Cell Therapeutics plunges on auditor departure; Amylin shares off on profit taking; Watson off

By Ronda Fears

Nashville, Sept. 2 - It was extremely quiet in the way of capital-raising efforts among biotechs Friday. But SGX Pharmaceuticals Inc. filed an $80.5 million initial public offering and, coupled with price talk emerging for the Sunesis Pharmaceuticals Inc. IPO - at $9 to $11 per share - signs were reflecting remarks from bankers earlier in the week that they were preparing for activity to pick up in fourth quarter.

Accentia Biopharmaceuticals Inc. may be finding its way back to the calendar, too, as the Tampa, Fla.-based company cut its IPO size Friday to 2.5 million shares from 5.25 million. The price range was reduced in July to $8 to $10 from $11 to $13. In February, the IPO was filed at 6.3 million shares.

With a couple of merger and acquisition deals this week - Novartis AG's $4.5 billion bid for Chiron Corp. and OSI Pharmaceuticals Inc.'s $935 million offer for Eyetech Pharmaceuticals Inc. - players are still hoping for more M&A action, and bankers say this also may be a catalyst for increased funding activity during the remainder of the year.

In any event, investment bankers note that there is typically a surge in funding activity in fourth quarter as companies prepare to finance the coming year.

Meanwhile, the secondary market pulled back along with the broader markets ahead of the three-day Labor Day weekend. In general, traders said players were taking profits from gains made throughout the week and many noted very light volume Friday.

Cell Therapeutics Inc. plunged more than 6% but recouped some of that before the close, as the company's independent auditor resigned.

Amylin Pharmaceuticals Inc. took a dive, losing 4% on profit taking, as Merrill Lynch & Co. downgraded the stock to sell.

Abgenix Inc. shares retreated Friday after a 9% surge the day before on takeover chatter, but its 1.75% convertible bonds were still finding buyers despite Thursday's run-up.

Watson Pharmaceuticals Inc. shares and convertible bonds were sold off Friday, which a buyside source attributed to a UBS Investment Bank "reduce" recommendation.

Cell shares close lower by 5%

Cell Therapeutics announced Friday that Grant Thornton had resigned effective Aug. 31 as its independent auditor, and the stock plummeted more than 6% before coming off the lows of the day, even though the company said the departure was not the result of any disagreements. A buyside market source said insider selling in the stock also contributed to the decline.

"Losing an auditor is scary under any circumstances and insider selling just fuels the flames," the buysider said.

The company said there were no issues with Grant Thornton regarding any matter of accounting principles or practice, financial disclosure, or audit procedures.

"We've had a good relationship with Grant Thornton and I am working with the audit committee to engage a new audit firm as soon as possible," stated Louis A. Bianco, chief financial officer of Cell Therapeutics.

Cell Therapeutics shares traded as low as $2.42 but ended off by 13 cents, or 5.02%, at $2.46.

Amylin holders take profits

Following a big run-up, Amylin Pharmaceuticals shares pulled back Friday as a Merrill analyst said the price appreciation seemed over-enthusiastic for the company's new Byetta formula for Type 2 diabetes.

Amylin shares Friday lost $1.43, or 4.45%, to $30.73.

Partners in the new drug, Alkermes Inc. and Eli Lilly & Co., were mixed Friday with Alkermes off 31 cents, or 1.67%, at $18.27 and Lilly up 24 cents, or 0.44%, at $54.76. Amylin is leading the development of the drug, though, and led the surge in the markets on positive trial data released last week.

Merrill biotech analyst Thomas McGahren cut his view on Amylin shares to sell from neutral saying that while a once-weekly version of Byetta would be preferable to twice-daily injections, the market seems to have priced in 100% certainty that the drug runs the gamut to commercialization even though it is now producing preliminary phase II data.

The trial data, "combined with short covering, has produced a rise in Amylin stock and a market cap over $3 billion that we believe prices in perfection," McGahren said in a report Friday.

McGahren said he seeks Amylin shares worth $23 to $26. Even assuming a 50% to 60% probability of launch of the new drug, Exenatide LAR, in 2009 with peak sales of $1 billion to $1.2 billion, and peak Byetta sales of $500 million - which "could be generous," he estimates the drug accounts for about $7 to $11 per share of Amylin share valuation.

Abgenix 1.75s still find buyers

Abgenix shares also pulled back slightly from a big spike on Thursday linked to takeover speculation, but its convertible bonds continued to find buyers even though some traders said a buyout has already been priced into the paper.

On Friday, Abgenix shares gave back 26 cents, or 2.16%, to close at $11.75 after climbing more than 9% on Thursday. Its new 1.75% convertible bonds gained another 4 points on Friday to 106.375 with "a couple of trades," a trader said. On Thursday the bonds added 3.25 points and he had said the paper at that point, 102.25, seemed to have priced in all the takeover protection.

"Obviously there are some pretty optimistic buyers for the converts," the trader said.

Suitors bandied about for Abgenix include biotech giant Amgen Inc., since Amgen is Abgenix's partner in the development of the colon cancer drug panitumumab. In recent weeks, Novartis also has been mentioned as a potential buyer of Abgenix, with the Swiss drugmaker looking to add manufacturing capacity.

But Novartis' bid for Chiron this week seems to have knocked it off the list of potential acquirers for Abgenix, the trader said.

Watson stock, convertibles lower

A few generic names were active Friday as well, and many have been gaining on takeover buzz as well.

Watson Pharmaceuticals shares and convertibles took a tumble Friday, but a sellside trader attributed their loss to the UBS downgrade on the stock, which followed a gain of about 15% in the equity since the generic drug maker reported second-quarter earnings.

On Friday, Watson shares dropped 62 cents, or 1.8%, to $33.83 and its 1.75% convertibles traded down by 1.5 points to 96.5.

Watson is viewed as a suitor in the generic consolidation game, the trader said. He said a couple of targets - Par Pharmaceutical Cos. Inc. and Barr Pharmaceuticals Inc. - traded in mixed fashion Friday after rising earlier in the week.

Par Pharma shares gave back all of the previous day's gains and then some, losing 34 cents, or 1.39%, to close Friday at $24.15 after adding 1.21% on Thursday.

Barr Pharma extended gains from Thursday related to its final FDA approval to market a generic version of Sanofi-Aventis' Allegra allergy tablets, which the company said would give it six months of marketing exclusivity ahead of other generic versions like one pending from Teva. Pharmaceutical Industries Ltd. Patent litigation filed by Sanofi-Aventis, however, has yet to be resolved although there has been market chatter of an out-of-court settlement.

On Friday, Barr shares gained 24 cents, or 0.53%, to $45.63.

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