Celgene move on Pharmion consolidates position in blood disorders, cancer

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Celgene’s $2.9bn acquisition of Pharmion consolidates the position of the world’s fourth biggest biotech company in the field of blood cancers.

Celgene’s Revlimid has been on the market for myelodysplastic syndromes (MDS), a group of blood disorders that can lead to leukaemia, since 2006, and this year it was approved to treat multiple myeloma, a cancer of the cells in bone marrow. Pharmion’s two lead products compete in both those indications.

Celgene's interest in Pharmion was probably piqued in August by impressive survival data for the company’s lead drug Vidaza, which has been on the market for MDS in the US since 2004. A phase III trial reported a 74% increase in median survival in patients, putting Vidaza ahead of Revlimid and the only other marketed treatment, MGI Pharma’s Dacogen.

Analysts concluded that the impressive survival data meant the drug would increase its share of the market, and improve its chances of winning European approval, which is expected at the end of 2008. Consensus sales forecasts for 2012 have almost tripled to stand at $667m, compared with $238m in August, according to archived forecasts from EvaluatePharma.

With Celgene’s marketing might behind both products, and evidence that Vidaza might also treat the advanced leukaemia stage of the illness, the company will be hoping the acquisition gives it a firmer grip of the MDS field.

Offer price

Despite the hefty looking sales tag, on closer examination Celgene looks to have struck a relatively shrewd deal. Celgene offered stock and cash at a 46% premium to Friday’s closing price, valuing each Pharmion share at $72. As part of the deal Celgene has agreed to pay $25 of the price in cash, with the rest in shares. This equates to a cash outlay of $931m, which falls even further once Pharmion’s cash and short term investments of about $230m, to $700m.

Given that rising hopes for Vidaza means the value of the drug alone has surged to $1.1bn, according to EvaluatePharma’s NPV Analyzer, Celgene is likely to be happy with the relatively small cash element needed to secure a recommendation from Pharmion's board.

In morning trading Pharmion’s shares jumped 37% to $67.5, still below the offer price, indicating a rival offer is not expected. Celgene shares also traded higher, up 1.7% to $66, as shareholders appeared comfortable with the deal.

Patent life

However, while the companies are seen as a good strategic fit, Vidaza still has some crucial tests ahead, if it is to justify that $1.1bn valuation.

Vidaza has orphan drug status in Europe, and as a result will have 10 years exclusivity when it reaches the market. In the US, however, the orphan drug exclusivity expires at the end of 2011. Pharmion is developing an oral formulation to prolong the life of the franchise, but testing has only just started in phase I trials.

The company is conducting dose escalation trials to assess safety and toxicity, and Celgene must be confident in Pharmion’s prediction of a launch of oral Vidaza in 2009. Some analysts believe that looks ambitious, and as a result peak sales forecasts for Vidaza range widely, from $224m to $915m.

As well as proof that an oral pill will work, the drug still needs approval in Europe, and many are waiting for firm evidence that the survival data will grow the market in the US.

Thalidomide

Most of Pharmion's remaining value rests with thalidomide, European rights were in-licensed from Celgene, where it is sold to treat multiple myeloma. The drug is available generically in Europe from a number of sources on an unlicensed, compassionate basis, but Pharmion has applied for marketing approval which, if granted, will give it exclusivity.

Revlimid, which is more expensive, has comparable efficacy to Thalidomide, but a superior safety profile, which should make it an attractive option in the US. In Europe, where cost is more of an issue, thalidomide is likely to be used more widely.

In this indication, Celgene now looks to benefit however the market splits.

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