Incyte zooms on R&D pact with Pfizer; Medicis, Mentor, Allergan, Inamed tangle in merger scuffle

By Ronda Fears

Nashville, Nov. 21 - Incyte Corp. shares took off sharply Monday, rising as much as 35% or more before easing back before the close, on a research and licensing agreement with Pfizer Inc. worth up to $803 million for rights to a line of treatments for chronic inflammatory conditions.

Medicis Pharmaceutical Corp.'s triangular relationship involving its proposed acquisition of Inamed Corp., caused by Allergan Inc. horning into the union plot last week with a bid that topped the Medicis offer, is the subject of a takeover bid itself with an offer from Mentor Corp., which it rejected over the weekend.

Amid the ordeal, breast implant maker Mentor took a sharp dive while Medicis rose sharply and Allergan and Inamed were trading rather flat.

"The Inamed deal is better for Medicis. Reloxin [Inamed's competition for Allergan's anti-wrinkle treatment Botox] is really what Medicis is after. The breast implants, etc., are just icing on the cake," said a sellside market source.

"The best case scenario for Mentor and Medicis supporters is that Allergan wins the Inamed bid, then divests Reloxin, and gives Medicis the $90 million in [break-up] penalties, Medicis or Mentor buy Reloxin, then Medicis buys Mentor. The reason I want Medicis on the upper hand is because they have superior management and we will all be better off in their hands."

With the major biotech indexes higher along with the broader markets, sources said there was some activity in biotech credits as well as the stocks. Most were to the upside - including mention of the convertible bonds of Nektar Therapeutics, Amgen, Inc. and Medtronic, Inc. - but moving southward was Indevus Pharmaceuticals Inc., a Lexington, Mass.-based biotech that develops products for urology, gynecology and infectious diseases.

Indevus' down fall was unexplainable by market sources, as there was no news on the wires regarding the company, but a sellsider said the 6.25% convertible due 2008 was trading at par early Monday and then closed at 98 bid, 100 offered, after trading at around 104.5, maybe as high as 106 a few weeks ago. Indevus' lead product is Sanctura, for overactive bladder. The underlying stock on Monday fell 5% to $4.20.

Incyte shares up 22%

Incyte Corp. shares ended Monday higher by $1.06, or 22.08%, at $5.86 amid heavy volume on excitement stirred by the Pfizer deal. The stock traded in a range of $5.78 to $6.65, on volume of 11.9 million shares versus the three-month running average of 1.2 million shares.

"I read the news as huge buying confidence," said a trader. "The $40 million upfront payment is huge, and it's just the tip of the future guaranteed windfall from Pfizer."

Wilmington, Del.-based Incyte will receive $40 million up front, payments worth up to $743 million should the experimental drugs reach various stages of development, and royalties on future sales.

Pfizer also agreed to buy $20 million in notes that would be convertible into Incyte stock and to provide research funding for Incyte's portfolio of CCR2 antagonist compounds, the most advanced of which is in mid-stage studies with rheumatoid arthritis and insulin-resistant obese patients.

On top of its CCR2 program, Incyte plans by early next year to start a second mid-stage study on an experimental HIV drug known as DFC. The company also plans to advance two other drugs into human testing next year, officials said on the conference call.

"We think 2006 is going to be the year where we really expand our development portfolio in a significant way," Incyte chief executive Paul Friedman said on the call.

Incyte will hang onto one drug that may treat multiple sclerosis and possibly one other undisclosed condition.

Incyte convertibles also better

Incyte's credit fared well from the news, too, but not as well as players expected.

The 3.25% convertible due 2011 was quoted at the close at 81 bid, 81.5 offered, described as better by about 7.5 points outright or around 1.5 points on swap.

"I bought Incyte today. Imagine hedges varied a fair amount. On a 50% hedge, which was probably more or less the market hedge, they improved by about 1.5 points," said one buyside market source. "I don't think that's enough, based on what could be a gigantic credit improvement. Even though the bonds did well today, I would have expected they'd do even better."

Another buyer for the Incyte bonds also was upset with the meager gain in the credit compared with the stock, but he said he was happy to pick up the issue from any of the profit takers.

"There are many, many biotechs out there that have nothing in the pipeline, but with market caps higher than Incyte. There was lots of profit taking today, because lots of those who bought the dip couldn't refuse to take quick profits," the second buysider said. "After profit taking is done, the stock should begin an upward march. In a flat market that we have today, 25% intraday gain is something hard to resist."

Medicis' spurns Mentor

The merger entanglement between Medicis, Inamed, Allergan and Mentor Corp. was a mess.

