Abraxis Initiation Merriman Sept 09

7/28/2019 Abraxis Initiation Merriman Sept 09

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BiotechnologyLife Sciences

September 15, 2009

Abraxis BioScience (ABII) Buy

The Billion Dollar Cancer Company the Street Forgot; InitiatingCoverage With a Buy Rating

Abraxis BioScience has been off the Streets radar screen for several

years, due to a number of factors, including a controversial shareholderwith a dominant equity position, a split with former marketing partner, Astra-Zenecaand flat U.S. sales of Abraxane. As a result, the shares are down bymore than 50% year to date, and average daily volume is a mere 40,000shares. The stock has zero sell-side coverage.

The good news: new management is in place, ex-U.S. territories are

coming on stream, and additional Abraxane indications should beforthcoming. In April of 2009, Abraxis named Lonnie Moulder to the positionof President and CEO. Moulders previous company, MGI Pharma, successfullydeveloped and launched the anti-nausea drug, Aloxi. MGI was then sold for$3.9B in cash in 2008.

Despite the companys past turmoil, we believe the stocks valuation

more than accounts for past transgressions, and the future looks in-teresting to us. In our opinion, operational execution could double Abraxanesales by 2013 as the EU and China territories come on line. In addition,Abraxis is conducting three ongoing registration trials of Abraxane; a read-out

of the NSCLC study should happen before year end. In the meantime, thestock has a technology value of approximately $750M, 3x annualized sales,and 1x the product NPV. The company ended 2Q09 with $258M in cash, suffi-cient to fund operations for the foreseeable future. Finally, Abraxis owns100% of the worldwide rights to Abraxane, and would be an attractive acqui-sition candidate for a large pharma or biotech company looking to augment itsanti-cancer drug portfolio. We are therefore initiating coverage with a Buyrating and are establishing a price target range of $30-33 based on our FY13EPS estimate of $0.74, fully taxed, fully diluted, and discounted back by 9%for three periods.

Abraxis BioScience, Inc., a biotechnol-ogy company, engages in the discov-ery, development and delivery of next-generation therapeutics and core tech-nologies that offer treatments for can-

cer and other critical illnesses. Thecompanys product pipeline includesclinical oncology and cardiovascularproduct candidates in various stages oftesting and development. Its principalproduct includes Abraxane, a nanopar-ticle chemotherapeutic compound thatis based on its proprietary tumor tar-geting nab technology platform for thetreatment of metastatic breast cancer.The company was formerly known asNew Abraxis, Inc. and changed itsname to Abraxis Bioscience, Inc. inNovember 2007. Abraxis BioScience isbased in Los Angeles, California.

Market Cap (M): $1,086

Shares Out. (M): 40.1

Float (M): 26.6

10-Day Avg. Vol.: 60,741

Institutional Ownership: 55.4%

Enterprise Value (M): $807

MCF Estimates

Market Data

Stock Performance

Company Description

Valuation (FY09E)

Key MetricsPrice: $27.07

Rating: Buy

52-Week Range: $24.52-74.50

Book Value/Share: $22.17

Debt/Capital: 0%

Debt (M): $0

Cash (M): $258

EV/Sales: N/M

PE Ratio: N/M

Summary

Investment Conclusion

Source: BigCharts.com

Shares of Abraxis BioScience have lost more than half their value over the past12 months. This is attributable to several factors, including a split with formermarketing partner, Astra-Zeneca, and flat U.S. sales of, Abraxane. In our view,the worst is behind the company and the tide is about to turn for the shares.Fundamentals have begun to improve, new management is in place, and piv-otal Phase III Abraxane data in NSCLC should read out by the end of 2009. TheU.S. sales machine is being fixed, and Abraxane is launching in China and theEU. Meanwhile, the stock trades with an enterprise value of approximately$800M, or 2.4x FY09 annualized sales. Abraxis owns all the worldwide rights toAbraxane.

FY08A FY09E FY10E

SALES (M)

1Q $82.1 $72.6 $93.1

2Q 77.6 85.1 A 97.5

3Q 93.4 84.6 102.0

4Q 92.2 88.3 106.5

FY (Dec) $345.3 $330.6 399.1

EV/S 2.3X 2.4X 2.0X

EPS

1Q $0.09 ($0.63) ($0.50)

2Q (2.13) (0.56)A (0.44)

3Q (0.40) (0.53) (0.42)

4Q (4.56) (0.47) (0.42)

FY (Dec) ($6.93) ($2.20) ($1.77)

P/E N/M N/M N/M

Michael G. King, Jr.Managing Director(646) [email protected]

MERRIMAN CURHAN

FORD

600 California Street9th FloorSan Francisco, CA 94108(415) 248-5600 Main(415) 248-5690 Fax(800) 909-7897 Tradingwww.mcfco.com

NASDAQ: MERR

Member FINRA/SIPC

Please seeImportantDisclosures on thelast page of thisreport.


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September 15, 2009 2

Table of Contents

Investment ThesisThe Billion Dollar Company the Street Forgot.....3Company Background: The Cult of Personality.. 3

Investment Risks.. 3

Upcoming Milestones... 4

Company Background.... 5

History is History, The Next Twelve Months Should be Critical....5

Abraxane: Why Use Anything Else?................................................................. 6

Breast Cancer: Where Abraxane Earned its Stripes...6

Abraxane Again Proves its Worth in a Head-to-Head Trial Against Taxotere...9

Data Equals Market Share in Cancer Therapy...12

Let The Data Flow: Abraxane Has a Busy Clinical Trials Calendar..19

Abraxane Phase III Trials: One Ace in the Hole, Two Wildcards.... 19

Abraxis PipelineLots Going On Internally and Externally.19

NAB Technology Platform-Big things Come in Small Packages.11

Valuation... 22

Summary and Conclusion. 22

Appendices:A. Senior Management. 23

B. Disease Overview.. 25

C. Compendia Listings.. 27

Figures:

1. Response Rates in Abraxane vs Paclitaxel in Metastatic Breast Cancer.. 72. Time to Progression in Abraxane vs Paclitaxel in Metastatic Breast Cancer.7

3. Patient Survival in Abraxane vs Paclitaxel in Metastatic Breast Cancer.. 8

4.Adverse Events in Phase III Trial of Abraxane vs Standard Paclitaxel.. 9

5. Confirmed ORR and DCR in Abraxane vs Docetaxel. 10

6. Progression-Free Survival in Abraxane vs Docetaxel.. 117. Kaplan Meier of PFS curve in Abraxane vs Docetaxel..11

8. Estimated Number of Patients on Abraxane in July 2009.13

9. Estimated Number of Patients on Abraxane on Rolling 12-Month Average Basis.13

10.Abraxane Revenue Model... 14

11.Abraxane Revenue Build in Metastatic Breast Cancer in the United States.. 15

12.Abraxane Revenue Build in Metastatic Breast Cancer in the European Union. 16

13. Abraxane Revenue Build in Metastatic Breast Cancer in China. 17

14.Abraxane Revenue Build in Metastatic Breast Cancer in Rest of World.18

15.Abraxis BioScience Pipeline.20

16. nab-Particle Diagram.. 21

18. Newly Diagnosed Pancreatic Cancer Cases by Stage.. 26

Income Statement.. 29

Balance Sheet.. 30

8. Annual Taxane Treatments...12

17. nab-Platform.. 21


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Investment Thesis

Abraxis BioScience is a commercial biopharmaceutical company that markets its only commercial compound,Abraxane, in 36 countries around the world. The product was approved in the US in January of 2005 for thetreatment of metastatic breast cancer. The shares are undervalued, in our opinion, based on investor disap-pointment with managements prior performance and essential control over the company by principal share-holder, Patrick Soon-Shiong, who owns over 80% of the equity. However, we believe the company has aproduct that is fundamentally sound and is approaching several key sales and clinical catalysts. Moreover, anew management team is in place that has a demonstrated track record of execution and eventual sale of aprevious company (MGI Pharma). When juxtaposed against the undervalued nature of the stock (trading atapproximately 1x the Abraxane NPV) and lack of Street following, we find the Abraxis story compelling. Weare therefore initiating coverage with a Buy rating and a price target range of $30-33.

In our view, the key to the stocks appreciation will be operational execution, as well as clarity on the strate-gic risks and benefits of the soon-to-be-spin-off company, Abraxis Health. We also anticipate that LonnieMoulder, recently-appointed CEO, will increase the companys visibility in the eyes of the investment commu-

nity, thereby highlighting the opportunity in the companys stock. Furthermore, the upcoming spin off ofAbraxis Health should help investors get a clearer picture of the true operations of Abraxis BioScience, andpotentially result in a higher valuation.

