Celgene Extends Ties with Forma Therapeutics - Analyst Blog

Celgene Corporation CELG expanded its 11 month-old partnership with the privately held Forma Therapeutics. The expanded deal gives Celgene the exclusive option to acquire Forma under certain circumstances. The news of the second deal between the two companies impacted Celgene's stock positively.

Celgene and Forma are no Strangers

Celgene had initially tied up with Forma in late Apr 2013. According to the deal, both companies agreed to co-develop and commercialize candidates that regulate the level of proteins in cells. The candidates target important therapeutic areas like oncology and neurodegenerative deficiencies.

As per the deal, Celgene agreed to make payments to Forma up to $200 million to Forma, including upfront and development milestones. Furthermore, the deal made Celgene responsible for the funding of early-stage research by Forma and partner, TGen drug development of Scottsdale, Ariz., concerning protein homeostasis.

A Larger Deal Follows 11 Months Down the Line

Celgene, apparently satisfied with the progress of the earlier deal, expanded its deal with Forma. Celgene, through this deal, wants to make use of Forma promising drug discovery engine, to develop candidates targeting much broader therapeutic areas.

The drug discovery deal will boost Forma's balance sheet significantly. Forma has already received upfront payment worth $225 million in cash from Celgene for a partnership period of 3 ½ years. Moreover, Celgene has the option to enter into up to two more collaborations (two years each) with the private company. For this, Celgene will have to shell out approximately $375 million.

Celgene will also fund the mid- and late-stage development costs of the candidates under the deal. Forma will retain the U.S. rights to drugs emanating from the deal.

In the event of the deal reaching its third and final step, Celgene will have the exclusive option to acquire Forma, including U.S. rights to all licensed programs and global rights to other wholly owned programs within the private company at that time.

Our View

We note that Celgene's top line is unlikely to be augmented immediately due to the expanded deal since the candidates are in early stage of development and quite a distance away from hitting the market, if at all. However, the new deal gives Celgene expanded access to a drug discovery engine targeting therapeutic areas holding immense promise in exchange of not a huge payment, given its strong balance sheet.

Celgene has been on the look out for deals to bolster its early stage pipeline. Late last year, the biopharma major inked a deal with OncoMed Pharmaceuticals OMED for the joint development and commercialization of up to six anti-cancer stem cell candidates from the latter's biologics pipeline.

Celgene carries a Zacks Rank #3 (Hold). Better-ranked stocks in the biopharma space include Alexion Pharmaceuticals, Inc. ALXN and Gilead Sciences Inc. GILD. Both stocks carry a Zacks Rank #1 (Strong Buy).