on with the next phase 3 trial because of clinical data observed from both the phase 3 REVOLVE trial (CD-002) treating patients with Crohn’s disease, and the extension study known as SUSTAIN (CD-004). The reason why Celgene chose to stop the trial was because of a recommendation from the Data Monitoring Committee (DMC). The DMC assessed the benefit/risk profile during an interim futility analysis. It seems that the DMC saw no reason for the trial to continue, and recommended that it be stopped immediately. One thing to note is that the DMC is full of independent experts who monitor both efficacy and safety data. There was no reason to stop the trial early due to safety, which is one positive. Although, the efficacy was just not there.
Mongersen, also known as GED-0301, is also being tested in a phase 2 trial in patients with ulcerative colitis. This trial recruited up to 40 patients who are being treated with mongersen only. There is no placebo counterpart in this trial. The whole point of the trial (primary endpoint) is to determine the amount of patients that achieve clinical remission in the modified Mayo Score (MMS). The MMS looks at stool frequency, rectal bleeding, and endoscopy measure. While mongersen failed to help patients with Crohn’s disease, there is still a chance it could end up doing well in ulcerative colitis. In my opinion, should this phase 2 trial yield positive results then Celgene can still redeem itself with its Mongersen drug.
Not only does Celgene still possess the opportunity to bounce back with Mongersen in ulcerative colitis, but it has a chance to do so with another one of its drug. This drug in question is known as ozanimod. That's because ozanimod is being tested in both Crohn’s disease and ulcerative colitis. The two trials in question are the STEPSTONE (Crohn’s disease trial), and TOUCHSTONE (ulcerative colitis trial). What's impressive with these studies is that both have shown to have adequate efficacy in their respective phase 2 studies. The STEPSTONE study which had patients treated with ozanimod, observed that the drug demonstrated meaningful clinical data, and endoscopic improvements at week 12. The TOUCHSTONE trial which had patients treated with ozanimod, showed that there were clinically meaningful results (multiple measures) in ulcerative colitis over a 92-week period.
Second Backup Play
As can be observed, there are still many chance for Celgene to eventually obtain approval for other inflammatory bowel indications. This where another positive comes into play. Celgene is also testing its drug OTEZLA in a phase 2 study in patients with ulcerative colitis. This phase 2 study is known as ((UC-001)). What is good about this trial is that data is expected to be read out by the end of 2017. If the results are highly positive, the company can press on with a larger phase 3 study. Such a study could be initiated as early as sometime in 2018. That's what baffles me about the stock dropping so much on the Crohn’s disease data. The company still has 3 shots on goal for ulcerative colitis (it should be able to successfully achieve success in one of these late-stage studies), and one more shot on goal for Crohn’s disease. The beauty is that ozanimod is not only being developed for Crohn’s disease. It is also being looked at in patients with Relapsing Multiple Sclerosis (RMS).
The biggest risk would be the upcoming data from the phase 2 trial using OTEZLA to treat patients with ulcerative colitis. If that trial fails, that will be another failure for Celgene. Hopefully, the results will be good. That's because the company needs to achieve success with one of its clinical compounds in its pipeline. The reason being is the fact that it still heavily relies on Revlimid for most of its revenue generation. Revlimid has been approved by the FDA to treat multiple myeloma, mantle cell lymphoma, myelodysplastic syndrome. There are two issues with Revlimid. The first issue being that the drug accounted for 63% of total revenue for the second-quarter period ending June 30, 2017. It produced sales of $3.92 billion during the second-quarter. This may be good for now, but Celgene must move away from its reliance on Revlimid to stay afloat. Secondly, there is a risk of a patent cliff. Revlimid is okay for now, but in 2022 its patent will expire. That will be a problem for Celgene, should it not be able to achieve another blockbuster drug by then.
Despite the failed phase 3 trial data for patients with Crohn’s disease, Celgene still has multiple shots on goal to bring value for its shareholders. The drop in stock price was overblown in my opinion. There still remains a huge possibility that the company will recover with its other inflammatory disease trials. The good news is that at least Celgene still produces a good amount of revenue from Revlimid. As long as that can continue, it will give the company a cushion of time for it to get other products to market. That's why I believe that Celgene is still a good buy, despite the Crohn’s disease failure.
This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical investment research service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to my Service, I'm currently offering a two-week free trial period for subscribers to take advantage of. Only the first 25 subscribers will get the lower legacy rate. If you want to secure your spot, please do so as soon as possible!
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