AtheroGenics joins Amylin in gains linked to takeover chatter; Isis easier; DOV Pharma dives

By Ronda Fears

Nashville, Aug. 26 - Merger anticipation steered activity among biotech names Friday, pushing AtheroGenics Inc. higher along with Amylin Pharmaceuticals Inc. Otherwise, it was a light session with pressure from the broader markets and little to no action from the primary market ranks.

Nastech Pharmaceutical Co. Inc. slipped Friday but remained above where it priced its follow-on offering midweek, closing out at $14.01, off a nickel on the day.

Speculation about Big Pharma's shopping list grew Friday, and traders said there was some respectable buying even in a thin market. "It being a down day was a bit of a catalyst for buying some of these smaller biotechs," one stock trader said.

The latest chatter puts Merck & Co. chasing AtheroGenics, following buzz Thursday that Eli Lilly & Co. was eyeing Amylin Pharmaceuticals Inc.

Elsewhere, biotech names were lower along with the broader markets.

DOV Pharmaceutical Inc. was one of the biggest losers after announcing late Thursday night that it had suspended phase III trials for its ocinaplon anti-anxiety drug because of elevated liver enzymes in one of the 200 patients in the trial. DOV Pharma shares dived Friday, losing $2.98, or 16.58%, to $14.99, and its 2.5% convertible bond fell 9 points outright.

AtheroGenics shares up 6.6%

A "Business Week" item from Thursday sparked the reaction in AtheroGenics on Friday, but not everyone believed the spin. According to the "Inside Wall Street" column, citing Medical Technology Stock Letter editor John McCamant, AtheroGenics - which develops treatments for inflammatory diseases - may be bought by a bigger pharmaceutical company.

On Friday, AtheroGenics shares rose $1.08, or 6.61%, to close at $17.42.

AtheroGenics has an oral anti-inflammatory drug, AGI-1067, in phase II clinical trials that has slowed down and reversed atherosclerosis that causes heart disease, the magazine article said. McCamant said potential buyers such as Merck may not wait for phase III results to make a bid.

It has been widely understood that AtheroGenics is discussing possible marketing agreements for the AGI-1087 product, including Big Pharma, a trader said, but he did not put much stock in the magazine piece.

The gain in AtheroGenics issues Friday was a reaction to "some stupid Business Week article. They come out with this quite often. Last time they said NPSP [NSP Pharmaceuticals Inc.] is a buyout price of $36. The stock was at $28 then and now it's at $9," the trader said.

NSP Pharma shares closed Friday off 5 cents, or 0.52%, at $9.55.

Besides that, the trader said, "I haven't seen any scientific evidence that supports McCamant's statement. He needs to explain how he came to this conclusion. I wonder how much of the rest of his article is questionable."

AtheroGenics bonds move up

AtheroGenics credit tightened considerably on the speculation, though, and traders said convertible arbitrageurs accounted for a good deal of the stock's tear Friday.

The 1.5% convertible bonds due 2012 added about 3.5 points outright to 85.75, one convert trader said, suggesting the issue probably lost about 1 point on swap as it trades on a 75% hedge. He said the AtheroGenics 4.5% convertible due 2008 gained 4.5 points to 126.875 but saw very little action Friday.

"Over the weekend only a fool would be short this stock," the convertible trader said. "If there is a deal announced Monday, look for a $25 [per share] price tag or greater. Look for a late-day rally today as shorts cover."

Volume in the stock was more than fivefold normal, with 3.72 million shares changing hands compared with the three-month running average of 710,754 shares. A $25 per share bid for AtheroGenics would be a 43.5% premium to the closing price Friday of $17.42.

Isis looking toward eye drugs

Isis Pharmaceuticals Inc. is looking to move into the eye drug area that would put it in the ranks of Eyetech Pharmaceutical Inc., or its acquirer OSI Pharmaceuticals Inc., and Genentech Inc. in looking for a treatment for age-related macular degeneration.

On Thursday, Isis and iC Therapeutics Inc. announced that Isis has granted an exclusive world license to iCo for the development and commercialization of ISIS 13650, a second-generation antisense drug. iCo will initially develop ISIS 13650 for the treatment of various eye diseases caused by the formation of new blood vessels, such as age-related macular degeneration and diabetic retinopathy.

"We are excited about the potential of ISIS 13650 as a treatment for a variety of eye diseases and view this as the first step in our efforts to build a franchise in ophthalmology. Our strategy is to acquire products that can be developed for isolated biological environments and we have targeted the eye as the first one," said Andrew Rae, chief executive of iCo Therapeutics.

C. Frank Bennett, who is in charge of antisense research at Isis, said the transaction with iCo is another example of Isis' satellite company strategy, "where we gain from a partner's knowledge in concentrated research programs and we grant our partner access to our expertise in RNA-based drug development and access to our proprietary antisense chemistries and leading patent estate."

In return, Isis gets an ownership interest in the resulting products.

As part of the agreement, iCo will pay Isis an undisclosed upfront fee in the form of cash and a convertible promissory note. iCo will also pay Isis milestone payments for key clinical and regulatory achievements and royalties on product sales.

Federated ups stake in Isis

Earlier in the week, Isis made a $51 million private placement that boosted the well-known Federated fund family's stake in the biotech concern. One of the small Federated funds was the biggest single participant in the PIPEs deal, but onlookers said the complete list of investors was impressive as well.

"Who bought the deal is a nice list - smart money," said a sellside market source.

Isis sold 12 million shares at $4.25 each - a 2.3% discount to the company's 60-day average trading price - plus warrants to purchase up to 2,999,998 shares with an exercise price of $5.2395 per share that become exercisable 180 days after the closing through Aug. 24, 2010, unless redeemed by the company.

In an 8-K filed with the Securities and Exchange Commission, Isis said Federated Kaufman Fund, a portfolio of Federated Equity Funds, which, together with its affiliates, held more than 5% of the Isis capital stock immediately prior to the transaction, participated in the PIPEs deal to the tune of about $20 million.

Other participants included five Farallon funds and four WPG-Garber funds.

Isis shares continued to slide Friday on the discounted PIPEs share price as well as dilution. The stock closed off a dime, or 2%, to $4.95.

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