Company Background: The Cult of Personality

In the biotechnology space, there are companies that are controversial, and then there are companies thatare controversial. We would submit that Abraxis BioScience falls into the latter category. Until recently,Abraxis was run by the enigmatic Patrick Soon-Shiong. Dr. Soon-Shiong is the son of a family doctor from arural Chinese village. The family immigrated to South Africa during World War II. He finished high school byage 16 and became a doctor himself by age 23. He took American Pharmaceuticals Partners public in 2001.After the successful development of Abraxane, he split the company in two in 2007; APP Pharmaceuticalssold hospital-based products while Abraxis BioScience developed proprietary drugs (mostly Abraxane). APPPharmaceuticals was sold to Fresenius in 2007 for $5.6 billion in a transaction that netted Soon-Shiong $3billion. When the shares of American Pharmaceuticals Partners (also referred to as Old Abraxis) were split in2007, shareholders of APP received one share of Abraxis BioScience for every four shares of Old Abraxis. Aheated debate accompanied the terms of the split of Abraxis from APP for the minority shareholders, asSoon-Shiong was the majority shareholder in both the old and the new company. The transaction ultimatelywas approved and closed in 2007. Despite concerns that arose over the objectivity of the value placed onboth assets, the sale of APP to Fresenius resulted in the creation of significant value for all.

Soon-Shiong has now stepped aside as Chairman and CEO of Abraxis and turned these duties over to LonnieMoulder, who investors may recall was President and CEO of MGI Pharma. MGI was sold to Eisai Pharmaceu-ticals of Japan, with the transaction closing in early 2008. Moulder joined Abraxis in April of 2009; subse-quently, three members of Moulders former MGI Pharma management team, Marty Duvall, Rick Rodgers,and Mary Lynne Hedley, have also come on board.

Investment Risks

Shares of Abraxis are closely-held, and there is a single dominant shareholder. As mentioned,Patrick Soon-Shiong owns more than 80% of the equity of Abraxis. Therefore, he controls essentially thecompanys entire decision making process. Shareholder approval is a fait accompli for all major strategicdecisions. Further, despite his move to Abraxis Health, Soon-Shiong may still influence the decisionsmade at Abraxis BioScience.

The shares of Abraxis BioScience are illiquid, and therefore can be volatile in both directions.Recent data indicates that average daily volume is just over 40,000 shares per day. Our understanding isthat much of the downward pressure on the shares so far this year stems from a small number of share-


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holders seeking to reduce their positions. The downward price movement may be exacerbated by thelack of liquidity in the stock.

Abraxis is a single-product company. Despite our enthusiasm over the outlook for Abraxane growth,the fortunes of the company rise and fall with Abraxane. The taxane market is highly competitive, andTaxol (paclitaxel) is now a generic drug with multiple suppliers. The cancer field is under tremendouseconomic pressure to reduce the use of expensive therapies, and the current cost of a cycle of Abraxanecould come under scrutiny.

Alternative formulations of paclitaxel are being explored. While none have passed Phase III trialsand a proprietary vitamin-E based formulation of paclitaxel from Sonus Pharmaceuticals failed a PhaseIII trial, there are still a number of novel taxane formulations are under development by a number ofparties.

Investor due-diligence will likely turn up few key opinion leaders with a favorable point ofview of Abraxane. While our due diligence checks have never turned up a negative comment on Abrax-ane from a member of the thought-leader community, the reaction has been more of a ho-hum re-

sponse. Thought leaders find the science behind Abraxane to be mundane, and are usually more inter-ested in novel cytotoxic or targeted therapy compounds. This clearly has not stopped the widespreadadoption of Abraxane amongst community oncologists, who find its tolerability and ease of infusion to bea significant benefit to their patients.

Abraxis Health spin-off could raise concerns about BioSciences financial commitment to thecorporate offspring. In addition to providing Abraxis Health with $25 million of its cash, BioScience willalso provide Abraxis Health with access to a $200 million line of credit. This may raise concerns regard-ing whether BioScience is taking on too much financially or managerially, or may raise concerns aboutthe use of BioSciences cash which has been reduced to approximately $225 million from $700 million in2007.

Operating margins are well below industry norms. Please see our full margin analysis for additionaldetail. However, despite gross margins that are in line with those seen at other major biotechnologycompanies, Abraxiss operating margins are well below the norm. This is because the companys SG&A

levels are double or triple the norm for the industry. If the company cannot succeed in bringing thesemore in line with those in the industry, the shares may continue to lag.

Litigation overhang. In June of 2008, Abraxis announced that it intended to appeal a jury verdict thatfound Abraxis as infringing a patent held by Elan that covers nanoparticle anticancer agents (U.S. patentnumber 5,399,363) . The jury awarded Elan damages of $55 million, and Abraxis has accrued $57.4 mil-lion to meet this liability if the appeal ultimately fails.

Upcoming Milestones

According to managements projections:

Launch Abraxane in China and Korea

Continue Abraxane rollout throughout Europe

Complete Phase III trial of Abraxane in non-small cell lung cancer and report top-line results

Complete enrollment in registration trials of Abraxane in melanoma and pancreatic cancer

Complete spin-out of Abraxis Health


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Company Background

There are some stocks that have stories, and there are others that have STORIES. Abraxis is a company inthe latter category. Charismatic and controversial Executive Chairman, Patrick Soon-Shiong, MD, built thecompany nearly single-handedly over the last decade. Started as a manufacturer of generic drugs (the twopredecessor companies to Abraxis were known as American Bioscience and American Pharmaceutical Part-ners), the turning point in the companys history came with the licensure of Abraxane, an albumin-boundtaxane molecule that received approval in January of 2005 for the treatment of metastatic breast cancer.Many investors were skeptical at the time of Abraxanes approval, as the study was designed for non-inferiority to Taxol (paclitaxel), a design that the FDA typically discourages. Abraxane did, however, producea significantly higher response rate compared to conventional paclitaxel, and had a superior side effect pro-file, and the drug was approved under the FDAs 505 (b)2 pathway.

The company has also had fits and starts with previous CEOs and corporate partner relationships. Moulderwas proceeded by at least three other erstwhile CEOs with large pharma experience, who subsequently leftthe company. As we mentioned previously, the Abraxane marketing relationship with Astra-Zeneca wasshort-lived. There has also been investor speculation that a sale process of Abraxis may have taken placewithin the past years time. If this is true, the lack of a buyer at a significant premium may be the reason theshares have been so severely punished since late February.

History is History, the Next Twelve Months Should be Critical

Given the drama in the companys past, why would we in good conscience recommend the purchase of ABIIshares at this point in time? Two words: value and change. We enumerate our reasons for our positiveoutlook on the stock.

Valuation is compelling by most metrics. As a loss-making enterprise, Abraxis BioScience cannot bemeasured on a P/E or PEG basis like its large-cap peers. However, by other traditional biotech marketvaluation metrics, we find the shares compelling. At current prices, Abraxis has a market cap of approxi-mately $1.1 billion. After deducting net cash (cash minus debt, or in this case $258 million in cash vs.

zero debt), the enterprise value is $807 million. If we annualize the companys revenue run-rate to dateof approximately $300 million, this leaves us with an enterprise value to revenue ratio of less than 3.This compares favorably to the large cap peer group from the Merriman Biotech Balance Sheet whichcurrent trades at and EV/Sales ratio of 6.5. According to our analysis of M&A transactions over the pastfive years suggests product and company acquisitions in the 5-6x sales on average and values as high as10x sales in certain transactions that were highly competitive.

Change in management critical to unlocking unrealized value. In our view, one of the keys to theunlocking of unrealized value in Abraxis shares is through the recent changes in management. Our per-spective on why this time the change in Abraxis may be different this is time is based on two factors:first, Patrick Soon-Shiong is devoting his entire management time to Abraxis Health; second, LonnieMoulder has joined the company and brought members of his previous team from MGI Pharma alongwith him. The assemblage of this team is reminiscent of those that ran Peninsula Pharmaceuticals as wellas Allos Therapeutics, both of whom sold their companies to large pharma/biotech acquirers.

Abraxane has franchise value. While Abraxane is not the sexiest product from a technology perspec-tive, what is attractive to large pharma and biotechnology companies is an established sales base and aworldwide reach. One company that comes to mind is Johnson and Johnson, which owns worldwiderights to Doxil, a liposome-encapsulated version of the generic drug, doxorubicin. J&J acquired theserights when it acquired Alza, a specialty pharmaceutical company with novel drug-delivery technology.J&J also has ex-U.S. rights to Velcade, the proteasome inhibitor developed by Millennium Pharmaceuti-cals, now owned by Takeda. We would submit that Abraxane is analogous to both products; Abraxane isa unique formulation of a generic drug, with differentiated therapeutic properties like those of a proprie-tary drug.


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We believe operating margins have nowhere to go but up. We point out that Abraxiss SG&A levelsare amongst the highest as a percentage of revenue of nearly any company with which we are familiar,with the exception of those that are in launch mode. In contrast, Abraxis is a company with a productthat is well past this stage, although is by no means mature (please see our comparative margin analysisbelow). The good news is that, for every 1% improvement in SG&A expense, approximately $0.15 can beadded to Abraxiss bottom line. We urge management to do all in its power to reduce expenses and per-mit a greater percentage of Abraxane revenue to flow to the bottom line.

