Potential Sale of Abraxis Could Hinge on Valuation


If the rumors are true that Abraxis BioScience (ABII) is indeed hanging up a for sale sign outside the doors of its Los Angeles headquarters, the big question is what kind of valuation the company might achieve.

Shares in the group have been volatile since it was reported this week that Goldman Sachs and Lazards had been appointed as advisors to assess ‘strategic options’, which in corporate speak usually points to the company being touted as a potential takeover target.

Big numbers

At present Abraxis has a market capitalization of $2.05bn, a rather hefty looking price tag for a company that is essentially one product, breast cancer treatment Abraxane, meaning that Abraxis’ fortunes are essentially wedded to this drug.

This has in the past few months been a positive thing following the encouraging phase III data produced in the difficult-to-treat indication of non-small cell lung cancer (NSCLC), which has been responsible for most of the share price gains seen by the stock since March (A tale of two trials for Abraxis and Human Genome Sciences lung cancer data, March 18, 2010).

But as has been seen recently with the failure of the likes of Antisoma’s (OTCPK:ATSMY) ASA404, Pfizer’s (NYSE:PFE) figitumumab and Novelos’ (NVLT.OB) NOV-002, success in NSCLC is notoriously hard to achieve and the drug could eventually fall by the wayside in this indication, especially given that the data has to date focused on overall response rate rather than progression-free survival.

Thin coverage

If Abraxane does fail in this indication then the drug may find it hard to stand on its own merits in the breast cancer field. In fact, one of the reasons why the shares had declined by almost 30% in the 12 months before the lung cancer data was published was the decision by AstraZeneca (NYSE:AZN) to discontinue its partnership in breast cancer, due to disappointing sales of the product (Abraxis and AstraZeneca set to part ways over Abraxane, November 25, 2008).

So it could be a wise decision to try to sell the company while the stock is high and while many are expecting approval for Abraxane in NSCLC.

But potential buyers might note that while the company now has an impressive looking market capitalization thanks to the lung cancer data, it still only has one sell-side analyst covering it. Perhaps this is an indication of what some see as the issues with the company, which include the dominant position of Patrick Soon-Shiong, the founder, president and now chief executive again, and who holds more than 80% of the company's shares.

Although this lack of coverage could change following the positive data for Abraxane in NSCLC, the group is still only thinly covered due to the illiquidity of the shares and what some see as the company being run like a private enterprise, by Mr Soon-Shiong.

Hands on the reins

This feeling has only been exacerbated recently with the departure of Lonnie Moulder, the former MGI Pharma chief executive, who managed to successfully grow MGI and sell it on to Eisai (OTCPK:ESALY) for $3.9bn in 2007.

Mr. Moulder left after only nine months in the driving seat, an event that disappointed some investors who believed that his track record could have been the key to not only getting more investor interest, but unlocking the value in Abraxis, which seems to have had a revolving door on the executive suite with regards to chief executives.

As such, with Mr Soon-Shiong back in control, there are concerns that negotiations might flounder, given that he may expect a lot more for the company than a potential buyer might want to offer.

And if Abraxane does fail to come through in NSCLC, there is little else to recommend the company for $2.05bn, given its low operating margins and the fact that Abraxane only has patent protection until 2013.