Able bankruptcy sparks buying by restructuring specialists; Amgen a blowout; Genentech weighs on QLT

By Ronda Fears

Nashville, July 19 - Biotech giant Amgen Inc. on Tuesday blew past earnings expectations for second quarter, and the stock soared to a new high in after-hours trading. Meanwhile the other biotech heavyweight, Genentech Inc., put further pressure on eye drug competitors QLT Inc. and Eyetech Pharmaceuticals Inc.

Amgen reported a 38% surge in second-quarter profit on strong demand for its anemia and arthritis treatments, with a net profit of $1 billion, or 82 cents per share, compared with earnings of $748 million, or 57 cents, in the year-ago quarter. Analysts were expecting the Thousand Oaks, Calif.-based company to have another quarter of robust earnings, with the consensus looking for earnings of 72 cents a share, compared with 62 cents in second-quarter 2004. Amgen posted sales of $3.1 billion, up 26%.

Due to its strong first-half performance, Amgen boosted its 2005 earnings forecast, excluding items, to a range of $3.10 to $3.20 per share from its prior range of $2.80 to $2.90 per share, which provided even more impetus for the sector.

Amgen shares closed off 13 cents, or 0.18%, at $70.50 but in after-hours trading had gained 9.4% to $77.15 at 5:10 p.m. ET. - soaring past the previous 52-week high of $71.25.

Otherwise, several generic drug companies were active in trade Tuesday as Able Laboratories Inc. filed bankruptcy, which came as no big surprise. Able Labs' stock plunged at the open and then surged as restructuring specialists stepped in. Other generic drug names active in the market included Mylan Laboratories Inc., which reported weaker results but held its guidance for better results in the future. The generic group essentially shrugged off a warning by credit analysts of increased competition in generic drugs.

Venture capital activity brisk

Venture capital again was center stage in the way of capital-raising activity among biotechs on Tuesday with two new issues announced totaling nearly $50 million. There was a sizable PIPEs deal worth mentioning, too, as oncology diagnostics company Cytogen Corp. announced a $14 million stock placement.

Ilypsa Inc., a privately held biopharmaceutical company pioneering next-generation non-absorbed polymeric drugs for renal and metabolic disorders, announced it has raised $36 million in a private placement of series B preferred stock with a handful of new and existing investors.

StemCyte Corp., a closely held stem cell researcher, announced it has obtained $13.7 million in venture capital funding. Arcadia, Calif.-based StemCyte aims to create the world's largest donor umbilical cord blood stem cell bank, Cord Blood Family Trust, where parents can store their baby's cord blood for future use.

There is a secondary stock offering from Momenta Pharmaceuticals Inc. and a couple of initial public offerings on this week's calendar, however, including Adams Respiratory Therapeutics Inc. New Jersey-based Adams makes over-the-counter products such as Mucinex to relieve respiratory ailments and plans to sell 7.1 million shares at $14 to $16 each.

Accentia IPO on for Wednesday

Also, Accentia BioPharmaceuticals Inc.'s initial public offering finally has what sources say is a definite pricing date, Wednesday. There has not been another price cut, however, as buyside sources speculated last week when it was delayed as the result of lowering the indicative range to $8 to $10 per share from $11 to $13.

Tim Monfort, an official with bookrunner Jefferies & Co., said the Accentia deal is slated for Wednesday's business, after the market close.

The Tampa, Fla.-based respiratory disease and oncology drug company is looking at estimated proceeds of $41.2 million to $49.0 million versus an original estimate of $55.8 million to $66.2 million. The number of shares being sold remains unchanged at 6.25 million, with 5.25 million sold by the company and 1 million shares by Pharmaceutical Product Development Inc.

Market sources have said the IPO met resistance from large institutional clients, but there also was a reprint on the prospectus to include good news from the FDA, which has accepted Accentia's investigational new drug application for SinuNase. The company plans to begin phase III trials for the drug to treat chronic sinusitis, plus is in phase III trials for a lymphoma drug, Biovaxid.

In fiscal 2004, Accentia lost $28.5 million on net sales of $25.9 million. Its two largest customers, Cardinal Health Inc. and McKesson Corp., account for nearly a third of its sales.

Able unable to overcome recalls

Cranbury, N.J.-based generic drugmaker Able Labs shares just before noon were up more than 12% before retracing some of the gain during the lunch hour. But the stock settled at $1.66, adding 26 cents on the day, or 18.57%. The stock had opened at $1.35, versus the Monday close of $1.40, off on the bankruptcy filing that was announced after Monday's close.

"Once the news got out, during the first hour of trade probably, the buying from the bankruptcy specialists took over," said one market maker in Able Labs shares. "Most of the stockholders, though, have already lost their shirts on this one."

Able Labs stock has fallen from around $25 in late May when it recalled all its products, citing "chronic quality-control problems."

The stock surged Tuesday as more reorganization specialists stepped in, but the trader said that group of investors had begun accumulating Able Labs shares shortly after its sweeping troubles began.

In conjunction with the bankruptcy, the company filed a variety of motions, including one to retain a chief restructuring officer and a director of restructuring, as well as other professionals to support the reorganization efforts. During the restructuring process, vendors, suppliers and other providers will be paid under normal terms for goods and services provided after the filing date, the company said.

Trouble at Able Labs, which makes generic versions of medications such as Tylenol and Ritalin, began in May when it shut down all manufacturing operations and recalled all of its products, which was followed by the resignation of its chief executive and a layoff of more than half its workforce.