"This seems to be to be a defensive play by Mentor, because they do not want Allergan getting Inamed's breast implant business. I think Mentor would like to have Medicis, but really is just trying to prevent the Allergan-Inamed deal from happening," said a buyside market source that holds Inamed shares.

"Inamed would be a much greater threat to Mentor's breast implant business with the recourses that Allergan has, whereas Medicis is not too concerned with the breast implant business. I just wish they would have offered more for Medicis to make the deal with Inamed even sweeter. As an owner of this stock for many years I would like to see Medicis with Inamed over Mentor."

Both Mentor and Inamed are awaiting a decision from the Food and Drug Administration that would allow silicone-gel breast implants to return to the market.

Mentor shares on Monday fell $4.79, or 8.53%, to $51.35.

Medicis pursues Inamed

Over the weekend, Medicis rebuffed a $2.2 billion offer from cosmetic-surgery products company Mentor Corp., which said Monday it may sweeten its bid by offering substantially more cash than stock.

Mentor, in a letter to Medicis on Friday, told the company that its offer is a superior proposal to the Inamed deal. Mentor offered Medicis shareholders 0.62 shares of Mentor common stock for each Medicis share, a 25% premium to Medicis' closing price on Friday, and the company said Medicis would own 44% of the combined company. Mentor said its board has already backed the transaction.

In a conference call on Monday, Mentor chief executive Joshua Levine urged Medicis' board to reconsider the proposal and said it may make a significant portion of the offer in cash to bring Medicis to the table. Goldman Sachs and Citigroup have assured the company that financing is available, he said.

The combined company would have revenue of nearly $900 million for the year ended Sept. 30 and would offer products for breast augmentation, facial aesthetics, body contouring and dermatology.

A Medicis holder said he was exasperated by the whole ordeal.

"I bought [Medicis] Jan 30 calls and paid a premium of $5.70. I was fat, dumb and happy until Allergan made their bid to buy Inamed," the buysider said, but did not specify when he purchased the calls. "I suffered through the crash to $26.50 and decided piss on it: I went out and got every contract I could at $0.60. I am waiting for the stock to hit $30 and I bail. In my opinion, if you haven't bought yet, don't do it."

Medicis shares Monday rose $3.82, or 13.77%, to $31.57.

Inamed shares ended Monday higher by 2 cents, or 0l.02%, at $83.33.

Allergan exchange launched

Medicis' board rejected Mentor's offer over the weekend, saying it is committed to completing its proposed acquisition of Santa Barbara, Calif.-based Inamed. Meanwhile, Irvine, Calif.-based Allergan said Monday that it entered into a confidentiality agreement with Inamed to begin exchanging nonpublic information.

Also, Allergan has begun an exchange offer for Inamed's stock, which it set to expire Dec. 20.

Scottsdale, Ariz.-based Medicis had offered in March to buy Inamed for about $2.8 billion in cash and stock. But last week, Medicis was upstaged by Botox-maker Allergan Inc.'s $3.2 billion offer for Inamed.

Inamed's board is considering Allergan's offer.

Another buyside market source said he was selling Allergan to buy Mentor on the slide in that stock.

"I can't understand the extent of the decline, but appreciate the chance to buy more [Mentor shares]," the buysider said. "Medicis has gross margins above 80%, a great salesforce and the cosmetic dermatology franchise Mentor has been seeking. And the deal is accretive under the initial terms. Unless they get silly with price and bid against themselves, I see two scenarios: They succeed and get a nice business extension at a good price; or, they fail and become the next takeover target. Either way, I'm in."

Allergan shares closed Monday off by 65 cents, or 0.65%, at $99.60.

Par Pharma issues rise

Par Pharmaceutical Cos. Inc. issues rose Monday on news the company has received approval and marketing exclusivity for its Ondanestron Hydrochloride orally disintegrating tablets, or generic Zofran, used to treat nausea. The drug is developed through a unit of Par Pharma, Kali Pharmaceuticals.

The stock added 34 cents, or 1.3%, to close Monday at $26.47. The company's 2.875% convertible due 2010 was seen up 1 point at 80 with a couple of trades, a market source said.

Par Pharma, formerly known as Pharmaceutical Resources, Inc., said it has received final approval from the U.S. Food and Drug Administration for its Abbreviated New Drug Application for Ondansetron Hydrochloride orally disintegrating tablets in 4 milligram and 8 milligram strengths. Also, the company said it has been awarded 180 days of marketing exclusivity.

GlaxoSmithKline plc currently markets ondansetron HCl ODT under the brand name Zofran ODT.

Par Pharma said annual U.S. sales of Zofran ODT are approximately $225 million.

However, it will be sometime before Kali can release the drug, as the Par Pharma unit and Glaxo are tied up in lawsuits over patents that will remain valid until December 2006, when the unit expects to launch the drug.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.