Abraxis Health spin-off could result in a higher multiple for BioScience . While it is still early andwe will not spend a lot of time in this report discussing it, the proposed spin-off of Abraxis Health mayultimately have a beneficial impact on how investors value Abraxis BioScience. Since BioScience will bemore of a pure-play after the spin-off, the shares may be afforded a higher multiple of sales and earn-ings (assuming eventual profitability). The full set of Abraxis Health documents that have been producedto date can be found at the following url: http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001452016&owner=exclude&count=40

Abraxane: Why Use Anything Else?

Abraxane, formerly referred to as ABI-007 and nab-paclitaxel, uses Abraxiss proprietary nano-particle tech-nology to improve both the safety and efficacy of paclitaxel (Taxol). Because it obviates the need to use thesolvent, Cremophor EL, the drug can be infused rapidly, generally within 30 minutes, compared to threehours for conventional paclitaxel. Unlike paclitaxel, which requires special tubing, Abraxane uses conven-tional iv tubing for the drugs administration. Further, Cremophor EL is formulated with ethanol and togetherthey form the vehicle in which the Taxol is carried. Data has begun to emerge that the solvent is the sourceof much of Taxols toxicity. Head to head clinical data suggests that Abraxane not only lacks much of the tox-icity of the taxanes, but in many cases has been shown to have superior efficacy as well. We will discussthese data below.

Breast Cancer: Where Abraxane Earned its StripesThe pivotal clinical trial that supported the FDA approval of Abraxane was published in the November 1,2005, Journal of Clinical Oncology. The principal investigator of the trial was William Gradishar from North-western University in Chicago. Dr. Gradishar is one of the more widely-accomplished clinicians in the breastcancer space, having done work with hormone therapy and Herceptin in the past. He has also proven to be agreat champion for Abraxane.

The study was unusual in the sense that it took multiple sub-types of patients with metastatic breast cancer.There were approximately an equal proportion of patients who were treated in the study for first and secondline MBC, and patients with multiple lines of prior therapy were also allowed in the study (42% first line,41% second line, 10% third line and 7% beyond third line). The study successfully achieved its primary end-point of a superior response rate to that of polyethylated castor-oil (Cremophor) based paclitaxel (please seeTable 1 for details). Overall, 33% of patients achieved a response to Abraxane, while 19% did so to conven-tional paclitaxel. Use of Abraxane was also associated with a statistically significant improvement in time to

tumor progression (TTP), 23 vs. 17 weeks). Despite the fact that patients were receiving a 49% higher doseof paclitaxel in the Abraxane arm, the side effect of Grade 4 neutropenia (low white blood cell count) wasskewed significantly in favor of the Abraxane patients (9% vs. 22%). Grade 3 sensory neuropathy (tinglingand numbness in the extremities) was the most significant side effect that went against Abraxane; however,the symptoms typically resolved within three weeks. Finally, no hypersensitivity reactions were seen despitethe absence of pre-medication in the Abraxane-treated arm of the trial. We discuss each of these aspectsbelow.


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Figure 1: Response Rates in Abraxane vs. Paclitaxel in Metastatic Breast Cancer

Source: Gradishar et al. Phase III Trial of Nanoparticle Albumin-Bound Paclitaxel Compared with Polyethylated Castor Oil-Based Paclitaxelin Women with Breast Cancer, J Clin Oncol. 2005

As can be seen, the Abraxane-treated patient population achieved superior response rates irrespective ofwhich line of therapy they received. In fact, we highlight the fact that Abraxane produced responses in thesecond line setting that equaled those of paclitaxel in the front-line setting. The response benefit was alsoconsistently seen irrespective of whether anthracycline drugs had been previously received, dominant metas-tatic organ site, or age. The statistics in some subgroups did not achieve significance because of small num-bers.

Figure 2: Time to Progression in Abraxane vs. Paclitaxel in Metastatic Breast Cancer


The TTP numbers clearly favor Abraxane and are highly significant. The curves separate early (betweenweeks 16 and 24, and stay separated even way out in the tail of the Kaplan-Meier curve.

ABI-007 (260 mg/m ) Standard Paclitaxel (175 mg/m )# of patients/ # of patients/

Response Total # of patients % 95% CI (%) Total # of patients % 95% CI (%) p

Complete and partial response

All Patients 76/229 33 27.09 to 39.29 42/225 19 13.58 to 23.76 0.001

First-line therapy 41/97 42 32.44 to 52.10 24/89 27 17.75 to 36.19 0.029

Second-line or greater therapy 35/132 27 18.98 to 34.05 18/136 13 7.54 to 18.93 0.006

Prior anthracycline therapy

Adjuvant and/or metastatic 60/176 34 27.09 to 41.09 32/175 18 12.56 to 24.01 0.002

Metastatic only 31/115 27 18.85 to 35.07 18/130 14 7.91 to 19.78 0.01

Dominant metatstatic organ site

Visceral 59/176 34 26.55 to 40.50 34/182 19 13.02 to 24.34 0.002

Nonvisceral 17/50 34 20.87 to 47.13 8/43 19 6.97 to 30.24 NS

Age, years

< 65 68/199 34 27.58 to 40.76 36/193 19 13.16 to 24.16


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Figure 3: Patient Survival in Abraxane vs Paclitaxel in Metastatic Breast Cancer


Notes: (A) Patient survival over time (B) Patient Survival over time in patients who received second-line or greater therapy. P values fromlog-rank test. Survival indicates time from first dose of study drug to date of death.

The administration of Abraxane produces a robust improvement in patient survival (p=0.024) in patients re-ceiving the drug in the second-line MBC setting. The magnitude of benefit is clearly less in the first line set-ting; however, this may be due to the paradox seen in trials of agents in first-line MBC, as patient crossoverto second-line therapies tends to have a confounding effect on mortality outcomes (e.g., Avastin).


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Figure 4: Adverse Events in Phase III Trial of Abraxane vs Standard Paclitaxel


Notes: (A) Adverse events (all grades) reported in more than 20% of patients in either treatment group. ANC, absolute neutrophil count.(B) Treatment-related grade 3 and 4 adverse events reported in 5% of patients in either group. Data are based on adverse event report-

ing. (*) P < .05, Cochran-Mantel-Haenszel test. GGT - gamma glutamyl transferase

The adverse event profile of Abraxane is clearly superior to that of conventional paclitaxel, as illustrated bythe chart above. Abraxane clearly produces lower neutropenia, with less than half the rate of Grade 4 neu-tropenia. Abraxane appears to be somewhat worse on the CNS-mediate side effects such as sensory neu-ropathy, fatigue, arthralgia and myalgia. However, as we pointed out before, sensory neuropathy resolveswithin three weeks (see Figure 4 above). The incidence of the other side effects, while greater than those ofpaclitaxel, occur at relatively low rates and were transient in nature.

From a product label perspective, Abraxis is only able to cite its response rate relative to paclitaxel from anefficacy standpoint. The side effect profile of both drugs is described in great detail, providing the Abraxissalesforce with a compelling safety data set over which to engage treating physicians.

Abraxane Again Proves its Worth In a Head-to Head Trial Against Taxotere

In June of 2009, Abraxis and its clinical investigators, led by Dr. Gradishar, published the results of a PhaseII head-to-head trial of three different doses and two regimens (100mg/m2 or 150mg/m2 or every week or300mg/m2 every three weeks) of Abraxane against Taxotere (docetaxel) given at the conventional dose of100mg/m2 every three weeks. These results were published in the August 1, 2009, edition of the Journal ofClinical Oncology. Again, this was a metastatic breast cancer patient population; however, this study wasrestricted to only those patients who were previously untreated. The results demonstrated that the

150mg/m

2

dose arm of the trial provided a statistically significant improvement in progression-free survival(PFS). This result was seen whether progression was measured at the clinical site or by an independent radi-ologist. Response rates as measure by the independent radiologist in both the 100mg/m2 and the 150mg/m2were higher than those of docetaxel, but failed to achieve statistical significance. However, the investigator-assessed response rates seen with both weekly doses favored Abraxane. Finally, the 300mg/m2 every threeweeks dose regimen failed to show any difference between itself and docetaxel. As was seen in the registra-tion trials, Grade 3/4 neutropenia was lower in the Abraxane arm compared to the docetaxel arm.


