Celgene Corp is splashing out big bucks to buy fellow US company Abraxis BioScience, giving it ownership of the breast cancer treatment Abraxane.

Under the terms of the deal, Celgene will pay $58.00 in cash and issue 0.2617 common stock shares for each share of Abraxis, valuing the deal at around $2.90 billion, representing a 17 % premium over the latter's closing price on June 29. In addition, Abraxis shareholders will receive rights to milestone payments totalling $650 million, dependant principally on Abraxane, an albumin-bound formulation of paclitaxel chemotherapy, getting US regulatory approval for indications other than breast cancer, namely for non-small-cell lung and pancreatic cancer.

Explaining the rationale behind the deal, Celgene says it establishes the firm in solid tumours, “complementing its leadership position in blood cancers”. Chief executive Bob Hugin claimed that Abraxis is “an exceptional strategic fit that will accelerate our strategy of becoming a global leader in oncology”, adding that “our clinical, regulatory and commercial capabilities [will] provide metastatic breast cancer patients with an innovative treatment in Abraxane”. He also expressed his enthusiasm for the potential of the drug in NSCLC and pancreatic cancer shown in Phase III and Phase II trials respectively.

Celgene’s biggest seller by some way is Revlimid (lenalidomide) for the treatment of the blood cancer multiple myeloma, First-quarter sales reached $530.5 million, an increase of 46%, out of total turnover of almost $780 million, while in the same period Abraxane brought in $87.9 million for Abraxis, up 25%.

The acquisition is expected to close in the fourth quarter and Celgene expects Abraxis’ contribution to add $1 billion to revenues annually by 2015. The deal is expected to be modestly dilutive earnings in 2011 and accretive in 2012.

Analysts see pros and cons to the deal. Geoffrey Porges at Sanford Bernstein issued a note saying that “no one is likely to argue that this was a bargain price for Abraxis”, though he believes it is a good strategic fit. Christopher Raymond at RW Baird agrees, saying that given Celgene's “formidable commercial organisation, we would not bet against full realisation of Abraxane's potential”.