On May 31, 2016, Celator Pharmaceuticals issued a joint press release with Jazz Pharmaceuticals announcing their agreement to be acquired by JAZZ for $1.5BB. This equates to each share of Celator stock being worth $30.25, or a dizzying 1,800% gain from the $1.68 it was 6 weeks earlier when they released phase 3 clinical trial data for Vyxeos (formerly CPX-351), a treatment for acute myeloid leukemia.
I started buying a substantial amount of CPXX at the sub $2 range and planned to shed most of it in the run-up to data. As the run-up failed to materialize and the stock price instead leaked in the opposite direction, and as my deep dive into the chemistry, IP, competitive landscape, indication epidemiology, and clinical data behind Vyxeos continuously improved my confidence, I instead held my shares (and breath) through the trial data.
My shares were in both a Roth IRA to avoid having to pay income taxes on any substantial profit, and in a taxable account that on July 21 (after the deal closes) will all be eligible for favorable long-term capital gains tax rate. So that strategy will work out well here.
The crux of my investment thesis for holding Celator shares was that even if the phase 3 trial did not achieve a statistically significant improvement in overall survival for AML patients (the trial's primary endpoint) Vyxeos would still have a clinical significance that was worth more than the value of Celator's shareprice. I modeled what the drug would be worth if the trial failed, and the shareprice at the time was below that; thus the risk/reward for holding through data release was appealing.
I spent several months researching this trial, and appreciated an excellent track record of execution by Celator's management. The positive phase 3 results shocked the biotech world, but did not surprise me. The selling of the company today however, did. Not only is the company not yet marketing Vyxeos nor generating any other revenue, it has not yet achieved FDA approval. In fact, the filing of the New Drug Application by the company to start the 8 months review process by the FDA is still several months away. So it was still far from de-risked, but, I guess, not anymore.
There are many other ongoing trials that will asses the approvability of Vyxeos beyond the phase 3 trial's indicated patient population. Ideally I would have preferred to see Vyxeos's underlying IP technology (known as "Combiplex") out-licensed in one or more unrelated deals to develop additional combination therapies in order to really see what it's full value might be. But in the world of biotech investing where events that may only be indirectly related to a company or its products can rain down draconian effects, the proverbial "bird in the hand" concession need suffice.
I have a deep respect for the management of Celator who not only made their product an unprecedented success for an unpartnered microcap, but whose stellar execution during the entire journey made their stock an "investible" asset. I have had the pleasure of personally speaking to almost all of them at one time or another and I hope to have the opportunity to invest with them on their next venture.
