Celgene, sold for $74 billion, leaves a legacy of chutzpah in science and drug pricing

Nina Kjellson was just two years out of college, working as a research associate at Oracle Partners, a hedge fund in New York, when a cabbie gave her a stock tip. There was a company in New Jersey, he told her, trying to resurrect thalidomide, a drug that was infamous for causing severe birth defects, as a treatment for cancer.

Kjellson was born in Finland, where the memory of thalidomide, which was given to mothers to treat morning sickness but led to babies born without arms or legs, was particularly raw because the drug hit Northern Europe hard. But she was on the hunt for new cancer drugs, and her interest was piqued. She ended up investing a small amount of her own money in Celgene. That was 1999.

Since then, Celgene shares have risen more than 100-fold; the company became one of the largest biotechnology firms in the world. Earlier this month, rival Bristol-Myers Squibb announced plans to purchase Celgene for $74 billion in cash and stock.

Reflecting on a company she watched for two decades, Kjellson, now a venture capitalist at Canaan Partners in San Francisco, marveled at the “grit and chutzpah” that it took to push thalidomide back onto the market. “The company started taking off,” she remembered, “but not without an incredible reversal.” Celgene faced resistance from some thalidomide victims, and the Food and Drug Administration was lobbied not to revive the drug. In the end, she said, it built a golden egg and became a favorite partner of smaller biotech companies like the ones she funds. And it populated the rest of the pharmaceutical industry with its alumni. “If I had a nickel for every company that says we want to do Celgene-like deals,” she said, “I’d have better returns than from my venture career.”

But there’s another side to Celgene. When the company launched thalidomide as a treatment for leprosy in 1998, it cost $6 a pill. As it became clear that it was also an effective cancer drug, Celgene slowly raised the price, quadrupling it by the time it received approval for an improved molecule, Revlimid. Then, it slowly increased the price of Revlimid by a total of 145 percent, according to Sector & Sovereign LLC, a pharmaceutical consultancy.

Revlimid now costs $693 a pill. In 2017, Revlimid and another thalidomide-derived cancer drug represented 76 percent of Celgene’s $12.9 billion in annual sales. Kjellson gives the company credit for guts in science, for taking a terrible drug and resurrecting it. But it also had chutzpah when it came to what it charged.

Now Celgene is about to vanish inside Bristol. And that legacy of grit and luck also makes it the exemplar of the last decade of pharmaceutical industry history. Want to know why an industry that views itself as lifesaving and heroic is viewed by much of the public as price gouging and venal? Look here.

Hidden potential

Celgene was spun out of the chemical company Celanese in 1986. Its original business plan was to look for microbes that ate toxic waste. But the company’s fate changed in 1991, when a Celgene chemist named Sol Barer heard about thalidomide from a scientist at Rockefeller University.

Thalidomide wasn’t just a toxic drug. It was the very basis of modern drug regulation. Frances Oldham Kelsey, a reviewer at the FDA in the 1960s, refused to approve the medicine at the same time it wreaked havoc in Europe. Now the FDA gives an award in her name. But Barer believed thalidomide could have potential in many other diseases.

Celgene licensed Rockefeller’s thalidomide intellectual property in 1992. At first it planned to seek approval to use the drug to treat wasting effects such as weight loss in AIDS patients. Instead, Celgene would get approval for leprosy, which the drug was used to treat in the developing world. It would be prohibited from marketing the medicine for other uses, such as HIV. But doctors would be free to prescribe it for whatever they wanted under U.S. law.

The FDA’s main concern was that Celgene develop safeguards, including multiple pregnancy tests, to make sure no one became pregnant while taking the drug.

What changed Celgene’s fortunes was the discovery that thalidomide could be effective in cancer. This possibility became urgent because of an enterprising lawyer, Beth Wolmer, whose husband, Ira, had been diagnosed with multiple myeloma.

In an interview, Wolmer recalled how little she had known about medicine at the time. She remembers reading medical journals by his bedside — Ira was a cardiologist — asking him the meaning of “every third word.”

Still, she found herself talking with researchers, seeking a treatment that might work for him. She said trying thalidomide in myeloma was her idea, based on those discussions.

Celgene made the drug available, and the FDA allowed Ira to try it. Although it did not work for him and he died from his disease, his doctor, myeloma expert Bart Barlogie, tried the drug in more patients.

In 1999, Barlogie published results of a study of thalidomide in 84 patients in the New England Journal of Medicine. Two saw their disease vanish, at least temporarily. For 34 percent of patients, levels of a protein indicating the presence of myeloma in their blood decreased. The article thanked Beth Wolmer “for her persistence in recommending the clinical evaluation of thalidomide in the treatment of multiple myeloma.”

Celgene funded more studies combining thalidomide with a treatment for myeloma, and it became the standard of care for the blood cancer.

At first, Beth Wolmer had a warm relationship with the company. Since remarried and now known as Beth Jacobson, she said she at one point expected a board seat. But the relationship soured, and she later filed suit against the company, seeking financial compensation. The case was dismissed.

But Jacobson watched as the company accrued riches through price hikes.

“I think to have that kind of price tag, it’s almost criminal,” she says. “It’s not like they spent 20 years developing it. I don’t know. Maybe Ira and I were the innovators.”

