Washington Editor

Celgene Corp. is acquiring Pharmion Corp. for $2.9 billion in a cash and stock deal that will expand the Summit, N.J.-based biotech's presence in the global hematology and oncology markets.

The merger brings to Celgene four commercial products, including Pharmion's Vidaza (azacitidine for injection), a drug approved in the U.S. to treat myelodysplastic syndromes (MDS), a group of diseases in which the production of blood cells by the bone marrow is disrupted.

Sales of Vidaza totaled $33.3 million in the third quarter of 2007, Boulder, Colo.-based Pharmion reported.

The firm expects to file a market authorization application in Europe for Vidaza in higher-risk MDS before the end of the year. The drug also is approved for use in Hong Kong, Israel, Lebanon, the Philippines, South Korea and Switzerland.

Pharmion plans to submit recent results of a Phase III study of Vidaza, which revealed that the drug extended overall survival of patients with higher-risk MDS by 74 percent compared with conventional care regimens, to the FDA in 2008 for inclusion in the drug's U.S. labeling.

Under the acquisition, Celgene regains full marketing rights to thalidomide, a drug that was pulled from the market in 1961 after it was discovered to cause severe birth defects but later was revived as a treatment for moderate-to-severe erythema nodosum leprosum, a painful skin condition associated with leprosy, and multiple myeloma.

Celgene in November 2001 granted Pharmion the rights to market and develop thalidomide in all countries outside of North America, Japan and mainland China.

The product, which is sold in the U.S. by Celgene as Thalomid, currently is under review by the European Medicines Agency (EMEA) to treat patients with newly diagnosed multiple myeloma. The EMEA is expected to make a decision about the drug by early 2008.

Thalomid generated $110.7 million in sales for Celgene in the third quarter of 2007. The firm's thalidomide analogue, Revlimid (lenalidomide), achieved $199.3 million in sales that quarter, an increase of 96.7 percent over the same period last year.

Celgene CEO Sol J. Barer called the Pharmion acquisition an "ideal fit" for his firm and a "major step" toward fulfilling Celgene's strategic plan of becoming a global leader in the hematology and oncology markets.

"We are fully committed to effectively and efficiently integrating Pharmion into our global infrastructure to leverage our expanded global clinical, regulatory and commercial opportunities," he said Monday during a conference call.

"Celgene is continually working to expand our product portfolio through internal development as well as strategic external opportunities. Pharmion's significant product portfolio holds great potential in addressing a broader range of patients with unmet medical needs worldwide," Barer noted.

Under the terms of the agreement, Celgene will acquire all of the outstanding shares of Pharmion common stock for $72 per share through a combination of cash and Celgene common stock for a total consideration of $2.9 billion.

The deal is expected to close by the end of the second quarter of 2008.

The cash portion of the transaction is being funded by Celgene's cash on hand, said David Gryska, chief financial officer for the firm.

The deal calls for each share of Pharmion common stock to be exchanged for $25 in cash and Celgene's common stock, to be determined by an exchange ratio, which will be calculated by the volume-weighted average price per share of Celgene common stock for the 15 consecutive trading days on the third day immediately prior to the closing date, Gryska explained.

Upon completion of the deal, he said, Pharmion shareholders will own about 6 percent of Celgene common stock.

Celgene will assume Pharmion's net cash, estimated to be about $250 million at closing, which when subtracted from the offer value reflects a net transaction value of about $2.6 billion, Gryska said.

"As Celgene has cash in excess of $2.5 billion and a substantial operating cash flow, we have more than sufficient cash on hand to complete this transaction," he affirmed.

The transaction is expected to be slightly dilutive to Celgene's earnings in 2008, accretive in 2009 and materially accretive in 2010 and beyond, Gryska said, adding that the deal is expected to be accretive to revenue and earnings growth over the next five years.

For Pharmion shareholders, said CEO Patrick J. Mahaffy, the transaction offers "tremendous value, both through an immediate cash payment upon the deal's close and through ongoing participation in the long-term growth potential of Celgene."

The combination of the two firms, he contended, will "create a global leader in oncology and hematology that will have the chance to better serve cancer patients and physicians worldwide. Now, together with Celgene, we have an opportunity to extend the reach of our key therapies, particularly Vidaza, leverage the potential of thalidomide globally and be part of a new type of biopharmaceutical company."