By Jon C. Ogg
3 hours ago
OncoMed Pharmaceuticals Inc. (OMED)
just went from being an obscure biotech to one on the map with more
security than it had. The company can thank Celgene Corp. (CELG)
for this development. The news is that Celgene will jointly develop and
commercialize up to six potential anti-cancer stem cell treatments out
of OncoMed's drug candidate pipeline. OncoMed just secured more capital
and safety, and Celgene may have just bought up rights to a drug
pipeline on the cheap.
Celgene will give OncoMed $177.25 million upfront,
which includes a $22.25 million equity investment in OncoMed. The six
candidates include OncoMed's Demcizumab and up to five additional
pre-clinical biologics programs.
may have just taken place is that Celgene just bought a new anti-cancer
stem cell pipeline on the cheap. This may still be a great deal for
OncoMed, but there is a lot of money at stake down the road.
when you see a gain of 80% it is due to a buyout. That is not the case
here. OncoMed shares were up 81% at $25.50 on last look, against a
52-week range of $12.07 to $31.00. OncoMed is also only worth $710
million, and that is after the massive pop. Again, it seems as though
Celgene did a great service here. For $155 million it secured rights to a
drug pipeline. It also gets stock for $22 million or so that almost
doubled in value.
Celgene is worth some $66 billion in market cap.
Revenue is expected to grow almost 17% to $6.4 billion in 2013 and
another 15% or so up to $7.4 billion in 2014. The company has almost
$5.85 billion in cash and short-term investments and more than $4.2
billion in long-term debt.
This investment may have just saved
Celgene from spending $700 million or so upfront on unproven drug
candidates. It may turn out that Celgene ends up having to pay more down
the road, depending on the successes and failures and on how much
revenue it gives up as a result of the partnership. Still, this
preserves cash now and allows it to only have to really give up cash if
the drugs become successes.
is surprising is that the market reaction to Celgene has been muted.
Perhaps the needle is just becoming too big to easily move a $66 billion
market value. Celgene shares were down 0.8% at $161.75 on last look,
versus a 52-week range of $77.22 to $165.74. Another possibility is that
the move has already been huge in Celgene's stock. Celgene's consensus
price target from analysts is $172.20.
As a reminder, most cancer
drugs that become successful are blockbuster drugs, as long as they are
for common cancers. Even if Celgene sacrifices revenue ahead by the
licensing deals, it did not burn through its cash on a pipeline full of
new pre-clinical, Phase I and Phase II studies.