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Figure 5: Confirmed ORR and DCR in Abraxane vs Docetaxel

Source: Gradishar et al. Significantly Longer Progression-Free Survival With nab-Paclitaxel Compared with Docetaxel as First-Line Therapyfor Metastatic Breast Cancer, J Clin Oncol. 2009

In this data set we highlight the impressive disease control rate (DCR) of the 150mg/m2 weekly Abraxanedose of 80%, or greater than a 35% improvement vs. docetaxel. Further, nearly one-third of patients experi-enced stable disease for 16 weeks or greater, nearly a 35% improvement vs. docetaxel. It is generally rec-

ognized in the cancer field that stable disease, in addition to response rates, is predictive of survival.

nab - Paclitaxel300mg/m2 q3w 100mg/m2 Weekly 150mg/m2 Weekly Docetaxel 100mg/m2

ORR and DCR (n=76) (n=76) (n=74) q3w (n=74) p

Confirmed ORR Overall: .224

No. 28 34 36 26

% 37 45 49 35

95% CI 26.0 to 47.7 33.6 to 55.9 37.3 to 60.0 24.3 to 46.0

PR

No. 27 34 36 26

% 36 45 49 35

CR

No. 1 0 0 0

% 1 0 0 0

DCR Overall: .027; 100 mg/m v D: .009;

No. 52 57 50 43 150 mg/m v D: .017

% 68 75 80 58

95% CI 58.0 to 78.9 65.3 to 84.7 70.6 to 88.9 46.9 to 69.3

SD 16 weeks

No. 24 23 23 17

% 32 30 31 23

Confirmed ORR Overall:


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Figure 6: Progression-Free Survival in Abraxane vs Docetaxel


The 150mg/m2 weekly Abraxane dose produces a PFS benefit that is both highly significant and clinicallyrelevant. The associated p value of 0.0065 of the comparison to docetaxel is impressive, as is the hazardration (HR) of 0.495, indicating a greater than 50% reduction in events in the Abraxane-treated patientpopulation vs. that in the doectaxel arm.

Figure 7: Kaplan Meier of PFS curve in Abraxane vs Docetaxel


Here the curves separate early and stay separated throughout the 24 months of follow-up.

nab- Paclitaxel300mg/m2 q3w 100mg/m2 Weekly 150mg/m2 Weekly Docetaxel 100mg/m2

Variable (n=76) (n=76) (n=74) q3w (n=74) p HR

No. 32 32 34 33

% 42 42 46 45

Median progression-free survival, mos. 11.0 12.8 12.9 7.5 Overall .0498; 150 mg/m2 v D: 0.495

95% CI 150 mg/m2 v D: .0065

Investigator assessment

No. 44 59 36 44

% 57 68 49 59

Median progression-free survival, mos. 10.9 7.5 14.6 7.8 Overall: .008; 100 mg/m2 100 mg/m2 v 150 mg/m2:

v 150 mg/m2: .001; 1.972; 150 mg/m2 v D:

95% CI 8.9 to 14.6 7.2 to 9.3 10.0 to 18.9 6.3 to 11.0 150 mg/m2 v D: 0.12 0.568

Notes :

q3w: Every 3 Weeks D: docetaxel

HR: Hazard ratio

Independent radiologist assessment

Patients who died or experienced progression

Patients who died or experienced progression


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Data Equals Market Share In Cancer Therapy

Figure 8: Annual Taxane Treatments (Data in 000s)

Source: Company reports, Plan A, IMS Global Health Oncology Analyzer; IntrinsiQ Research, ROW extrapolation from IMS.

Recent market data indicates that docetaxel (Taxotere) had the highest share amongst the various conven-tional chemotherapeutic regimens used for first line metastatic breast cancer. In contrast, Abraxane heldmarket share in the mid-teens overall and the low-teens in first line MBC. These numbers have been rela-tively static over the past 18 months. Within the taxane space (paclitaxel and docetaxel), we can look atAbraxanes market share in two different ways. In the month of July, data provided to us by the companyindicates that 35% of patients treated with a taxane received Abraxane (4795/13727). Breaking these num-bers down further by treatment line, we find the following:

USA

78

25

34

76

159

Europe

3822

63

68

141

ROW

105

44

34

16

52

Breast NSCLC Ovarian Prostate Other


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Figure 9: Estimated Number of Patients on Abraxane in July 2009

Source: IntrinsiQ.

On a rolling 12-month average basis (August 2008-July 2009), there were just over 54,000 patients treatedwith a taxane through all lines of therapy. Of these, just over 17,000 patients (32%) received Abraxane.Breaking these figures down again as before, we find the following:

Figure 10: Estimated Number of Patients on Abraxane on Rolling 12-Month Average Basis

Source: IntrinsiQ.

Given that the market share numbers for Abraxane have stayed relatively stable, why then do we projectgrowth in the U.S. market? The answer is straightforward: data and promotion. As we mentioned earlier, webelieve the Gradishar article will help reinforce in the minds of treating physicians that Abraxane is a trulydifferentiated taxane from the others. Therefore, we would expect Abraxane to see increased use in the first

line MBC setting despite the fact that the drug is neither labeled nor promoted for that indication. Second,the recent management changes have brought about stability after a tumultuous two-plus years of its co-promotion agreement with AstraZeneca. In the brief period of time since the announcement of Abraxiss re-acquisition of the marketing rights to Abraxane in November of 2008, the size of the salesforce promotingthe drug has gone from 135 down to a low of 75, and only recently returned to a more normal level of 95.In our view, a focused, motivated salesforce with a great product to promote is elemental for success. Par-enthetically, we would add that it is commendable that Abraxane sales have remained flat during the timethat the salesforce was undergoing this turmoil. Please see our full Abraxane model for our projectedgrowth rates.

Line # of Patients1st Line 1,589

2nd Line 1,343

3rd Line 1,863

Line # of Patients

1st Line 5,197

2nd Line 4,528

3rd Line 7,399


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Figure 11: Abraxane Revenue Model

Source: Company reports and Merriman Curhan Ford estimates.

ABRAXANE 1Q09 2Q09 3Q09 4Q09 2009FY 1Q10 2Q10 3Q10 4Q10 2010FY 2011FY 2012FY 2013FY 2014FY 2015FY

Total $71.8 $77.2 $82.6 $86.1 $322.2 $90.6 $94.8 $99.0 $103.3 $387.7 $477.5 $562.7 $652.4 $740.6 $827.3

Growth 26% 23% 20% 20% 20% 23% 18% 16% 14% 12%

Metatstatic Breast Cancer 1Q09 2Q09 3Q09 4Q09 2009FY 1Q10 2Q10 3Q10 4Q10 2010FY 2011FY 2012FY 2013FY 2014FY 2015FY

Total $59.4 $63.5 $66.1 $68.9 $257.8 $72.5 $75.9 $79.2 $82.6 $310.2 $386.8 $461.4 $541.5 $622.1 $703.2

Growth y/y 22% 20% 20% 20% 20% 25% 19% 17% 15% 13%

United States $57.0 $59.8 $61.9 $63.5 $242.2 $65.0 $66.6 $68.3 $69.9 $269.7 $301.2 $333.8 $366.0 $397.6 $425.4

% of total MBC 96% 94% 94% 92% 94% 90% 88% 86% 85% 87% 78% 72% 68% 64% 60%

Growth y/y 14% 11% 10% 10% 11% 12% 11% 10% 9% 7%

Cost Per Vial $800 $800 $800 $800 $800 $840 $840 $840 $840 $840 $882 $926 $954 $982 $1,012

First Line 20.0 21.2 22.4 23.2 86.8 24.1 24.9 25.7 26.5 101.3 113.5 130.3 143.4 150.9 165.6

% of total MBC 34% 33% 34% 34% 34% 33% 33% 32% 32% 33% 29% 28% 26% 24% 24%

% of US Sales 35% 35% 36% 37% 36% 37% 37% 38% 38% 38% 38% 39% 39% 38% 39%

Growth y/y 21% 18% 15% 14% 17% 12% 15% 10% 5% 10%

Second Line 19.2 20.4 21.0 21.6 82.2 22.0 22.6 23.2 23.8 91.8 102.5 114.8 128.7 151.9 157.0

% of total MBC 32% 32% 32% 31% 32% 30% 30% 29% 29% 30% 27% 25% 24% 24% 22%

% of US Sales 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 35% 38% 37%

Growth y/y 15% 11% 11% 10% 12% 12% 12% 12% 18% 3%

Third Line 17.8 18.2 18.5 18.7 73.2 18.8 19.1 19.3 19.5 76.7 85.2 88.7 94.0 94.8 102.8

% of total MBC 30% 29% 28% 27% 28% 26% 25% 24% 24% 25% 22% 19% 17% 15% 15%

% of US Sales 31% 30% 30% 29% 30% 29% 29% 28% 28% 28% 28% 27% 26% 24% 24%Growth y/y 6% 5% 4% 4% 5% 11% 4% 6% 1% 8%

Europe $0.7 $0.7 $0.7 $0.7 $2.7 $2.0 $2.5 $3.1 $3.6 $11.1 $27.0 $48.3 $74.2 $96.6 $127.6

% of total MBC 1% 1% 1% 1% 1% 3% 3% 4% 4% 4% 7% 10% 14% 16% 18%

Growth y/y 196% 277% 358% 439% 317% 142% 79% 54% 30% 32%

Cost Per Vial $350 $350 $350 $350 $350 $368 $368 $368 $368 $368 $386 $405 $417 $430 $443

