Sub Swallows Owner—or, Tale of the Tail

Yesterday, American Pharmaceutical Partners [NASDAQ: APPX] announced it was acquiring privately-held American Biosciences Inc. (ABI) in an all stock transaction worth $3.27 billion. What makes this deal different from your average biopatch merger is that APPX is the majority owned-subsidiary of ABI. So now APPX will own ABI, which owns APPX, so then…hey wait a minute. Wall Street is obviously confused by the deal as APPX stock has dropped over 20% as this is written. So to explain this M & A wizardry to the average investor, I will employ as a pedagogical tool the following poem:


A serpent named Euclideus
Was extremely hideous
A circle was more pleasing, so thought he
His north end was his mouth end
In which he took his south end
‘Til his length became a perfect pi times D.

With his tail within his grasp
He was no ordinary asp
But the price for glory’s hunger must be paid
His fate he was a’ forging
As his tail he was engorging
‘Til a point to show position Euclid made.


The public shareholders must feel that their equity in the APPX is disappearing like Euclideus. As APPX swallows its tail (ABI), the amount of the whole beast that the public holds is vanishing; before the merger, they owned 35.6% of APPX, with ABI holding the rest-- after the merger will own only 16.6% of APPX with ABI’s former shareholders holding the rest. Doesn’t seem quite fair.

On the other hand, APPX was not ABI’s only asset. The company also held rights to 50% of the profits from North American sales of Abraxane, the flagship proprietary product of APPX, without which it is solely a generic drug company. ABI also holds marketing rights to the drug in the rest of the world.

Abraxane is a formulation of paclitaxel (active ingredient of Taxol) that is wrapped up in a nanoparticle. This form of delivery makes the drug more effective and less toxic for the patient. Paclitaxel and its derivatives (called taxanes) are the most widely used drugs for the chemotherapy of cancer patients. Unfortunately, paclitaxel is not soluble in water, which is what the body is mostly composed of. Thus Taxol consists of paclitaxel mixed with an awful solvent called Cremaphor-El and alcohol. Patients must be dosed with steroids in order to tolerate the side-effects of Cremaphor, which is even more toxic than paclitaxel itself. .

The Abraxane nanoparticle is built out of serum albumin, the most common protein found in human serum. The albumin nanoparticle is about 130 nanometers in diameter, somewhat larger than the 50 nanometer pores in capillaries that allow the egress of small particles into tissue. However, tumors are known to have particularly leaky blood vessels, so this larger size may actually promote the concentration of Abraxane specifically within tumors. Moreover, the endothelial cells lining blood vessels have a natural transport system that collects small molecules bound to albumin.

However it works, the bottom line is that Abraxane is more effective and has fewer side effects than other taxane drugs. It is marketed to treat breast cancer and further approvals are expected for a variety of solid tumors. It will very likely be blockbuster drug. Abraxane was developed by ABI, which has a variety of other drug delivery tricks up its sleeves and a large portfolio of intellectual property.

APPX and ABI will be merged into a new entity called Abraxis BioScience. Patrick Soon-Shiong, now the CEO of ABI and executive chairman of APPX, will be chairman and CEO of the combined companies.

Critics of the deal will surely accuse Patrick Soon-Shiong of self-dealing. Soon-Shiong is no stranger to controversy--or to litigation. His own brother, Terrence, has sued him twice over various business dealings. Myself, I will withhold judgment on the merger until it becomes clear how the deal works out.

About the poem:
The original version of Euclideus was written by my father, Tom Edwards, while taking geometry in college. Unfortunately, he has passed away and the only copy was lost with the rest of his poetry during his somewhat disorderly life. So the version you see above was reconstructed from my own defective memory along with some spare parts and used verbiage. My father's other works included such gems as The Tailor in the Nudist Camp, and the Red-Eyed Armadillo. Of the latter, I can remember the first line…”The red-eyed armadillo in the burning Texas sands.” I also remember that it contained the word Pleistocene and had something to do with evolution. Anybody with constructive suggestions for its completion should contact me at steven.alan.edwards@gmail.com