Celgene Corporation (CELG) inked a deal with OncoMed Pharmaceuticals, Inc. (OMED) for jointly developing and subsequently commercializing up to six candidates of the latter’s anti-cancer stem cell pipeline. The news of partnership with a large biopharma company like Celgene had a positive impact on OncoMed’s shares, which jumped approximately 98%.
Deal will Boost OncoMed’s Balance Sheet
The oncology deal involves an upfront payment of $155 million from the biopharma major to OncoMed. Moreover, the deal will see Celgene making an investment of $22.25 million in OncoMed's common stock at $15.13 per share. Moreover, OncoMed is eligible to receive significant milestone, option and other payments as a result of the deal. This will boost OncoMed’s balance sheet substantially.
As per the deal, OncoMed will be responsible for the early clinical studies on the candidates following which Celgene will have the option to license global rights to them. OncoMed retains co-development rights across the globe in addition to the co-commercialization rights in the U.S. for five of the six pipeline candidates apart from equal profit sharing rights in the U.S. OncoMed will receive royalties in other markets.
Celgene has obtained an exclusive option on OncoMed’s oncology candidate demcizumab (during or after the planned phase II studies). The candidate is undergoing phase II studies for multiple cancer indications including pancreatic cancer. Following the exercise of the option, Celgene and OncoMed will co-develop the candidate sharing the costs 67% and 33% respectively. Subsequently, the companies will equally share the profits from demcizumab’s sales in the U.S. OncoMed is eligible to receive milestone payments and royalties from Celgene on ex-U.S. sales. OncoMed can receive option and milestone payments up to $790 million pertaining to demcizumab.
Apart from demcizumab, the deal involves up to five pre-clinical candidates. OncoMed is eligible to receive option and milestone payments up to $505 million pertaining to an antibody candidate and similar payments up to $440 million for four other oncology candidates under the deal.
Deal will not Boost Celgene’s Top line immediately
Celgene has a strong oncology portfolio and an impressive cancer pipeline. Though the deal is in line with Celgene’s efforts to strengthen its oncology presence, we note that the company’s top line is unlikely to be augmented immediately since the candidates are in early stage of development and quite a distance away from hitting the market, if at all.
Celgene currently carries a Zacks Rank #3 (Hold). OncoMed carries a Zacks Rank #4 (Sell). Some better-ranked stocks include Actelion Ltd. (ALIOF) and Vanda Pharmaceuticals Inc. (VNDA). While Actelion carries a Zacks Rank #1 (Strong Buy), Vanda holds a Zacks Rank #2 (Buy).