Celgene to Acquire San Diego’s Receptos for $7.2B in Cash

Xconomy San Diego — 

[Updated 7/14/15 5:15 pm. See below.] Drug maker Celgene (NASDAQ: CELG), based in Summit, NJ, has agreed to acquire San Diego-based Receptos (NASDAQ: RCPT) in a cash deal valued at $7.2 billion, the two companies announced today.

Receptos, founded in 2009 and headed by CEO Faheem Hasnain since 2010, has been developing drugs that target the spaghetti-like structures on the surface of cells known as G-protein coupled receptors. The deal is expected to enhance Celgene’s portfolio in inflammation and immunology drugs, which has one approved product, apremilast (Otezla) for psoriasis and psoriatic arthritis.

[Updated with comments from conference call] Shares of Receptos climbed to $228.20 in after-market trading, gaining slightly more than $21 a share or 10 percent. Celgene is paying a 41 percent premium over Receptos’s closing price on March 31, when reports of takeover interest in the San Diego biotech first surfaced on Bloomberg.

In a late-afternoon conference call with investors and analysts, Celgene’s top executives focused in particular on the potential value of Receptos’s leading drug candidate, ozanimod, which has begun late-stage trials for treating both ulcerative colitis and relapsing multiple sclerosis.

Although MS trial data is not expected until 2017 (and not until 2018 for ulcerative colitis data), Celgene chairman and CEO Bob Hugin said ozanimod is a potential multi-billion dollar drug, with projected peak sales of $4 billion to $6 billion. Hugin and other Celgene executives said ozanimod is significantly differentiated from existing drugs for MS and inflammatory bowel disorders, and so far appears to be safe and highly selective.

As a result, Celgene raised its financial targets, saying total net product sales by 2020 should exceed $21 billion, up from the previous target of $20 billion. Celgene also raised its projected earnings per share for 2020 from $12.50 to more than $13.

News of the deal comes just weeks after Celgene reached a billion-dollar partnership with Seattle’s Juno Therapeutics (and its technology for engineering T cells to fight cancer) and announced plans to buy back as much as $4 billion worth of Celgene shares. In April, Celgene agreed to pay AstraZeneca $450 million for rights to MEDI4736, a so-called checkpoint inhibitor drug targeting certain blood cancers.

If that sounds aggressive, Celgene isn’t backing off.

“We have been extremely fortunate to have the ability to act on opportunities for sustained and enhanced long-term growth,” Hugin told analysts during the call. He later said, “We look to build Celgene where we can create value,” Hugin added, saying at another point, “The price we paid is very fair value.”

CFO Peter Kellogg noted that the Juno and AstraZeneca deals were both done with “offshore cash,” referring to cash generated from overseas sales (not subject to U.S. tax) and are held in overseas accounts.

Celgene plans to close the Receptos deal by the end of September, using a combination of cash and debt.

Hugin and Kellogg also noted that Celgene’s financial performance during the first half of 2015 was outstanding across the board, with strong improvements in revenue, margins, and operational excellence.

Celgene is scheduled to report its second-quarter financial results on July 23, but today disclosed preliminary net product sales of $2.25 billion for the quarter. Analysts had projected an average of $2.24 billion, according to Bloomberg News. Preliminary earnings for the quarter increased to $1.23 a share (from 90 cents); well beyond analysts’ estimated $1.13 per share average.