First Line 0.3 0.3 0.3 0.3 1.1 0.8 1.1 1.3 1.6 4.8 11.7 20.9 37.3 47.4 61.0

% of total MBC 0% 0% 0% 0% 0% 1% 1% 2% 2% 2% 3% 5% 7% 8% 9%

% of Europe Sales 40% 40% 40% 40% 40% 40% 42% 43% 44% 43% 43% 43% 50% 49% 48%

Growth y/y 201% 302% 402% 503% 352% 145% 79% 79% 27% 29%

Second Line 0.3 0.3 0.3 0.3 1.1 0.8 1.0 1.2 1.4 4.3 10.4 19.8 25.8 35.1 47.1

% of total MBC 0% 0% 0% 0% 0% 1% 1% 1% 2% 1% 3% 4% 5% 6% 7%

% of Europe Sales 42% 42% 42% 42% 42% 40% 39% 39% 38% 39% 39% 41% 35% 36% 37%

Growth y/y 184% 255% 326% 397% 290% 141% 90% 30% 36% 34%

Third Line 0.1 0.1 0.1 0.1 0.5 0.4 0.5 0.6 0.6 2.0 4.9 7.6 11.1 14.1 19.6

% of total MBC 0% 0% 0% 0% 0% 1% 1% 1% 1% 1% 1% 2% 2% 2% 3%

% of Europe Sales 19% 19% 19% 19% 19% 20% 19% 18% 17% 18% 18% 16% 15% 15% 15%

Growth y/y 210% 272% 334% 397% 303% 138% 56% 46% 27% 39%

China $1.8 $3.0 $3.5 $4.7 $12.9 $5.5 $6.7 $7.9 $9.1 $29.3 $58.6 $79.3 $101.3 $127.8 $150.2

% of total MBC 3% 5% 5% 7% 5% 8% 9% 10% 11% 9% 15% 17% 19% 21% 21%

Growth y/y 214% 127% 126% 94% 126% 100% 35% 28% 26% 17%

Cost Per Vial $450 $450 $450 $450 $450 $473 $473 $473 $473 $473 $496 $521 $547 $574 $603

First Line 0.7 1.3 1.3 2.0 5.2 2.6 3.3 3.9 4.6 14.5 29.0 40.4 47.7 62.4 72.2

% of total MBC 1% 2% 2% 3% 2% 4% 4% 5% 6% 5% 8% 9% 9% 10% 10%

% of China Sales 37% 44% 37% 42% 40% 48% 49% 50% 50% 49% 50% 51% 47% 49% 48%

Growth y/y 302% 151% 201% 134% 176% 101% 39% 18% 31% 16%

Second Line 0.8 1.2 1.6 2.0 5.5 2.0 2.3 2.7 3.1 10.1 20.7 27.4 37.7 46.2 55.1

% of total MBC 1% 2% 2% 3% 2% 3% 3% 3% 4% 3% 5% 6% 7% 7% 8%

% of China Sales 45% 40% 45% 42% 43% 35% 35% 34% 34% 35% 35% 34% 37% 36% 37%

Growth y/y 148% 99% 74% 59% 84% 104% 32% 38% 23% 19%

Third Line 0.3 0.5 0.6 0.8 2.2 0.9 1.1 1.2 1.4 4.7 9.0 11.6 15.8 19.2 22.8

% of total MBC 1% 1% 1% 1% 1% 1% 1% 2% 2% 2% 2% 3% 3% 3% 3%

% of China Sales 18% 16% 18% 17% 17% 17% 16% 16% 15% 16% 15% 15% 16% 15% 15%

Growth y/y 198% 132% 99% 79% 113% 91% 30% 36% 21% 19%

MBC (Partnered) 1Q09 2Q09 3Q09 4Q09 2009FY 1Q10 2Q10 3Q10 4Q10 2010FY 2011FY 2012FY 2013FY 2014FY 2015FY

ROW $0.0 $0.0 $0.0 $1.1 $1.1 $2.4 $3.5 $4.7 $6.0 $16.7 $39.0 $55.5 $79.0 $97.4 $120.2

% of total MBC 0% 0% 0% 2% 0% 3% 5% 6% 7% 5% 10% 12% 15% 16% 17%

Growth y/y 468% 1472% 134% 42% 42% 23% 23%

Cost Per Vial $400 $400 $400 $400 $400 $420 $420 $420 $420 $420 $441 $463 $486 $511 $536

First Line 0.0 0.0 0.0 0.3 0.3 0.9 1.6 2.2 2.8 7.5 19.4 27.5 39.0 49.5 63.6

% of total MBC 0% 0% 0% 0% 0% 1% 2% 3% 3% 2% 5% 6% 7% 8% 9%

% of China Sales 0% 0% 0% 7% 2% 17% 23% 28% 31% 26% 33% 35% 39% 39% 42%

Growth y/y 804% 2311% 157% 42% 42% 27% 29%

Second Line 0.0 0.0 0.0 0.4 0.4 0.9 1.2 1.6 2.1 5.8 12.3 18.3 26.7 32.4 37.7

% of total MBC 0% 0% 0% 1% 0% 1% 2% 2% 3% 2% 3% 4% 5% 5% 5%

% of China Sales 0% 0% 0% 8% 3% 17% 17% 21% 23% 20% 21% 23% 26% 25% 25%

Growth y/y 459% 1452% 112% 49% 46% 21% 17%

Third Line 0.0 0.0 0.0 0.4 0.4 0.6 0.7 0.9 1.1 3.3 7.4 9.8 13.3 15.5 18.9

% of total MBC 0% 0% 0% 1% 0% 1% 1% 1% 1% 1% 2% 2% 2% 2% 3%

% of China Sales 0% 0% 0% 8% 3% 10% 11% 12% 12% 11% 13% 12% 13% 12% 13%

Growth y/y 198% 794% 121% 32% 37% 17% 21%

Royalty Rate 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%

ROW Royalty Revenue $0.0 $0.0 $0.0 $0.2 $0.2 $0.5 $0.7 $0.9 $1.2 $3.3 $7.8 $11.1 $15.8 $19.5 $24.0

Off Label Sales 1Q09 2Q09 3Q09 4Q09 2009FY 1Q10 2Q10 3Q10 4Q10 2010FY 2011FY 2012FY 2013FY 2014FY 2015FY

Total $12.4 $13.7 $16.5 $17.2 $64.4 $18.1 $19.0 $19.8 $20.7 $77.5 $90.7 $101.3 $110.9 $118.5 $124.1

% of total Abraxane rev 17% 18% 20% 20% 20% 20% 20% 20% 20% 20% 19% 18% 17% 16% 15%

Growth y/y 46% 38% 20% 20% 20% 17% 12% 9% 7% 5%


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Let the Data Flow: Abraxane Has a Busy Clinical Trials Calendar

A quick search using the term Abraxane on ClinicalTrials.gov returns 38 trials that include the term and arecurrently enrolling patients (the number balloons to more than 63 if all trials are included). Even if one nar-rows the search by including the term Phase III, 13 studies still pop up. As impressive as this is, clearlyAbraxis must focus on those studies that are most likely to provide the greatest return for dollar invested.Those studies conducted beyond the aegis of Abraxis can serve multiple purposes: first, they may help formthe hypothesis for Abraxis-sponsored trials; second, they may be the material for publication and eventualcompendia listing (see Appendix C), and; third, they may be the subject of presentations and abstracts atmedical conferences that could drive off-label use. According to Abraxis, the company is sponsoring threePhase III studies, 15 Phase II studies and 11 Phase I/II studies. In addition, over there are over 60 investi-gator-sponsored studies for which the company is providing assistance. For our purposes, we will focus onthose studies that Abraxis can control. The totality of this clinical trial portfolio can have a meaningful benefiton the companys commercial prospects.

Abraxane Phase III Trials: One Ace in the Hole, Two Wildcards

The three most important trials Abraxis has ongoing are in melanoma, panreatic cancer and non-small celllung cancer (NSCLC). Given that paclitaxel is already a standard of care in conjunction with platinum agents(either carboplatin or cisplatin) for the treatment of newly diagnosed Stage IIIB/IV metastatic NSCLC, weview this trial as the one with the highest probability of success. Multiple trials with both carbo- and cisplatinhave demonstrated survival improvement in this setting, and, at least in the U.S., platinum-based therapiesare still the standard of care for first line therapy (although Alimta-based regimens may make further inroadsagainst platinum-based therapies). Abraxiss other two registration-directed studies in melanoma and pan-creatic cancers are based on provocative data from single-arm trials. However, it has not yet been estab-lished that taxanes can provide clinical benefit in these two tumor settings. Thus, we have only built a modelfor the potential use of Abraxane in NSCLC, but are not incorporating our estimates into our projections atthis time. However, to give the reader a sense of the commercial opportunity for Abraxane in NSCLC, wewould make the following points:

1. Non-Small Cell Lung Cancer is one of the largest of all tumor types, with the patient population approxi-mately equal to the sum of both breast and colorectal cancer.

