Celgene Plunks Down $177M Upfront for OncoMed’s Stem Cell Drugs

Xconomy San Francisco — 

OncoMed Pharmaceuticals (NASDAQ: OMED) may be a long ways away from actually winning FDA approval of a product, but it just got a big vote of confidence from Celgene that it’s on the right track with its cancer stem cell work.

Celgene (NASDAQ: CELG), the big cancer drugmaker from Summit, NJ, has struck a big partnership deal today with Redwood City, CA-based OncoMed. The two will work together to develop and commercialize up to six anti-cancer stem cell antibodies, and certain small-molecule stem cell drugs, from OncoMed’s pipeline. OncoMed will run the initial clinical studies on the experimental drugs, at which point Celgene will decide whether to exercise options to buy rights to them. OncoMed will be able to keep a 50/50 split of the U.S. profits to five of the six antibody drugs in the deal, with Celgene getting the option to grab full worldwide rights to one of the antibodies (OncoMed hasn’t disclosed which one) and international rights to the rest.

OncoMed will get royalty streams tied to all the drugs in the deal. Celgene will also take on two-thirds of the development costs.

It’s a big money deal for OncoMed, if things break right: Celgene is paying $155 million up front in cash and buying $22.25 million in OncoMed stock at $15.13 per share through a private placement to kickstart the deal. But it’s tied another $3.15 billion in milestone payments to the deal that OncoMed would receive if all of the drugs make it through clinical trials, and hit certain regulatory and commercial goals. OncoMed could get up to $790 million if demcizumab—a cancer stem cell antibody currently in early-stage clinical trials—pans out. OncoMed also stands in line to collect as much as $440 million per program on four different biologics programs in development.. Another $100 million could go to OncoMed if it hits certain development and regulatory goals with its small-molecule program.

“It’s a truly transformative event for Oncomed,” said OncoMed CEO Paul Hastings, on a conference call with analysts on Tuesday morning.

OncoMed’s shares soared more than 65 percent in pre-market trading to $23.80 following the announcement. The company went public in July at $17 a share.

The Celgene deal is the third big partnership for OncoMed, which also has alliances in place with Bayer and GlaxoSmithKline. Hastings noted that the company now has about $322 million in cash on hand. That gives OncoMed the financial flexibility to advance the drugs in its pipeline without raising more financing from outside sources—which shareholders don’t like because it dilutes their stakes. This is, of course, assuming that these drugs are successful in clinical trials, which is no guarantee.

OncoMed is one of several companies such as New York-based Stemline Therapeutics (NASDAQ: STML) and Cambridge, MA-based Verastem (NASDAQ: VSTM) developing drugs that target cancer stem cells—sometimes called tumor-initiating cells—which scientists think resist conventional treatment, and allow cancers to regroup after it appears that, say, chemotherapy has wiped out most of a tumor. OncoMed has been developing targeted antibodies to combat these cancer stem cells. Demcizumab is one of the antibodies coming from that work.

This is the kind of broad, early-stage deal, meanwhile, that Celgene has become known for putting together. Over the past few years, it’s struck big money partnerships with the likes of Agios Pharmaceuticals, Epizyme, Bluebird Bio, and recently Acetylon Pharmaceuticals, among others. It’s all part of an early-stage dealmaking strategy to put big dollars into potentially groundbreaking treatments, and in this case, complement the cancer drugs it already has on the market.

“Demcizumab’s substantial early clinical activity warrants aggressive yet careful evaluation in several indications where we have strength, including non-small cell lung cancer and pancreatic cancer,” said Tom Daniel, Celgene’s president of global research and early development, in a statement.