Bloomberg reported that Celgene Corp. is going to buy Impact Biomedicines by paying $1.1 billion upfront. Celgene is aiming to get Impact’s experimental blood cancer treatment.
According to the deal between the two companies, Celgene will pay an additional $1.25 billion to the upfront amount if the drug fedratinib reaches the required approval milestone. Fedratinib is Impact’s experimental drug which has been developed to treat myelofibrosis, which is a type of cancer of the bone marrow. Additionally, Celgene will pay another $150 million for other positive indications. If global annual sales grow above the $5 billion point, then Celgene will make additional payments to the tune of $4.5 billion. If this treatment passes the required milestones, then Celgene could pay a total of as much as $7 billion for the deal.
If all goes according to plan, and fedratinib successfully cross the mentioned milestones, then this will be Celgene’s biggest and most expensive acquisition to date.
Celgene is under a lot of pressure to find a new star in its drug line up. Currently, Revlimid is the company’s top drug. It is a cancer treatment drug. The challenge is that copycat drugs will soon eat into Revlimid’s market share, thus impacting Celgene’s revenues.
Celgene also stumbled badly in October, when a hugely anticipated drug for Crohn’s Disease being developed by the company failed its late-stage trial. The company’s stock prices dropped by 25% within a 5-day span after the new broke. Due to this debacle, the drug maker was forced to reduce its 2020 profit targets.
Celgene’s share prices have not risen since October’s plunge and are currently trading at 28% below the peak that it reached in October. The drug manufacturer currently has market capitalization of $83 billion.
Celgene’s Chief Executive Officer, Mark Alles promised the company’s investors that they would even look outside Celgene labs for new drugs to push up the company’s pipeline.
According to Forbes, this deal is not exciting enough to convince investors that Celgene is going to be successful at finding a new drug to up its revenues.
RBC analyst, Brian Abraham, made a play with words but summed up the situation neatly. He stated in a note to clients that while the deal was strategically sound, it didn’t make much of an ‘Impact’.
This deal’s impact on the pharmaceutical industry is both positive as well as negative. The positive is that clearly those who create drugs are getting more power as compared to earlier when those who raised money for new drugs were in the driver’s seat. The downside to the changes in the pharma industry is that thanks to technological innovation, it is now much easier to copy and create cheaper me-too drugs. This means that there are now a lot of options available for buyers, which makes it really difficult for the big players like Celgene, Johnson & Johnson and Bristol-Myers Squib to stay on top over a period of time.
The question now arises as to why investors aren’t too impressed with Celgene’s new deal. The reason is this. Celgene’s top drug Revlimid’s patent is due to expire soon. As soon as that happens, copy-cat drugs will flood the market. Currently, Revlimid is slated to account for about $8.1 billion of the company’s $13 billion revenue for 2017. While, Celgene announced a 12% increase in its top line for 2018, that increase will not be nearly enough to cover the losses from revenues once Revlimid starts to slide. And since the deal is for a category that already has a very effective and popular drug, investors are worried.