2. Use of the combination of a platinum-based drug (carboplatin) with paclitaxel accounts for approximatelyone-quarter of all regimens used in first-line NSCLC. Addition of Avastin (bevacizumab) to carbotaxoladds another 8-10% of patients, while carboplatin with Taxotere (docetaxel) add an additional 3-5%.

3. Despite recent therapeutic advances, mortality from NSCLC remains high. Further, the concept ofmaintenance therapy, i.e., use of an active regimen beyond the standard number of cycles typicallyused to achieve a response. In our view, the activity and tolerability of Abraxane, although as yet un-proven, makes it an ideal candidate for such therapy.

Abraxis Pipeline-Lots Going on Internally and Externally

In addition to the registration studies that Abraxis is undertaking in NSCLC, melanoma and pancreatic can-cer, there are a number of ongoing trials sponsored both by Abraxis and others that may drive additional useof Abraxane in various settings. Abraxis is sponsoring two late-stage studies we find interesting: one thatexamines the use of Abraxane in breast cancer in the adjuvant setting, while the other examines the use ofAbraxane in a taxane-refractory patient population ( a true acid-test of Abraxanes activity). As we previouslymentioned, a search on www.clinicaltrials.gov using the terms Abraxane, nab-paclitaxel, or ABI-007, turnup hundreds of references (between 425 and 1200 depending on whether one wants to look at all trials oronly those that are currently open to enrollment). Amongst the more interesting of these are combinationstudies with targeted therapies such as Avastin, Erbitux, Herceptin (we point out that the NCCN guidelinesrecommend paclitaxel as the preferred background chemotherapy in HER 2+ breast cancer treated with Her-


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ceptin) and Sutent, amongst others, including experimental targeted agents. These studies will likely be thesubject of future publications and presentations that may drive additional use and inform the design of regis-tration-quality studies.

Beyond Abraxane, we would highlight two development candidates with significant commercial potential (thefull Abraxis pipeline can be viewed in the diagram below.

Figure 16: Abraxis BioScience Pipeline

Source: Company reports.

ABI-008 is a nano-particle version of Sanofi-Aventiss Taxotere (docetaxel). The drug is in Phase II trials forthe treatment of chemotherapy-nave metastatic, hormone-refractory prostate cancer. We remind the readerthat Taxotere is the current standard of care for this indication. According to the trial information on Clinical-Trials.gov, the study should read out sometime in mid-2010. Another intriguing, yet early, compound is ABI-013 (CY196), a microtubule inhibitor that is optimized for the nab platform.

NAB Technology Platform-Big things Come in Small Packages

The key to the Abraxis product platform is the companys nab albumin-based drug delivery technology. Albu-min is the most abundant protein in the human body, and Abraxis has harnessed its properties to create avaluable and versatile drug delivery platform. When albumin is used as the key protein in the ProtoSpheretechnology, the resulting vehicle is referred to as a nab (naoparticle albumin-bound) particle. Albumin hasmultiple capabilities that make it well-suited for use as a delivery vehicle. These properties include:

Albumin can carry water insoluble molecules, including nutrients, vitamins and hormones

Given their increased metabolic rate, tumors exhibit an increased appetite for nutrients, which are car-ried to the tumor by albumin

Albumin can carry substances across the endothelial barrier (the layer of cells that constitute the vascu-lar system)

Albumin binds to the gp60 receptor on endothelial cells, forming caveolae (indentations in the cell mem-brane that get pinched off and form small vesicles inside the cell) that transports albumin and its payload

Drug and Indication Preclinical Phase I Phase II Phase III MarketedABI-007 (nab -paclitaxel)

Breast (metastatic)

Lung (Advanced NSCLC)

Malignant Melanoma (Stage IV)

Pancreatic (Advanced)

ABI-008 (nab -docetaxel)Microtubule Stabilizer -

Prostate (Hormone Refractory)

ABI-009 (nab- rapamycin)

mTOR inhibitor - Solid Tumors

ABI-010 (nab -17AAG)

Hsp90 inhibitor - Solid Tumors

ABII-011 (nab- 5404)

Dual Microtubule and Topoisomerase-1

inhibitor - Solid Tumors

ABI-011 (nab- CY196)


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across the cell membrane

Albumin binds to SPARC (secreted protein acidic and rich in cysteine), a protein that binds albumin andconcentrates nutrients in the interstitium. Tumors secrete this protein at abnormally high levels

In effect, the nab technology functions as a Trojan horse that facilitates the escape of paclitaxel from thevasculature and into the tissue compartment. Once in the tissue space, SPARC proteins concentrate the pa-clitaxel payload that is then sopped up preferentially by cells of the tumor. The nab platform is exceptionallyversatile, and can be applied to a variety of compounds (please see the Abraxis BioScience product platformbelow).

Figure 17: nab-Particle Diagram


Figure 18: nab-Platform


1. Albumin-bound paclitaxeldisaasociates in the bloodstream.

2. Binds to gp60 on endothelialcell wall.

3. Caveolae transport drug totumor interstitium.

4. Surface SPARC binds albumin-drug complex.


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Valuation

As mentioned previously, we find the valuation of the shares of Abraxis BioScience to be extremely compel-ling. At a recent price in the $26 range, the companys market cap is just over $1 billion. Subtracting $258million in net cash (the company has zero debt) leaves a technology (enterprise) value of approximately$800 million. On a trailing 12-month (TTM) basis, the shares trade at a modest 2.4 times TTM EV/Revenue.Book value is $889 million, giving an Price/BV of 1.2x. On a standard discounted future earnings basis, wearrive at a one year price target range of $30-33. Please see our detailed financial models for all estimatesand projections. Please note that our financial projection do not account for any changes in the cost structureas a result of the Abraxis Health spin-off.

Summary and Conclusion

In sum, we find the shares of Abraxis BioScience to be extremely attractive at current levels, the companyspast notwithstanding. Valuation is compelling, the new management is competent and motivated, and the

lead product has a worldwide franchise which the company controls. Abraxane roll-out in ex-U.S. territoriesshould drive strong comparative numbers throughout the course of 2010. As operational improvements arerealized and the spin-off of Abraxis Health places more of the BioScience operations in the limelight, valua-tion should increase accordingly, in our view. We are therefore initiating coverage with a Buy rating and atarget range of $30-33.


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Appendix A: Management Team

According to information from the company:

Lonnie Moulder, Vice Chairman, President and Chief Executive Officer

Mr. Moulder joined Abraxis BioScience in 2009. Previously, he was vice chairman of Eisai Corporation ofNorth America following its acquisition of MGI PHARMA, INC., where he served as president and chief execu-tive officer since 2003. Mr. Moulder joined MGI PHARMA in 1999 as executive vice president and was subse-quently promoted to president and chief operating officer. Prior to that, he was a member of the foundingmanagement team and vice president business development and commercial affairs of Eligx, Inc., a venture-stage biomedical company. Mr. Moulder served for 16 years in a number of commercial roles for HoechstMarion Roussel (now Sanofi Aventis) and its predecessor companies. He began his career as a clinical phar-macist. Mr. Moulder was a board member of the Biotechnology Industry Organization (BIO) and is a memberof the Board of Visitors of the Temple University school of Pharmacy. He earned a bachelor of science degreein pharmacy from Temple University and a master of business administration degree from the University ofChicago.

Patrick Soon-Shiong, M.D. Executive Chairman

Dr. Soon-Shiong is the Executive Chairman and Chief Executive Officer of Abraxis Health. He was recentlyappointed Executive Director of the UCLA Wireless Health Institute, and is Professor of Microbiology, Immu-nology, and Molecular Genetics Professor of Bioengineering at UCLA.

Dr. Soon-Shiong holds a degree in Medicine from the University of the Witwatersrand, Johannesburg, SouthAfrica, and a Master of Science from the University of British Columbia. He is a fellow of the American Col-lege of Surgeons and the Royal College of Physicians and Surgeons of Canada. Dr. Soon-Shiong performedthe worlds first encapsulated islet transplant in a diabetic patient. He developed the first FDA approved pro-tein nanoparticle delivery technology for the treatment of metastatic breast cancer and this drug is beingdeveloped for lung, melanoma, gastric and pancreatic cancer. He is a co-inventor of over 50 issued U.S. pat-ents, has published more than 100 scientific papers, and founder of two publicly traded pharmaceutical com-panies, American Pharma Partners and Abraxis Bioscience.

Dr. Soon-Shiongs research has been recognized by national and international awards such as the Associa-tion for Academic Surgery Award for Research, the American College of Surgeons Schering Scholar, theRoyal College Physicians and Surgeons Research Award, the Peter Kiewit Distinguished Membership in Medi-cine Award, and the International J.W. Hyatt Award for Service to Mankind. Dr. Soon-Shiong received the2006 Gilda Club Award for the advancement of cancer medicine and is a recipient of a 2007 Ellis Island Medalof Honor as well as the St. Mary Medical Center Life Achievement Award in 2007 and the St. Johns HealthCenter Caritas Award in 2007.

