Jazz Pharmaceutical is Buying Celator for $1.5 Billion

Jazz is acquiring Celator Pharmaceuticals for a price double its market value of $740 million.  Celator is a biopharmaceutical company that sells a promising leukemia drug that is not yet distributed in the market. The $1.5 Billion deal will be announced this Tuesday, according to the people involved in this deal.

The offered price is said to be huge for a startup biotechnology company that has a promising new treatment.  Nearly, three months ago, Celator announced a positive result of a clinical trial for a drug therapy in treating leukemia. The drug called Vyxeos will be used to treat acute myeloid leukemia, a type of blood cancer.

The company is working with two available drugs but with a newer formulation.

Last March, Celator released a data indicating that this drug candidate can prolong the lives of the patient. The news has raised the confidence of the investors and they are optimistic that the drug will soon be approved by the Food and Drug Administration. In relation to that, Celator’s share price skyrocketed to 400% in just a single day!

Celator then sold more shares to raise fund for the marketing of Vyxeos, if granted by FDA. But analysts are in doubts whether they would be able to raise enough funds to finance the commercialization and marketing of the drug.

As of March 31, Jazz Pharmaceuticals has a $9 million market value and almost $1 billion in cash. The company if formerly based in California but when they acquired an Irish Drug Company in 2012, they gained a foreign tax address. This so-called tax inversion has moved their legal home to Ireland.

This kind of deals has been popular in the US for quite some time.

It has been nearly two years since Jazz Pharmaceuticals acquired a new company.   Their last major acquisition was in 2014 when they bought Gentium SpA, an Italian biopharmaceutical company that develops drugs to treat rare form of diseases.  Jazz paid $1 billion to buy Gentium.

But analyst are questioning what will the company do now that its main product Xyrem, a narcolepsy drug will soon lose its patent protection.  Jazz Executives shared that they are interested to expand their product portfolio by investing on cancer drug treatments. This is why they are buying Celator Pharmaceuticals.

Jazz is already selling two drugs for cancer patients. These are Erwinaze a drug used to treat acute lymphoblastic leukemia, a form of blood cancer and Defitelio, which is used to treat fatal and rare complications of stem cell transplants to some cancer patient. Defitelio has recently been released in the US.

For the past year, Jazz shares have been down to 15% but they were able to recover from the sales this summer. Jazz reported that they had $1.3 billion revenue last year which is a 13% higher from their 2014 revenue.

This year, there has been a slow down of merger activity among large pharmaceutical company. The recent merger was with Pfizer Inc and Anacor Pharmaceuticals.  Pfizer bought Anacor for $4.5 billion while the company is waiting for the FDA approval of their eczema drug therapy.

Booming Biotech Business

The biotechnology business proves to be one of the loftiest industries today. Bigger pharmaceutical companies are willing to shell out huge some of investment to buy a promising startup hoping to strengthen their product portfolio and increase their revenue potential. There is a great risk of buying a startup with a potential drug that has no FDA approval yet.

But the big companies are willing to take all the risk, because of the fear that another competitor will buy and market the drug and they will generate more sales from it.

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