Celgene is acquiring Abraxane developer Abraxis Biosciences and planning an aggressive development and marketing push for the novel nanoparticle formulation of paclitaxel, with the aim of driving the drug's sales to $1 billion by 2015.

The $2.9 billion cash and stock deal could be further sweetened by milestone payments based on future Abraxane approvals in new indications.

The acquisition isn't a steal for Celgene. The company is paying a 17% premium over Abraxis' June 20 closing share price. And Abraxane - approved for second-line treatment of metastatic breast cancer - is Abraxis' only marketed drug. It generated just $314.5 million in 2009, though it is on track to generate more this year.

But Celgene's management believes the acquisition will further strengthen the biotech's foundation in oncology and help move the company beyond hematological cancers, where it is a leader with Revlimid , into solid tumors.

The company further sees significant future potential in Abraxane, and plans to re-energize the marketing strategy around the drug in breast cancer, while expanding into additional indications like first-line breast cancer, lung cancer and pancreatic cancer. In addition, Abraxis has five other drugs in development based on its proprietary nanoparticle albumin bound technology platform.

Abraxis Fits Celgene's Diversification Strategy

Celgene has been building its portfolio in an effort to expand beyond the multiple myeloma blockbuster Revlimid as part of its transition to a diversified biotech. The company has been tapping external opportunities to expand its marketed drug portfolio, but has been mostly adding drugs that complement its base.

If the Abraxis deal is finalized, it will be the company's third large acquisition in the past three years. In 2008, Celgene bought Pharmion for $2.6 billion in cash and stock to gain access to Vidaza (azacitidine) for myelodysplastic syndromes.

Last December the company bought Gloucester Pharma for up to $640 million in upfront cash and earn-outs, a deal that gave Celgene the cutaneous T-cell lymphoma drug Istodax (romedepsin). Those acquisitions have strengthened Celgene's hematological business, and Vidaza has become an important addition to the portfolio generating close to $400 million last year, but they haven't played a role in helping the biotech to diversify outside of its strong suit.

During an R&D day in April, the company talked at length about its pipeline drugs targeting solid tumors and a new inflammation and immunology franchise, but much of the news presented there was incremental updates (¹ Also see "Beyond Revlimid: Celgene's 2015 Plan Targets New Business Areas" - Pink Sheet, 19 April, 2010.). The latest announcement puts Celgene squarely in the solid tumor drug business.

For Abraxis, the acquisition is a valuable exit and marks the largest yet to be completed in the nanoparticle space. The deal could shine a spotlight on other nanoparticle drug developers like Bind Biosciences and Cerulean Nanopharmaceuticals, though neither of those companies have a product in the clinic, let alone a marketed drug.

Deal Includes Contingent Value Rights

Under the terms of the cash and stock deal, Abraxis shareholders will receive $58 in cash and 0.2617 shares of Celgene common stock. The upfront payment values Abraxis at approximately $2.9 billion. Each share will also receive one Contingent Value Right, from which the holder can expect to receive payments for future regulatory milestones and commercial royalties.

The CVRs, which are tradeable, are not insignificant. They include a $250 million cash payment upon approval of Abraxane by FDA for NSCLC with a progression-free survival claim; a $300 million cash payment upon approval of Abraxane by FDA for pancreatic cancer with an overall survival claim; $100 million cash payment upon FDA approval of Abraxane for pancreatic cancer by April 1, 2013; and potential cash royalty payments if Abraxane and certain pipeline drugs reach established sales thresholds.

Celgene investors initially seemed wary of the pricey buyout, with the stock closing down 4.5 percent percent to 50.82 on June 30. But analysts, while considerate of the costs, ultimately praised the acquisition.

"We generally regard this transaction positively," Bernstein Research analyst Geoff Porges said in a same-day research note, pointing to the broader potential for Abraxane and Celgene's ability to exploit the technology platform. However, he noted, "We expect the price of this asset to be closely scrutinized by investors. At first blush $3 billion plus seems expensive for a business with essentially flat sales of around $360 million."

Robert W. Baird analyst Christopher Raymond commented that after considerable thought, he likes the deal. "In the hands of Celgene's formidable commercial organization, we would not bet against full realization of Abraxane's potential," he said.

Abraxane's Potential Lies In New Indications

Abraxis' nab technology platform can be used to encapsulate and deliver any number of drugs. In the case of Abraxane, it consists of paclitaxel molecules encapsulated in nanometer-sized shells of albumin, a common protein in the blood. The formulation eliminates the need for a solvent that can be toxic and also means greater doses of paclitaxel can be given before side effects become intolerable. The drug can be administered much more quickly too, in 30 minutes rather than three hours.

Abraxane was approved in 2005, but importantly has intellectual property protection that Celgene believes will hold up until 2023. Abraxis brought AstraZeneca on to co-promote Abraxane in the U.S. in 2006, but that collaboration ended in November 2008 when Abraxis re-acquired full rights to the drug, citing its desire to build a full commercial platform (² Also see "AstraZeneca To Co-Promote Abraxis’ Paclitaxel" - Pink Sheet, 27 April, 2006.). The company said it currently has a commercial team of about 100 promoting Abraxane.

Two things that certainly influenced Celgene's decision to buy Abraxis are the data on Abraxane in additional indications and the potential to expand into more geographies. Abraxane is currently approved in the U.S. and Europe.

At the American Society of Clinical Oncology meeting in June, the company presented Phase III data on Abraxane in first-line non-small cell lung cancer showing an improvement in overall response rate compared to treatment with Taxol (paclitaxel).

Results of a Phase I/II trial in pancreatic cancer patients showed that treatment with Abraxane plus gemcitabine resulted in median overall survival of 7.3 months, and for 44 of the 67 patients treated, 12.2 months, which represents a doubling of survival compared to historical control of gemcitabine alone.

The company has also released data showing Abraxane could have potential in hard-to-treat cancers like refractory invasive bladder cancer and malignant melanoma.

Celgene said data supporting Abraxane's use in non-small lung cancer is on track to be submitted to regulators in the first half of 2011.

Pancreatic Cancer Is Compelling Opportunity

And the company is particularly eyeing the drug's potential in pancreatic cancer given the compelling survival data.

"Among the major solid tumor cancers, patients with pancreatic cancer have the fewest therapeutic options and among the poorest outcomes," Celgene CEO Robert Hugin said on a conference call to discuss the deal. "The median survival for patients receiving currently available therapies is just six months, and there have been very few meaningful advances in the treatment of this disease."

In the U.S., there are about 32,000 patients with unresectable disease for whom the standard of care is gemcitabine, he added. Abraxis has initiated a Phase III trial in pancreatic cancer that could serve as the basis of a regulatory submission, with data expected in early 2013.

Abraxis has several additional programs in clinical development. Among them are a nanoparticle formulation of docetaxel (Sanofi-Aventis' Taxotere ), ABI-008, for prostate cancer and nab-rapamycin, ABI-009, for solid tumors.

Abraxis employs about 900 people in locations including its Los Angeles headquarters, as well as in the UK and China. The acquisition is expected to close in the fourth quarter.

- Jessica Merrill ( ³ j.merrill@elsevier.com )

Celgene Moves Into Solid Tumors With $2.9 Billion Abraxis Acquisition

More from Archive

More from Pink Sheet