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Why Celator Pharmaceuticals Shares Are Skyrocketing Today

By Brian Feroldi - May 31, 2016 at 11:06AM

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The cancer-focused biopharma has agreed to be acquired by Jazz Pharmaceuticals for a hefty premium.

What: Shares of Celator Pharmaceuticals (NASDAQ: CPXX), a clinical-stage biopharma primarily focused on creating products that treat cancer, are up more than 70% as 10:45 a.m. EDT after news broke that the company is being acquired by Jazz Pharmaceuticals (JAZZ -0.22%). Jazz Pharmaceuticals has offered to pay $30.25 per share, or roughly $1.5 billion, to make the deal happen. Jazz's shares are trading just over 1% lower today.

So what: Jazz held a conference call with its investors this morning to outline its rationale for the deal. Jazz is primarily interested in acquiring Celator because of Vyxeos, the company's lead compound for treating high-risk acute myeloid leukemia (AML), a cancer of the blood and bone marrow. In late-stage clinical trials, Vyxeos demonstrated a median overall survival improvement of 3.6 months, a 60% improvement. Vyxeos also reduced the risk of death by 31% when compared to current standards of care. 

Management pointed out that it has been more than 20 years since a new therapy has been approved in the U.S. that demonstrates an overall survival increase in treating AML, which is a big reason why they expect Vyxeos to be a big hit.

Regulators seem excited about Vyxeos, too. The FDA has already given Vyxeos both breakthrough therapy and fast-track designations, which bodes well for its chances of winning approval. In addition, Vyxeos has already been designated as a orphan drug in both the U.S. and Europe.

Celator plans on submitting Vyxeos to the FDA by third quarter of this year, and it will have the drug in European regulators' hands by early 2017.

Jazz plans on financing the acquisition with a combination of cash on hand and debt. If the deal is approved by shareholders, it is expected to close in the third quarter.

Jazz expects the deal will be "modestly dilutive to non-GAAP adjusted EPS" for the rest of this year and throughout 2017, but it should be accretive to earnings by 2018. 

Now what: Here's Bruce Cozadd, Jazz's CEO, commenting on the deal:

As Celator is currently preparing a regulatory submission in the U.S. for VYXEOS, this acquisition would add a new orphan product with the potential for short- and long-term revenue generation and expansion of our international commercial platform.

Scott Jackson, Celator's CEO, also believed this deal was a good strategic fit:

The planned combination of Jazz and Celator is highly complementary, as both companies are dedicated to bringing differentiated therapies to patients who have high unmet medical needs. We believe that Jazz Pharmaceuticals' clinical and commercial expertise in hematology/oncology and existing international infrastructure will help realize the value of VYXEOS as a treatment to patients with AML. 

I think there are plenty of reasons for investors in both of these companies to look upon this deal favorably. Celator's shareholders now have a five-bagger on their hands, an amazing performance for a company that has only been on the market for a handful of years.

Meanwhile Jazz's investors should also benefit over time since all signs point to Vyxoes being a winner. Jazz is also in a great position to launch the drug quickly should it win approval since it already has most of the commercial infrastructure in place to support a launch in the oncology space. Vyxeos also looks like a nice fit within the company's orphan disease focus, and with some industry experts forecasting that sales could grow to $900 million by 2020, it doesn't look like Jazz is overpaying.

Roughly 18.4% of Celator's shareholders have already agreed to the deal, which includes the company's executive officers and members of its board of directors, so the odds of the deal winning shareholder approval look quite high.

Jazz's shares currently trading hands for under 12 times next year's earnings estimates. If you believe this deal was a smart long-term move, it could be a good time to pick up a few shares.

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