In 2008, he received the Medical Visionary Award from the Pancreatic Cancer Action Network for his work inpancreatic cancer.

Dr. Soon-Shiong currently serves on the Board of Directors for the National Institute of Transplantation aswell as the Technology Council for the new Center for Cancer Nanotechnology Excellence at NorthwesternUniversity which is part of the National Cancer Institutes (NCI) five-year initiative for nanotechnology in can-

cer research. He also serves on two advisory boards for the RAND Corporation, the RAND Center for AsiaPacific Policy and the RAND Health Board of Advisors. Dr. Soon-Shiong recently joined the Board of Trusteesfor the Saint Johns Health Center in Los Angeles, California and the Advisory Board of the California Nano-Systems Institute at UCLA. He also recently joined the Advisory Board for the Institute for Technology Ad-vancement (ITA) at UCLA School of Engineering & Applied Science, as well as the Board of Councilors of theUSC Viterbi School of Engineering.

In 2009 he was appointed to the Presidents Council at RAND Corporation, Chairman of the Steering Commit-tee of Life Sciences of the X-Prize Foundation and Founding Board member to Dossia Foundation.


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Mary Lynne Hedley, Ph.D., Executive Vice President and Chief Scientific Officer

Dr. Hedley most recently served as Executive Vice President of Eisai Corporation of North America followingEisais acquisition of MGI PHARMA, INC. where she had served as Executive Vice President and Chief Scien-tific Officer since 2005. She joined MGI PHARMA in 2004 as Senior Vice President and General Manager. Pre-viously, Dr. Hedley co-founded ZYCOS, Inc., a biotechnology company, and held roles of progressivelygreater responsibility ultimately leading to her serving as the companys President and Chief Executive Offi-cer. Dr. Hedleys early research career consisted of two consecutive postdoctoral fellowships at Harvard Uni-versity from 1989 through 1996. She earned her bachelor of science degree in Microbiology from Purdue Uni-versity and her doctorate degree in Immunology from the University of Texas, Southwestern Medical Center.She is a named inventor on multiple patents in the field of immunology, and has been widely published in avariety of peer-reviewed journals. Dr. Hedley is the recipient of multiple awards and fellowships, is a fre-quent guest lecturer, and an active volunteer in educational as well as local community organizations.

Rick Rodgers, Senior Vice President and Chief Financial Officer

Mr. Rodgers joined Abraxis BioScience in 2009. Previously, he was Senior Vice President, Controller and

Chief Accounting Officer of MGI Pharma until the companys acquisition by Eisai Corporation in 2008. In2003, Mr. Rodgers was Corporate Controller of MedSource Technologies and from 1997 to 2002, he heldvarious senior positions at ADC Telecommunications Inc. Prior to that, he held finance and accounting posi-tions at several private and public companies. Mr. Rodgers began his financial career in accounting at ArthurAnderson & Co. Mr. Rodgers earned his bachelor of science degree in Financial Accounting from St. CloudState University, Minn., and his master of business administration degree in Finance from the University ofMinnesota, Carlson School of Business.

Bruce Wendel, Executive Vice President, Corporate Development

Mr. Wendel became executive vice president of corporate development of Abraxis BioScience in May 2006.Mr. Wendel joined American Pharmaceutical Partners (APP) in 2004 as vice president of corporate develop-ment. He began his 14 years with Bristol-Myers Squibb as in-house counsel before shifting to business andcorporate development. While at Bristol-Myers Squibb, as vice president, corporate development interna-tional medicines, he led teams that completed several major acquisitions, divestitures and alliances around

the world. These transactions included a $225 million divestiture of Bristol's U.S. diagnostic division as wellas the acquisition of three pharmaceutical firms in Argentina, South Korea, and Peru, and a co-promotionalliance with SmithKline Beecham for Avandia. Before joining APP, he served as vice president, business de-velopment and licensing for IVAX Corporation, a generic drug manufacturer, where late last year he com-pleted the company's acquisition of 3M's European respiratory business. Previously, Mr. Wendel served in thelegal departments of Playtex and Combe. He earned a Juris Doctorate degree from Georgetown UniversityLaw School where he was an editor of Law & Policy in International Business, and a B.S. from Cornell Univer-sity.

Marty J. Duvall, Senior Vice President, Global Marketing and International Commercial Operations

Mr. Duvall joined Abraxis BioScience in 2009. Mr. Duvall most recently served as Chief Business Officer, Mor-photek, a subsidiary of Eisai Corporation of North America, following Eisais acquisition of MGI PHARMA, INC.,where he served as Sr. Vice President, Commercial Operations (2004-2006) and Sr. Vice President, Commer-cial Strategy and Development (2007-2008). Previously, Mr. Duvall served for nearly 19 years in a number

of commercial roles at Sanofi-Aventis and its predecessor companies. During that tenure, his responsibilitiesincluded Vice President, Global Medical and Marketing, with a focus on Taxotere, and Vice President, Mar-keting for the U.S. Oncology Business Unit. He earned a bachelor of science degree in chemistry fromMuhlenberg College, a master degree in chemistry from The Johns Hopkins University, and a master of busi-ness administration degree from the University of Kansas.


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Appendix B: Diseases Overview

Breast Cancer

According to the American Cancer Society, breast cancer is the leading site for new cases and deaths amongwomen worldwide. According to SEER estimates, more than 193,000 women will be newly diagnosed in2009. It is estimated that 40,000 Americans will die from breast cancer in 2009. There are over 2.5 millionwomen in the United States that have a history of breast cancer. The overall five year survival rate is 89.1%,though the rate decreases to 27% if the cancer has metastasized at diagnosis. 85% of breast cancer casesbegin in the mammary ducts. 60% of diagnosed cases are in a localized stage, another 33% have alreadyspread to regional lymph nodes, and 5% have already metastasized. The two main divisions of breast cancerare invasive and Ductal Carcinoma in Situ (DCIS). Invasive occurs when abnormal cells from inside lobules orducts break out into nearby breast tissue allowing cancer cells to spread to lymph nodes and metastasize toother organs in advanced stages. DCIS is when the abnormal cells grow inside mammary ducts withoutspreading to other sites.

Metastatic breast cancer is an advanced stage of breast cancer. Of all such cases in the US, most are reoc-

currences. The five year survival rate is lower than earlier stages and treatment goals are to prolong life andreduce symptoms to improve quality of life. Hormone therapy may be used on tumors with positive hormonereceptors (ER+) and works to shrink tumors throughout the body. When it is not an option, chemotherapy isusually considered which can stop the growth of the tumor, kill cancer cells that have spread to other partsof the body and reduce symptoms. According to the National Comprehensive Cancer Network (NCCN) guide-lines for breast cancer, the preferred single agents to treat metastatic breast cancer are anthracyclines, tax-anes, anti-metabolites and other microtubule inhibitors. The preferred taxanes are paclitaxel, docetaxel andalbumin-bound paclitaxel (Abraxane).

Melanoma A Killer in the Sun

Cutaneous melanoma continues to challenge the medical establishment, proving to be quite difficult to man-age. Approximately 68,000 patients are diagnosed with cutaneous melanoma each year, nearly 9,000 will die

from the disease. According to the National Cancer Institute Surveillance, Epidemiology and End Results(SEER) database, there has been a 619% increase in annual diagnoses from 1950 to 2000, and a 165% in-crease in annual mortality from this cancer. Of all the cancers, it is the fifth most common in men, and theseventh in women. It is also the second most common cancer in women ages 20-29 years.

This is despite an effort to reduce the incidence by earlier screening and increased education. However, cer-tain genetic predispositions such as blond or red hair, blue eyes, presence of freckles, and inability to tan,combined with lifestyle choices such as sun tanning, outdoor activities leading to sunburn and infrequent useof sunblock contribute to the growing problem. In addition, certain people have been found to have muta-tions in the melanocortin-1 gene, which may predispose them to melanoma. Other implicated mutations oc-cur in the CDKN2A and CDK4 genes, prevalently found in families with hereditary melanoma. Additional riskfactors include prior primary cutaneous melanoma, family history of melanoma, and multiple clinically atypi-cal moles. While UV-light has been historically thought to cause cancer, some recent research suggests thatit may have a role in attenuating the bodys immune system, allowing these other de novo mutations to sur-

vive.Screening and education remain the best hope for melanoma sufferers. ABCD evaluations of early lesionscheck for asymmetry, border irregularity, color variegation and diameter greater than 6mm or increasedsize. In a mass screening study from 1992 to 1994, about 2% of 282,000 patients screened had suspiciouslesions, of which 8% turned out to be melanoma. Despite increased awareness, direct reduction in mortalityhas not been realized.


