Oncomed Gets Its Groove Back with Big Celgene Deal

December 04, 2013 OncoMed gets its groove back with big Celgene deal

Jonathan Gardner

Until its $177m partnership with Celgene, announced yesterday, OncoMed Pharmaceuticals was not benefiting from a float on the public markets in the midst of a biotech bubble. Shares had sunk below the price paid by the favoured investors who bought at the IPO value of $17.

Fortunately, signing a multi-agent deal re-energised shares in the California-based group; they nearly doubled to $27.70. Buoyant executives told analysts the lavishness of the deal should provide sufficient funding to support development of the entire pipeline: “We may not have to raise cash again, ever,” chief executive Paul Hastings said on a conference call.

A different target

Celgene snared options to up to six candidates being developed by OncoMed that target pathways used by cancer stem cells, also known as tumour-initiating cells. As with non-malignant stem cells, these have the ability to self-renew and differentiate, and are believed to play a role in growth, recurrence, metastasis and resistance. They were first discovered in leukaemia, and are now known to exist in solid tumours too.

OncoMed’s lead candidate is demcizumab, currently in a phase I/II trial in combination with paclitaxel in platinum-resistant ovarian cancer. The group is also shooting for the moon, with phase I trials under way with standard of care chemotherapies in advanced pancreatic cancer and non-small cell lung cancer. The antibody blocks the anti-delta-like 4 (DLL4) ligand, which is important to the notch signalling pathway involved in cell proliferation.

The deal brings in $155m in cash up front and an additional $22.3m equity investment, with Celgene now a 5% shareholder after buying close to 1.5 million shares at $15.13. For four of the six programmes, OncoMed will pay for all development costs through execution of options, after which Celgene will pay for two thirds of development costs.

OncoMed can opt in to fifty-fifty co-commercialisation and profit-sharing rights in the US. Two other programmes, an undisclosed biological and an undisclosed small-molecule target, are subject to global licensing agreements.

With the deal, Mr Hastings said OncoMed now had pro-forma cash of $322m, and milestone payments could begin flowing in as soon as next year. “This will allow us to underwrite our phase II programme, expand the phase I programme for additional indications and increase our shots on goal,” he told analysts in a conference call.

Shares continued to rise today, standing at $31.15, a 12% rise, in mid-morning trading.

Seasoned player

OncoMed was not exactly in need of big pharma validation of its approach, as it had already signed preclinical deals with both Bayer and GlaxoSmithKline (Bayer takes early stage gamble on OncoMed’s cancer stem cell treatment, June 17, 2010). However, the size of the Celgene collaboration is the clearest sign that there could be greater interest in this space.

But the share performance since the market flotation is more curious: the stock sank to less than $20 about six weeks after the IPO and spent all of November below $15. Planning to undertake 11 clinical trials by the end of 2013, when $128m in cash was available at September 30, could have made some investors nervous about the group’s ability to execute such a broad strategy. The influx of cash from Celgene should put any such fears to rest.

Meanwhile, Celgene has a number of reliable money-makers on the market in oncology in Revlimid and Abraxane, and has just launched Pomalyst, but aside from potential launch of the psoriatic arthritis drug Apremilast it has few pipeline catalysts approaching. Putting its cash to good use probably precludes most acquisitions at current valuations – a broad deal in an innovative space like cancer stem cells is a sensible alternative.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @JonEPVantage on Twitter