The spate of acquisitions in the pharmaceutical industry continued with Celgene Corporation (CELG) completing the purchase of Abraxis BioScience Inc. for $2.9 billion in cash and stock. Celgene aims to bolster its cancer portfolio through this acquisition.
The deal, which is expected to modestly hurt Celgene’s adjusted earnings in 2011 and be accretive thereafter, entitles the stockholders of Abraxis to $58 in cash and 0.2617 of Celgene stock for each Abraxis stock owned by them apart from a tradeable Contingent Value Right (CVR). The CVR makes its holder eligible to receive a pro rata share of future milestone and royalty payments. At the time of announcing the deal in June this year, Celgene said that the merger is expected to augment its 2015 revenue by approximately $1 billion.
The merger adds cancer injection Abraxane to Celgene’s portfolio. Abraxane is already available in the US and European markets as a second-line therapy for metastatic breast cancer. The drug is being developed for other indications such as skin, lung and pancreatic cancer. Celgene stated at the time of the deal announcement that the value of the deal will increase significantly if Abraxane receives approval for the additional indications.
Our Take & Recommendation
With the completion of the acquisition of Abraxis BioScience coupled with the purchase of Gloucester Pharmaceuticals earlier this year, Celgene has further boosted its cancer portfolio, which will drive growth in the coming quarters. The company’s key growth engine is Revlimid, currently approved for myelodysplastic syndromes and second-line multiple myeloma and Celgene is expanding its label into other indications.
Although Celgene, with Vidaza and Revlimid, will dominate the myelodysplastic syndromes market, it will face tough competition in the multiple myeloma market. The negative growth of its other product Thalomid, approved for the treatment of multiple myeloma, is likely to continue due to the availability of better alternatives in the market.
We currently have a Neutral recommendation on Celgene, which is supported by a Zacks #3 Rank (short-term Hold rating).
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