Celgene Corporation (NASDAQ:CELG) and Receptos Inc (NASDAQ:RCPT) announced the signing of a definitive agreement in which Celgene has agreed to acquire Receptos. Under the terms of the merger agreement, Celgene will pay$232.00 per share in cash, or a total of approximately $7.2 billion, net of cash acquired.

The acquisition of Receptos significantly enhances Celgene’s Inflammation & Immunology (I&I) portfolio, further diversifies the Company’s revenue beginning in 2019 and beyond, and builds upon Celgene’s growing expertise in inflammatory bowel disease (IBD). The transaction adds Ozanimod, a novel, potential best-in-class, oral, once-daily, selective sphingosine 1-phosphate 1 and 5 receptor modulator (S1P) to Celgene’s deep and diverse pipeline of potential disease-altering medicines and investigational compounds.

Based on clinical studies, Ozanimod demonstrated several areas of potential advantage over existing oral therapies for the treatment of ulcerative colitis (UC) and relapsing multiple sclerosis (RMS), including its cardiac, hepatotoxicity and lymphocyte recovery profile. The phase III TRUE NORTH trial in UC is currently underway with data expected in 2018. The phase III RADIANCE and SUNBEAM RMS trials are ongoing and data are expected in the first half of 2017 to support a RMS approval in 2018. Additionally, Ozanimod is positioned to potentially become the first S1P receptor modulator to be approved for IBD.

“The Receptos acquisition provides a transformational opportunity for Celgene to impact multiple therapeutic areas,” said Bob Hugin, Chairman and Chief Executive Officer of Celgene. “This acquisition enhances our I&I portfolio and allows us to leverage the investments made in our global organization to accelerate our growth in the medium and long-term.”

Celgene has a strong scientific foundation in inflammation and immunology that covers a broad spectrum of diseases. Anchored by the successful global launch of OTEZLA® (apremilast) in psoriasis and psoriatic arthritis, and new opportunities for expansion as a result of the addition of theReceptos programs, Celgene’s I&I pipeline will, upon completion of the transaction, consist of three high-potential commercialized or late-stage assets; OTEZLA, GED-0301 and Ozanimod. All three candidates are in phase III development and encompass four indications: Behçet’s disease, Crohn’s disease (CD), UC and RMS. The pipeline also includes seven molecules in phase II development in a variety of indications, including RPC4046 for eosinophilic esophagitis (EoE), and a growing number of phase I and preclinical assets. Learn more about Celgene’s I&I pipeline here.

“In Celgene, we have found the ideal partner to maximize the potential of Ozanimod and our promising pipeline in order to improve the lives of patients worldwide,” said Faheem Hasnain, President and Chief Executive Officer of Receptos.

“Ozanimod is a potentially transformational oral therapy that has demonstrated robust clinical activity with impressive immune-inflammatory modulating properties in phase II trials,” said Scott Smith, President, I&I for Celgene. “Ozanimod is a highly differentiated next-generation S1P receptor modulator with important efficacy and safety features that create the opportunity for development across a spectrum of immune-inflammatory diseases.”

Recent Receptos Clinical Data: Ulcerative Colitis

Ozanimod phase II data were presented by Receptos at the Gastroenterology Conference Digestive Disease Week (DDW) in May 2015 inWashington, D.C. The TOUCHSTONE phase II study, evaluating Ozanimod in UC, met key clinical and endoscopic endpoints for both induction and maintenance with statistical significance in patients on the 1.0 mg dose of Ozanimod in the 8-week induction and 32-week maintenance periods. The overall safety and tolerability profile of Ozanimod was consistent with the results of the phase II trial in RMS. A phase III program, TRUE NORTH, in UC has initiated enrollment and a phase II program in CD is expected to initiate by year-end.

Recent Receptos Clinical Data: Relapsing Multiple Sclerosis

At the 2015 Annual Meeting of the American Academy of Neurology (AAN) in Washington, D.C., Receptos presented results of an Ozanimod phase II study in RMS. The study demonstrated that Ozanimod achieved the primary endpoint of reduction in MRI brain lesion activity as well as secondary endpoints measuring effects on other MRI parameters. The overall safety profile of Ozanimod was consistent with the results of prior trials and continues to demonstrate differentiation against other oral agents for the treatment of RMS. Two phase III clinical trials are underway: RADIANCE and SUNBEAM, both of which are randomized, controlled, double-blind studies designed to compare 0.5 mg and 1.0 mg of Ozanimod against interferon beta-1a (Avonex®) in patients with RMS.