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Non-Small Cell Lung Cancer (NSCLC)

According to the World Health Organization (WHO), there are over 1.2 million cases of lung and bronchialcancer world wide each year, causing approximately 1.1 million deaths annually. It is estimated that morethan 219,000 people will be diagnosed with lung cancer in the United States in 2009. According to the Na-tional Cancer Institute, lung cancer is the single largest cause of cancer deaths in the United States, and isresponsible for nearly 30 percent of cancer deaths in this country. The overall five-year survival rate from1999-2005 from 17 SEER (Surveillance, Epidemiology, and End Results) geographic areas was 15.6%. Themedian survival of patients with untreated metastatic non-small cell lung cancer is only four to five months,with a survival rate of one year of only 10%. (Rapp E. Pater JL, Willan A., et al. Chemotherapy can prolongsurvival in patients with advanced non-small cell-lung cancer. JClin Oncol 1988; 6:633-41)

NSCLC is the most common form of the disease and accounts for almost 80% of all lung cancers, with anestimated market opportunity of over $2 billion. There are three sub-types of NSCLC. Squamous cell carci-noma makes up 25-30% of NSCLC cases, adenocarcinoma accounts for 40%, and large-cell carcinomamakes up 10-15% and tends to grow and spread quickly making it harder to treat.

Standard therapeutic strategies such as surgery, chemotherapy or radiotherapy have reached a plateau(Yang, et al. Non-small cell lung cancer: epidemiology, risk factors, treatment and survivorship. Mayo ClinicProc 2008;83:584^94). Current standard of advanced NSCLC are now commonly stratified into bevacizu-mab-eligible (Avastin, Genentech/Roche) and bevacizumab-ineligible patients. Under the National Compre-hensive Cancer Network (NCCN) Guidelines for NSCLC, albumin-bound paclitaxel can be substituted for pacli-taxel or docetaxel for patients who experienced hypersensitivity reactions after receiving paclitaxel or do-cetaxel despite premedication or 2) for patients in whom the standard premedications (dexamethasone, H2blockers, H1 blockers) are contraindicated.

Pancreatic Cancer

Cancer of the pancreas is the fourth leading cause of cancer-related deaths in the United States with over35,000 deaths estimated in 2009 and over 42,000 new cases are expected to be diagnosed in 2009. The

pancreas consists mostly of exocrine glands and a small percentage (5%) of endocrine glands. Tumorsformed in exocrine glands are more common, nearly all of which (95%) are adenocarcinomasa cancer thatstarts in gland cells. Adenocarcinomas usually begin in the ducts of the pancreas.

Figure 19: Newly Diagnosed Pancreatic Cancer Cases by Stage

Source: National Cancer Institute Surveillance Epidemiology and End Results

Pancreatic cancer typically spreads rapidly and is often goes undiagnosed until the cancer has spread beyond

the primary site thus making it difficult to treat. According to SEER estimates, 53% of newly diagnosed casesare already metastasized. According to the American Cancer Society (ACS), about 20% of cases live at leastone year after diagnosis, while less than 4% will be alive after five years. The National Comprehensive Can-cer Network (NCCN) Panel currently recommends gemcitabine monotherapy as standard front-line therapyfor patients with metastatic disease.

Stage % #

Localized 7% 2,973

Regional 26% 11,042

Distant 53% 22,509

Unstaged 14% 5,946


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Appendix C: Compendia Listings


Indication Compendia Date

Single Agent 1st Line MBC DrugPoints/DrugDex 2007

Single Agent & Combination 1st Line Advanced NSCLC NCCN October 2008

DrugDex January 2009

Single Agent Head and Neck DrugPoints/DrugDex 2006

Single Agent Anal DrugPoints/DrugDex 2006


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Public Companies Mentioned in this ReportAstraZeneca (LSE:AZN, $27.40, Not Rated)Elan (ELN, $7.58, Not Rated)Johnson and Johnson (JNJ, $60.29, Not Rated)Takeda (TSE:4502, JPY 3,820.00, Not Rated)Sanofi-Aventis (SNY, $35.40, Not Rated)


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Balance Sheet

$ in million 2006 A 2007 A 2008 A

Assets

Current Assets:

Cash and equivalents 0.5 705.1 306.4

Cash collateral for reacquistion of agreement - - 300.6

Accounts receivable 27.6 43.9 37.0

Related party receivable 0.2 2.0 1.9

Inventories 80.1 73.7 63.5

Prepaid expenses and other current assets 7.1 18.6 33.8

Deferred income taxes 21.2 33.7 65.6

Total Current Assets 136.8 877.0 808.8

PP&E 116.2 145.1 166.7

Investment in Drug Source Co 5.5 9.3 10.2

Intangible assets 243.4 205.2 175.3

Goodwill 241.4 241.4 241.4Other non-current assets 21.5 24.3 36.2

Total Assets 764.8 1,502.3 1,438.6

Liabilities and Equity

Current Liabilities:

Accounts payable 24.1 33.6 39.1

Accrued liabilities 29.9 54.9 53.0

Accrued litigation costs - - 57.6

Reacquisition payable - - 268.0

Related party payable - 7.0 -

Income taxes payable 18.5 5.0 0.7

Deferred revenue 39.2 41.3 4.2

Total current liabilities 111.7 141.8 422.7

Deferred income taxes, non-current 29.0 32.4 62.7Long-term portion of deferred revenue 158.1 121.1 8.2

Other non-current liabilities 6.9 9.5 15.5

Total Liabilities 305.8 304.9 509.1

Stockholder's Equity

Common Stock - 0.0 0.0

Additional PIC - 1,192.5 1,203.1

Accumulated deficit - 4.1 (272.7)

Accumulated other comprehensive loss 0.9 0.8 (1.0)

Parent Company investment 458.2 - -

Less: treasury stock

Total Stockholder's Equity 459.0 1,197.4 929.5

Noncontrolling Interest - -

Total Equity 459.0 1,197.4 929.5

Total L&E 764.8 1,502.3 1,438.6


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IMPORTANT DISCLOSURESThis research has been prepared by Merriman Curhan Ford & Co., a wholly owned subsidiary of Merriman Curhan Ford Group,

Inc. Some companies Merriman Curhan Ford & Co. follows are emerging growth companies whose securities typically involve ahigher degree of risk and more volatility than the securities of more established companies.The securities discussed in Merriman Curhan Ford & Co. research reports may be unsuitable for some investors depending on theirspecific investment objectives, financial status, risk profile, or particular needs. Investors should consider this report as only a singlefactor in making their investment decisions and should not rely solely on this report in evaluating whether or not to buy or sell the se-curities of the subject company.Regulation Analyst Certification (Reg. AC)All of the views expressed in this research report accurately reflect the research analyst's personal views about any and all of the sub-ject securities or issuers. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed by the research analyst in the subject company of this research report. Research analysts arenot directly compensated for specific revenue generated by the firms investment banking transactions/activities.General DisclosuresMCF & Co. expects to receive or intends to seek compensation for investment banking services for all of the companies in its re-search universe in the next three months. Investors should assume that MCF & Co. is soliciting or will solicit investment banking orother business relationships from the companies covered in this report in the next three months.Security prices in this report may either reflect the previous days closing price or an intraday price, depending on the time of distribu-

tion. Designated trademarks and brands are the property of their respective owners.Specific Disclosures- MCF & Co. has not received compensation for investment banking services within the last 12 months, and does not expect to receive orintend to seek compensation for investment banking services in the next three months, from Abraxis BioScience, Inc.- Within the last 12 months MCF & Co. has not managed or co-managed a public offering for Abraxis BioScience, Inc.- MCF & Co. makes a market in ABII and as such buys and sells from customers on a principal basis.- Neither Michael King nor a member of his household owns shares of ABII.- Neither MCF & Co. nor its officers, principals, employees, or owners own options, rights, or warrants to purchase ABII.- No MCF & Co. employee serves on the board of directors of Abraxis BioScience, Inc.- Neither Michael King nor a member of his household serves on the board of directors of Abraxis BioScience, Inc.- Neither MCF & Co. nor its affiliates beneficially owns 1% or more of an equity security of Abraxis BioScience, Inc.Key to Investment Rankings (expected total share price return inclusive of dividend reinvestment, if applicable)

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The information contained herein is based on information obtained from sources believed to be reliable but is neither all-inclusive norguaranteed by Merriman Curhan Ford & Co. No independent verification has been made as to the accuracy or completeness of theinformation. Opinions, if any, reflect our judgment at the time the report is first published and are subject to change without no-tice. Merriman Curhan Ford & Co. does not undertake to advise you of changes in its opinion or information.Member FINRA / SIPC. Copyright 2009. All rights reserved. Additional information supporting the statements in this report is avail-able upon request.

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No. ofStocks

Description

Percent of companies under researchcoverage from which MCF & Co. re-ceived compensation for investment

banking services provided in the previ-ous 12 months or expects to receive or

intends to seek in the next threemonths

Buy 77% 77MCF & Co. expects the stock price to appreciate10% or more over the next 12 months. Initiate or

6%

Neutral 21% 21MCF & Co believes the stock price is fairly valuedat current levels. Maintain position or take no ac-tion.

0%

Sell 2% 2MCF & Co. expects the stock price to depreciateover the next 12 months. Sell or decrease position.

0%

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