A pioneer in ‘modern pricing’

How did the price of thalidomide, and then Revlimid, increase so much? Celgene explained it in a 2004 front-page story in the Wall Street Journal. “When we launched it, it was going to be an AIDS-wasting drug,” Celgene’s chief executive at the time, John Jackson, said. “We couldn’t charge more or there would have been demonstrations outside the company.” But once Celgene realized that the drug was a cancer treatment, the company decided to slowly bring thalidomide’s price more in line with other cancer medicines, such as Velcade, a rival medicine now sold by the Japanese drug giant Takeda. In 2003, it cost more than twice as much as thalidomide. “By bringing [the price] up every year, it was heading toward where it should be as a cancer drug,” Jackson told the Journal.

Thalidomide was not actually approved as a myeloma treatment until 2006. That same year, Revlimid, which causes less sleepiness and nerve pain than thalidomide, was approved, and Barer, the chemist behind Celgene’s thalidomide strategy, took over as chief executive. He made good on thalidomide’s promise, churning out one blockbuster after another. In 2017 Revlimid generated $8.2 billion. Another cancer drug derived from thalidomide, Pomalyst, generated $1.6 billion. Otezla, a very different drug also based on thalidomide’s chemistry, treats psoriasis and psoriatic arthritis. Its 2017 sales: $1.3 billion.

With persistent price increases, quarter after quarter, Celgene pioneered something else: what Wall Street calls “modern pricing.” Cancer drug prices have risen inexorably. In 2006, Genentech felt the need to cap a lung cancer drug’s annual cost at $55,000 a year. By 2009, cancer drugs approached the $100,000-a-year mark. Now, breakthrough immunotherapies touted on TV cost $150,000 per patient per year.

Celgene, like other drug companies, makes efforts, including donations to charities, to make sure patients can get the medicine they need. The company also points out that it plows a lot of money back into research and development. During Revlimid’s lifetime, R&D expenditures have increased at 36% a year, five times the annualized rate of Revlimid price increases, Celgene says.

Celgene also found new ways to defend its patents. One way involved what’s known as a Risk Evaluation and Mitigation Strategy, or REMS. This involved tightly controlling a drug’s supply, which meant companies could prevent generic manufacturers from getting samples they needed to make copies.

Critics have accused Celgene of being overly aggressive in its use of the system. Last year, the FDA said 31 generic drug manufacturers have complained about restricted access to Celgene drugs, more than any other branded drug company.  Based on this, Mark E. Miller, the vice president of health care at the Laura and John Arnold Foundation, calls Celgene was “a poster child for REMS abuse.” Celgene counters that it supports regulation that would aim to fix issues with REMS, and that it has and will sell its products to generic manufacturers.

But Revlimid’s runaway success was a problem for Celgene, too, because it came to rely so heavily on it financially. Eventually, no matter what tactics the company uses, its patents will expire.

From the start, the goal was to use the revenue from its blockbusters to build a large pharmaceutical company. Celgene’s multibillion-dollar acquisitions brought drugs like Abraxane (sales: $992 million) and Vidaza ($628 million), but none would replace Revlimid.

In the absence of a successor, Celgene began inking partnerships with biotech players like Agios and Bluebird Bio; it became the biotechnology industry’s biggest partner.

An analysis by Evaluate Pharma showed Celgene spent $3.5 billion in cash payments to smaller biotechs to cement partnership deals, 50 percent more than the next biggest spender.  

Bruce Booth, a partner at Atlas Venture, said that Celgene was among the “most dynamic” companies with whom to do business. “They transformed the deal landscape with their creativity and willingness to find win-win collaborations that empowered biotechs rather than constrained them,” he said.

Wall Street loved this strategy, until it didn’t. In 2018, shares fell 39 percent before the Bristol deal materialized. Investors were upset by missteps, including an embarrassing refusal by the FDA to even consider the application for an MS drug, and a failure to settle with generic drug firm Dr. Reddy’s around patents related to Revlimid.

Around the same time, Celgene’s former chairman and chief executive, Bob Hugin, made an ill-fated run for Senate in New Jersey. Hugin ran on a platform of cleaning up politics. When it came to his career in the private sector, he spoke with pride of having played a role at a company behind lifesaving drugs.

But, in what was perhaps a metaphor for Celgene’s shifting fortunes, it was hard to get anyone to see that side of the story.

A buyout was “inevitable,” said Geoffrey Porges, an analyst at Leerink.

He said that for all its biotech buzz, Celgene harkened back to the high-flying drug stocks of the 1980s — companies like Syntex Pharma, which brought to market the painkiller naproxen, now sold over-the-counter as Aleve, and Upjohn, the maker of Xanax. These companies had only a few big products, and as their patent expirations approached, they did flurries of business development deals. Then, Porges said, a large firm would buy them, under the theory that the existing product could pay off the debt from the deal and that this pipeline would pay off in the future. That’s exactly the logic of the Bristol deal.

Porges, who was bullish on the stock, said he won’t miss Celgene. He contrasted it with biotech standard-bearer Genentech, which he believes was “the antithesis” of Celgene. “It was committed to science,” he said. “It was committed to innovation. Genentech was the company biotech should have kept. Celgene is the company biotech is happy to lose.”

That may sound harsh. But Celgene is disappearing — just like once-famous biotech pioneers such as Genetics Institute, Centocor, and Chiron. For the industry as a whole, this will be a big shift — and, maybe, an opportunity for change.