Next Up for Celgene's Crohn's Pill: A Snapshot Inside Patients' Colons (Updated)

Note: This story was first published on July 14. It's been updated and republished with additional information about investor expectations for the GED-0301 study results, which Celgene is likely to announce in early September.

Celgene (CELG) will use a medical meeting this fall to address a lingering investor concern about GED-0301, an experimental pill for Crohn's disease and one of the most important drugs in the company's research pipeline.

GED-0301 is one of three drugs -- Otezla and ozanimod are the others -- which form the core of Celgene's burgeoning immunology and inflammation franchise. Today, Celgene's blood cancer drugs, mainly the multiple myeloma drug Revlimid, account for a majority of the company's revenue and profit. But in the next four to five years, Celgene is counting on "I&I" drugs like GED-0301 to diversify and extend the company's prodigious growth projections.

At the medical meeting, (Celgene isn't being any more specific about which meeting) results will be presented from a small phase II study in which doctors use an endoscope to peer into the gastrointestinal tract of Crohn's patients treated with GED-0301.

The "endoscopy data" assess the ability of GED-0301 to reduce the size and severity of ulcers in the colon and bowel. These ulcers -- a hallmark of Crohn's disease -- occur when a patient's own immune system mistakes the gastrointestinal tract as a foreign body needing to be eliminated.

Investors were first excited about the blockbuster potential of GED-0301 in March 2015, when a mid-stage study of GED-0301 demonstrated high rates of clinical remission in Crohn's patients. Data from this study were called "unprecedented" by a physician in an editorial published in the New England Journal of Medicine. However, the physician also raised a concern that enrolled patients may have had more moderate Crohn's disease, making it easier for GED-0301 to show an outsized treatment effect.

In that study, Celgene defined remission as a durable reduction in the signs and symptoms of the disease, measured by the Crohn's Disease Activity Index (CDAI). The study did not require patients to undergo bowel examination with an endoscope.

Given the concerns raised about the prior phase II study, investors would like more direct evidence that GED-0301 can heal the guts of Crohn's patients. This is why the current endoscopy study is important.

As a pill, GED-0301 could become a preferred Crohn's therapy over the currently approved injectable drugs like AbbVie's Humira or Johnson & Johnson's Remicade, which together generate approximately $3 billion to $5 billion in sales worldwide in Crohn's.

Analysts' estimates for peak sales of GED-0301 in Crohn's range from $2 billion to $3 billion, depending on the drug's ultimate benefit-risk profile.

RBC analyst Michael Yee said he believes investor concerns will be assuaged if GED-0301 can produce an endoscopic remission in approximately 20% of treated patients. A result in that ballpark would put the Celgene pill on par with the injectable drugs from AbbVie and J&J. Given the high clinical remission rate, GED-0301 might help as many 30% to 40% of patients move into endoscopic remission, according to Yee in a recent research note.

Celgene could issue a press release in August or September with top-line results from the GED-0301 endoscopy data, followed up with a more detailed presentation at a medical meeting in October sponsored by United European Gastroenterology, Yee believes.

"We've communicated that data would be shared later this year at a medical meeting," said Celgene spokesman Brian Gill, in response to an email asking for more details about when and where the GED-0301 endoscopy data will be disclosed.

Celgene has already moved GED-0301 into phase III study of Crohn's patients, with results expected in the first half of 2017. The drug is also being studied in ulcerative colitis, another inflammatory bowel disease.

Ozanimod, acquired by Celgene through the $7 billion Receptos takeover in 2015, is in phase III studies of multiple sclerosis and ulcerative colitis. The company forecasts Otezla sales, mainly in psoriasis, to reach $1 billion this year.

GED-0301 is an antisense drug which prevents a gene from producing a protein known as Smad7 believed to play a role in inflammation and the runaway autoimmune response seen in Crohn's patients.

Celgene purchased the drug in April 2014 from a small Irish drugmaker, paying $710 million upfront. Including future milestones and sales payouts, Celgene committed $2.6 billion to acquire rights to GED-0301.

Update: 

The primary efficacy endpoint in the phase II "endoscopy" study of GED-0301 is reduction from baseline in the SES-CD score, a measure of healing observed in the lining of the bowel. All of the Crohn's patients enrolled in the study are treated with GED-0301, so without a placebo comparator, Celgene has told investors that its "success" threshold is a median 25% reduction from baseline in the SES-CD score for the entire group of enrolled patients. 

A recent survey conducted by Bloomberg Insight found 50% of investors expect GED-0301 to demonstrate a 21-30% improvement in the SES-CD score. Another 28% of investors surveyed said they expected to see a zero to 20% improvement in the SES-CD score.

A recent Jefferies survey of doctors specializing in treating Crohn's patients defined sufficient activity from GED-0301 as a "meaningful" number of patients showing a 50% improvement from baseline in the SES-CD score. Jefferies also noted that their own discussions with investors suggested relatively low expectations for the GED-0301 study results. "Though risk remains, we believe this implies reasonable expectations built into shares, and -- especially given our positive view of CELG's overall growth prospects and the likelihood many are on the sidelines ahead of the data -- we believe creates a favorable upside/downside into/through the '0301 readout," Jefferies analyst Brian Abrahams wrote. 

RBC's Yee walked back his expectations for the GED-0301 data in a research note published in late August. Yee:

The key is (1) expectations are not super high (investors are nervous into data and not sure what to expect and skeptical because prior small Phase II all done in Italy w/ no endoscopy, company speaks positively but hasn't over-hyped any confidence on the Q2 call, etc), so if it's solid data like a 15%+ SES-CD "remission" rate like TNF's that is great (per our doc call) and stock could go up +5-10% in our opinion, and if it's lower like 10%, then it's still active and an oral option not necessarily as potent as TNF's but that's still a good drug, (2) remember Otezla was seen as "weak" for psoriasis and investors were skeptical yet that has gone on to be a $1B drug already and projected to $2B.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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