On May 27, the Food and Drug Administration issued a formal recall of all Able Labs products.

The company was organized in 1988 under the name DynaGen Inc. and changed its name to Able Labs in 2001.

Mylan shares waver late in day

Mylan Labs, which is making a concerted effort to expand into branded drugs as well as generics, on Tuesday posted a decline in fiscal first-quarter profits and sales, saying weaker prices were only partially offset by new product launches. Meanwhile, Mylan securities were wavering on the company's guidance while major stockholder Carl Icahn plans to exit the story.

Mylan shares were higher for a good portion of the session but began weakening in the last hour of trade and settled out the day lower by a nickel, or 0.27%, to $18.33 while its bonds also were a tad easier.

The company reaffirmed its fiscal 2006 guidance of adjusted earnings of 92 cents to $1.15 a share, while reporting that the June quarter earnings fell to $42.9 million, or 16 cents a share, from $82 million, or 30 cents a share, a year before.

Mylan said increased operating expenses, including restructuring costs and litigation costs, impacted profits. Revenue slipped to $323.4 million from $339.0 million as prices eased on some products amid competition. But Mylan said a substantial portion of the $55 million in net revenue generated from products was from the January launch of its pain treatment, fentanyl transdermal patch - a generic version of the patch, which is marketed by Johnson & Johnson under the brand name Duragesic.

Mylan bonds ease on Icahn exit

Contrary to the stock, the new Mylan bonds traded lower in the afternoon, in part due to Carl Icahn dropping his interest in Mylan. The 5.75% bonds traded down at 99.75 while the 6.375% bonds were offered at 100.25 without a bid.

Icahn had staged a foiled takeover of Mylan at one time,but now is expecting to sell nearly all - 94% - of his equity stake. In a statement Monday, Icahn said his decision to sell the stock was made July 15 after the FDA warned that deaths had been reported in some users of Mylan's fentanyl patch.

Icahn's exit from Mylan comes on the heels of a $1.25 billion Dutch auction buyback by the company last week, which was funded with new notes, the 5.75% and 6.375% junk bonds, and bank debt.

He was an outspoken opponent to Mylan's failed merger bid for King Pharmaceuticals Inc., which was abandoned in late 2004 after a bitter debate between the company and Icahn. King ultimately nixed the $4 billion acquisition from Mylan with its financial restatements in December.

Generics shrug off S&P report

In addition to Able Labs and Mylan Labs, several generic drug names were active Tuesday and mostly in higher territory despite a warning from Standard & Poor's analysts that after a strong period of growth for generic drugmakers because of patent expirations, new entrants such as India-based generic players and Big Pharma itself will put increasing competitive pressures on the group.

The S&P report specifically mentioned Alpharma Inc. (B/negative), Teva Pharmaceutical Industries Ltd. (BBB/stable) and Watson Pharmaceuticals Inc. (BBB-/negative) in addition to Mylan. (See full story elsewhere in this issue.)

Alpharma shares gained 23 cents on the day, or 1.54%, to $15.21.

Watson was more sensitive to the credit advisory, with its 1.75% convertible bonds trading off by 1.5 points to 93.5 bid, 94.5 offered. The stock, however, edged up 17 cents on the day, or 0.58%, to $29.69.

Teva gains on two drug approvals

Israel-based Teva is a major generic drug firm with a roughly 12% market share, according to S&P data. Teva rose largely on its own news that it has received tentative approval for Tramadol and Acetaminophen tablets - the generic equivalent of Ortho McNeil's pain pill Ultracet, which has total annual sales of about $338 million.

Teva shares gained 41 cents, or 1.37%, to $30.33. Its convertible bonds were better, too, with the 0.25% issue quoted up by 4 points to 98.625 and the 0.5% issue up 1 point at 98.5.

There are several other smaller generic drugmakers, such as ParPharmaceutical Cos. Inc., that were weaker Tuesday.

Par Pharma was rocked last year on news that there will be more competition in a generic hepatitis C drug it acquired to be jointly marketed with Novartis AG as Schering-Plough launched a generic version of its hepatitis C medicine ribavirin. Par Pharma had acquired the rights to the drug from closely held Three Rivers Pharmaceuticals LLC.

Novartis became a bigger player in the generic field in February when it acquired German generics drugmaker Hexal AG and its U.S. sibling Eon Laboratories for a total of $8.3 billion.

Par Pharma's 2.875% convertible due 2010 dropped .0.375 point to 79.5, while the stock gained 33 cents, or 1.12%, to $29.81.

QLT blind-sided by Genentech

Canadian-based QLT Inc. was the latest casualty from the data released Monday by Genentech on its wet age-related macular degeneration drug Lucentis. Analysts cited concern about QLT's Visudyne facing downward pressure on the Genentech news, as well as a slow launch for QLT's prostate cancer drug Eligard.

QLT shares fell 70 cents, or 6.76%, to close Tuesday at $9.65.

Eyetech Pharmaceuticals Inc. had fallen sharply on Monday on a widespread view that its wet AMD drug Macugen, which has been on the market since January, also would lose market share to Lucentis.

Merrill Lynch analyst Hari Sambasivam on Tuesday cut the rating on QLT shares to neutral from buy, citing the Genentech data.

Meanwhile, Merrill analyst Eric Ende on Tuesday maintained a neutral rating on Eyetech shares for the same reason, plus maintained his buy rating on Genentech shares.

Eyetech shares lost another 34 cents, or 2.9%, to close Tuesday at $11.39.

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