Celator rewards investors with stunning Jazz solo
Plucky US microcap Celator Pharmaceuticals has rewarded its investors this morning with a 70% stock price rise after agreeing to a $1.5bn all-cash takeout offer from Jazz Pharmaceuticals over the holiday weekend. The company has now effectively provided its longer term shareholders with an 18-fold return over the past year, something which must stand as a record even in the most febrile moments of irrational biotech exuberance.
Celator of course famously beat the Feuerstein-Ratain rule – that heuristic that predicts failure for sub-$300m market cap companies’ phase III oncology readouts – when it reported a positive outcome to its pivotal study of Vyxeos against the “7+3” chemo regimen in acute myeloid leukaemia in March. That stunning result was correctly predicted by EP Vantage some nine months earlier when Celator’s market cap was little above $50m (Celator could quietly break leukaemia record, June 25, 2015).
Indeed, EP Vantage can claim to have been prescient here, having also foreseen that the Vyxeos phase III result would make Celator a takeover target for a company seeking to establish a bridgehead in AML (Hail mighty Celator, the small cap that beat long odds, March 15, 2016). That acquiring company is now known to be Jazz, which sees Vyxeos as being complementary to its haematology/oncology franchise, which consists of Erwinase and Defitelio.
Erwinase is indicated for the treatment of acute lymphoblastic leukemia, while Defitelio, which was itself only approved in the US in March, is used for treatment of hepatic veno-occlusive disease, a life-threatening complication of haematopoietic stem cell transplantation (HSCT). The link here is that HSCT is the treatment goal in AML, as well as other leukaemias, and the 7+3 regimen of cytarabine and daunorubicin has been used for many years as the standard induction therapy designed to achieve a complete response so that patients can undergo this therapy.
Celator’s pivotal study showed that Vyxeos could boost the successful induction rate from 33% to 48%, which if nothing else, would increase the number of AML patients going forward for HSCT. However, Jazz’s financial justification of the deal is likely to be built around the economics of promoting the three products to the same audience, in this case haematologists.
The Jazz takeover is expected to close in the third quarter, around the same time as Celator expects to complete its US FDA filing, while the European submission is planned for early 2017. The company recently obtained breakthrough therapy designation, and thus, if it can meet this timeline, it could lead to an approval in early 2017.
Asco laurels beckon
The deal also comes just five days ahead of Celator’s moment of crowning glory, at least scientifically, when it will present the final results of the 301 study at Asco. And if this were not enough, Celator will follow this one week later with a presentation at the European Hematology Association.
Celator has been given a high profile slot for its Asco presentation and, in the surprising absence of new phase III data from immuno-oncology products this year, it could be one of the standout events of the conference. No new data have been disclosed in the abstract, but haematologists will no doubt be keen to see the survival curves, given the surprising 60% or 3.6 month advantage in terms of median overall survival (9.56 versus 5.95 months), representing a 31% relative risk reduction.
The extent of this benefit surprised many leukaemia specialists, since it has come about simply by optimising the formulation; Vyxeos contains the same two components as 7+3, just in a liposomal preparation. Indeed, the result neatly validates Celator’s underlying scientific premise that many multi-agent chemotherapy regimens have been arrived at empirically – for example by dialing back one agent from its maximum tolerated dose to allow a another agent to be added – and thus are not necessarily optimised as a combination.
The liposomal formulation improves the plasma half-life of the two components and, despite delivering a lower notional dose per cycle of cytarabine and daunorubicin, achieves greater cumulative exposure of the two drugs. It also has the benefit of being much easier to administer.
Celator has two early stage programmes based on the same technology: a liposomal formulation of irinotecan and floxuridine (CPX-1), and a hydrophobic docetaxel prodrug nanoparticle formulation (CPX-8).
Jazz declined to say whether the acquisition came about as a result of a competitive auction for Celator, but the 70% premium and the fact there is no downstream or contingent element suggest this was the case. It would also be surprising if other companies were not interested in obtaining Vyxeos.
Celator, which only went public in September 2013, has managed to encapsulate the biotech stock market experience in less than three years. The $1.5bn takeout highlights the fact that, despite the poor overall stock market market returns for biotech in the past year, enormous financial returns available to investors who can correctly predict the outcome of binary events.
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