Editor

Celgene Corp.'s move last month to acquire Pharmion Corp., paying $2.9 billion in a cash and stock deal that boosted the firm's presence in the worldwide hematology and cancer markets, made perfect sense - but not to everybody.

The majority of analysts enthused over Celgene's time-will-tell deal, which brings aboard four marketed products, including Vidaza (azacitidine), cleared for myelodysplastic syndromes in the U.S. Vidaza sold $33.3 million in the third quarter. Before the end of the year, Pharmion plans to file for permission to sell the drug in Europe.

Celgene also gets full rights to Thalomid (thalidomide) for multiple myeloma and moderate-to-severe erythema nodosum leprosum, the leprosy-related skin condition. In 2001, the firm granted Pharmion rights to market and develop thalidomide in all countries outside of North America, Japan and mainland China. In Europe, regulators are expected to decide whether they will approve the drug for patients with newly diagnosed MM.

Thalomid garnered $110.7 million in sales for Celgene in the third quarter, though the firm's thalidomide analogue, Revlimid (lenalidomide), proved a bigger star, pulling $199.3 million in sales that quarter, 96.7 percent more than the same period last year.

Charles Duncan at JMP Securities, who already had a "market outperform" rating on Celgene, called the buyout "perfectly suited," while predicting necessary "work with anti-trust authorities in several geographies."

The company, Duncan wrote in a research report, is "emerging as the global leader in hematological oncology," noting that Vidaza in MDS has shown a 74 percent survival benefit over supportive care in a Phase III study that enrolled high-risk patients.

Full data from that study will be unveiled at the American Society of Hematology meeting that starts next week in Atlanta, and Duncan expects the results to provide a strong marketing advantage for Vidaza against its nearest competitor, Dacogen (decitabine) - which sold $34.6 million in the third quarter, compared to $11.9 million last year for MGI Pharma Inc. and the original developer SuperGen Inc. - at least near term, since Dacogen survival data likely won't be known until the middle of next year.

Duncan is optimistic, too, about the chances for a Revlimid/ Vidaza combination therapy in MDS, an indication for which early Phase I results are due at the ASH meeting, and about a possible oral form providing an edge over injected drugs. In fiscal year 2009, he forecasts Vidaza revenues at $380 million, with the number increasing to $520 million in 2010. Thalomid, thanks to Celgene gaining European rights, will provide about $136 million and $162 million, respectively, in those years. Overseas regulators likely will clear Thalomid in newly diagnosed MM late this year or early next.

But maybe it's early for MGI and SuperGen to quake in their boots. MGI boasts 200 sales representatives pushing Dacogen in the U.S., compared to Pharmion's 140 selling Vidaza - though Celgene has 120 reps, some of which could be recruited for Vidaza. Outside of the U.S., Pharmion has 55 reps to supplement Celgene's 100, which could prove formidable. But Johnson & Johnson's Janssen-Cilag division, which has Dacogen marketing rights outside North America, could put some power behind the launch in the European Union, where the MDS market has been estimated two or three times larger than in the U.S.

SuperGen took a 15 percent hit (MGI was affected, too) in August, when Pharmion reported the Phase III data showing Vidaza's 74 percent benefit, news that helped Pharmion to a 58 percent stock rise. Dacogen survival data are expected at the European Organization for Research and Treatment of Cancer meeting in the first quarter of next year, when MGI and SuperGen shares could regain ground, helped meanwhile by sales numbers, as well as more Dacogen data during the ASH meeting from the study known as ADOPT. Those results could prove a five-day regimen gets a better response than the 17 percent rate during administration over three days.

One of the few skeptics of Celgene's buyout of Pharmion is Christopher Raymond with Robert Baird & Co., who could not find upside to the deal's terms and, after a conference call, still didn't.

Raymond allowed that Vidaza represents a "meaningful" product with significant news flow next year, which could draw some eyes away from Revlimid. But with Vidaza due for a "hard stop" in the U.S. when it loses patent protection here in 2011, benefit is limited and "increasingly dependent on the clinically unproven and (what we view as) commercially vulnerable oral Vidaza for longer-term revenue potential," Raymond wrote in a research report.

Removing Pharmion from the thalidomide equation in Europe is a definite plus, he conceded. "Pharmion has made it no secret that it had planned on selling [the product] for a small fraction of the cost of Revlimid in Europe (and for that matter a fraction of the cost of Thalomid in the U.S.)," Raymond noted, predicting that Celgene will quickly raise the price of thalidomide in Europe, thus narrowing the gap between the product and Revlimid.

"However, that Celgene is willing to pay up such an amount for this right does make for interesting speculation, in our view, as to the ultimate uptake of Revlimid in the front-line setting" overseas, he wrote.

Lazard Capital Markets, though, remained sanguine about the deal after hosting a dinner last week with Sol Barer, Celgene's chairman and CEO. Analyst Matthew Osborne wrote that Barer regards "possible divestiture of Vidaza or Thalomid for antitrust purposes, while not anticipated, would not derail [Celgene's] intention to complete the acquisition."

Strong survival data with Vidaza became the trigger for the deal, along with pending approval of Thalomid in Europe. "While conservatively, Vidaza's survival benefit could be considered a class effect with respect to Dacogen, clearly Vidaza has set a very high hurdle to meet," Sendek wrote.