Biotech giant Celgene is abandoning a drug it bought for $710 million - and the stock is dropping

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Biotech giant Celgene is abandoning a drug it bought for $710 million  - and the stock is dropping

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AP/Mike Derer

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  • Celgene, a major biotech company, said on Thursday that it planned to stop developing a critical drug.
  • The drug, mongersen, was being tested to treat Crohn's disease, and may still be used to treat ulcerative colitis.
  • Celgene had paid $710 million to acquire the drug, which was anticipated to make $1 billion in sales by 2023.

(Reuters) - Celgene said it would abandon testing a drug to treat Crohn's disease, in a major setback to the U.S. biotechnology company's pipeline amid attempts to lower dependence on its mainstay Revilimid.

The company's shares fell 6.4% in extended trading on Thursday. On Friday, it was down by as much as 10%.

Celgene said it would stop two trials of the drug, mongersen, and would not initiate a third study following a risk-benefit analysis by a data monitoring committee.

Morgan Stanley analysts said the decision was likely based on lack of efficacy, given that management did not identify any safety imbalances.

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The drug was being tested in late-stage and extension studies as a treatment for Crohn's, an autoimmune disease that impacts the lining of the digestive system and can cause abdominal pain, diarrhea and rectal bleeding.

Investors thought the drug was a significant potential upside driver despite being one of the more risky assets in Celgene's pipeline, Morgan Stanley analysts said.

Mongersen, which Celgene acquired for $710 million, is forecast to rake in sales of more than $1 billion by 2023, according to Thomson Reuters I/B/E/S.

Celgene is waiting to review full data from a mid-stage study testing mongersen as an ulcerative colitis treatment to determine next steps.

The company said it expects pre-tax charge in the range of $300 million to $500 million, or 27 cents to 45 cents per share after tax, from the discontinuation.

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Celegene's flagship multiple myleoma treatment, Revlimid, brought in sales of $3.92 billion and accounted for about 63 percent of total revenue in the second quarter ended June 30.

Inflammatory bowel diseases, which include Crohn's, affect about 1.6 million Americans, according to Crohn's & Colitis Foundation.

Celgene is also testing ozanimod as a treatment for inflammatory bowel disease.

"We expect recent increased nervousness on Celgene stock to prevail given various sell-side and bearish commentary has picked up," Jefferies analyst Michael Yee wrote in a note.

Even so, analysts at Credit Suisse saw the setback as "manageable."

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"We believe the company has a very broad pipeline which makes setbacks like this one manageable in the long-term," the analysts said in a note.

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Reuters reporting by Tamara Mathias in Bengaluru.