Terms of the Agreement

Celgene will acquire all of the outstanding shares of common stock of Receptos through a tender offer, followed by a second-step merger. In the tender offer, Celgene, through a wholly-owned subsidiary, will offer to purchase all of the outstanding shares of common stock of Receptos for$232.00 per share in cash, or an aggregate of approximately $7.2 billion, net of cash acquired. The transaction has been approved by the boards of directors of both companies and is subject to customary closing conditions, including the tender of at least a majority of outstanding shares ofReceptos common stock and expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The transaction is anticipated to close in 2015.

Celgene will acquire all remaining shares of Receptos common stock that are not tendered in the tender offer through a second-step merger, which will be completed shortly following the tender offer. Celgene expects to fund the transaction through a combination of existing cash and new debt. The resulting capital structure is consistent with Celgene’s financial strategy and investment grade profile. This acquisition maintains flexibility for additional value creating transactions and share buyback.

J.P. Morgan and Citi are acting as financial advisors to Celgene on the transaction. Centerview Partners LLC is acting as financial advisor toReceptos. Legal counsel for Celgene is Proskauer Rose LLP, and Receptos’ legal counsel is Latham & Watkins LLP.

Preliminary Second Quarter 2015 Financial Highlights for Celgene

Preliminary net product sales of $2,254 million for the second quarter of 2015 compared to $1,845 million in the second quarter of 2014, represents an increase of 22 percent. Second quarter total revenue also increased 22 percent to approximately $2,278 million compared to $1,873 million in the second quarter of 2014. For the same period, adjusted diluted EPS increased 37 percent to approximately $1.23 from $0.90. Adjusted diluted EPS for the second quarter of 2015 included a $0.06 per share gain related to the sale of an equity investment upon the completion of their acquisition by another company.

Based on U.S. GAAP (Generally Accepted Accounting Principles), preliminary second quarter 2015 diluted EPS was approximately $0.43 per diluted share. For the second quarter of 2014, diluted EPS was $0.72 per diluted share. Second quarter 2015 GAAP EPS included increased expenses for upfront collaboration payments.

2015 Guidance for Celgene

  • Reaffirming total net product sales to a range of $9 billion to $9.5 billion
  • Raising adjusted diluted EPS to a range of $4.75 to $4.85 from the previous range of $4.60 to $4.75, an increase of approximately 29 percent over 2014 adjusted diluted EPS
  • GAAP diluted EPS is expected to be in the range of $2.43 to $2.71 from the previous range of $2.97 to $3.19

2020 Long-term Financial Targets for Celgene

  • Increasing 2020 net product sales to exceed$21 billion, up from the previous target of greater than$20 billion
    • Hematology franchise expected to exceed $14.8 billion
    • Oncology franchise expected to exceed $2.2 billion
    • I&I franchise now expected to exceed $4.0 billion, up from the previous target of $3.0 billion
  • Adjusted diluted EPS is expected to exceed $13.00, up from the previous target of $12.50
  • Fully diluted share count is expected to be approximately 830 million (Original Source)

In response to the news, shares of Celgene are up 6.82% to $129.14 in after-market trading. CELG has a 1-year high of $129.06 and a 1-year low of $82.90. The stock’s 50-day moving average is $115.40 and its 200-day moving average is $116.86.

On the ratings front, Celgenehas been the subject of a number of recent research reports. In a report issued on June 30, RBC analyst Michael Yee maintained a Buy rating on CELG, with a price target of $135, which implies an upside of 9.9% from current levels. Separately, on the same day, Deutsche Bank’s Robyn Karnauskas maintained a Buy rating on the stock and has a price target of $160.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Michael Yee and Robyn Karnauskas have a total average return of 13.1% and 17.8% respectively. Yee has a success rate of 72.2% and is ranked #199 out of 3702 analysts, while Karnauskas has a success rate of 81.1% and is ranked #40.

The street is mostly Bullish on CELG stock. Out of 8 analysts who cover the stock, 6 suggest a Buy rating and 2 recommend to Hold the stock. The 12-month average price target assigned to the stock is $146.00, which implies an upside of 18.8% from current levels.

Celgene Corp is a biopharmaceutical company. It is engaged in the discovery, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases.