Amgen a drag on biotech sector; Medarex follow-on seen on deck; Oscient up on PIPE after-hours

By Ronda Fears

Memphis, April 6 - Amgen, Inc.'s layoffs and earnings jitters jolted biotech players Thursday, but a couple of stories - MGI Pharma Inc. and Hana Biosciences - were pitched and/or seeing buying on the downdraft. Deals also spurred activity in Allergan, Inc., Medarex, Inc. and Oscient Pharmaceutical Corp.

Amgen laid off 98 employees at the Fremont, Calif., manufacturing plant acquired with its $2 billion buyout of Abgenix, Inc. The Thousand Oaks, Calif.-based biotech giant retained the bulk of Abgenix's 440 workers, however, and will continue operating the Fremont plant, primarily for panitumumab - the colorectal cancer drug it had been developing with Abgenix. Amgen shares (Nasdaq: AMGN) lost $1.01 on the day, or 1.39%, to $71.85.

"It was like a slap in the face," said one sellside trader of the overall pullback in biotechs, which he largely attributed to first-quarter earnings reports coming up. "But it's not like this was totally unexpected. Some of the big shops have been talking this week about how the bull cycle probably couldn't last much longer. Now it's more of a name-by-name game than ever."

As such, Discovery Laboratories, Inc. took another hit Thursday, a day after losing 29% on a delay in Food and Drug Administration approval for its respiratory drug for premature infants, Surfaxin, as the agency requested more information for the second time. Discovery Labs shares (Nasdaq: DSCO) lost 39 cents, or 7.77%, to $4.63.

Meanwhile, Medarex was said to be on deck after Thursday's closing bell with its follow-on stock offering, moving it up from next week's business. The Princeton, N.J.-biotech - focused on human antibody-based therapeutic products - is pitching 10 million shares with proceeds earmarked to advance products into commercialization. Four of its 32 products are in phase 3 clinical trials.

Medarex shares (Nasdaq: MEDX) ended off Thursday by 52 cents, or 4.06%, at $12.28. When the deal was announced Monday it was pegged against a stock price of $13.22 on Friday.

"Looks like we'll get that 9% dilution-to-price adjustment after all," said a buyside market source in Florida, speculating that the Medarex follow-on would probably price at a roughly 9% discount to Friday's close, which would roughly match the dilution from the offering as Medarex had some 112 million shares outstanding before the deal.

Oscient pockets $35 million

In another late day deal, which market sources said had been brewing behind the scenes for a while, Oscient Pharmaceuticals Corp. announced a $35 million PIPE transaction and the stock zoomed up by nearly 6% in after-hours activity.

Waltham, Mass.-based Oscient said it has placed some 18 million shares at $1.93 a share with institutional investors, which also will receive five-year warrants to purchase another 9 million additional shares at a strike price of $2.22.

Oscient shares (Nasdaq: OSCI) settled Thursday off by 6 cents, or 3.08%, at $1.89 but after the close were seen higher by 11 cents, or 5.82%, at $2.00.

"Ouch!" remarked one Oscient player. But he added, "I suppose they had no choice. I do hope that this cash will now get them to the point where they generate their own cash."

Oscient's lead product, Factive, is a treatment for community-acquired pneumonia and acute bacterial exacerbations of chronic bronchitis. In addition to the FDA-approved tablet, the company is developing an intravenous form of Factive. Oscient also is co-promoting Auxilium Pharmaceuticals' Testim 1% testosterone gel and has a novel antibiotic candidate, Ramoplanin, in advanced clinical development for the treatment of Clostridium difficile-associated disease.

MGI Pharma gets a pitch

One sellside shop was pounding the table again Thursday for MGI Pharma, Inc. from a convertible angle as well as equity, and at least one buysider agreed that the stock was oversold and worth a look.

"MGI Pharma continues to be oversold, but I think it's gaining some traction," said a buyside source in Denver. "Perhaps there will be a slow and steady rebound to the low $20s. That is the neighborhood of our near-term target."

With a $1.2 billion market capitalization, projected 2006 revenues of $375 million and earnings forecast at 23 cents a share, the sellsider noted that MGI Pharma has three products coming to market in 2006 and then four in 2007.

MGI Pharma has a cash-to-zero convertible in play, which was seen at 62.5 bid, 63 offered Thursday with the underlying stock at $16.50 - off from 63 on Wednesday - for terms of a 3.35% current yield and 60% premium, or a 6% yield to put, which comes up in March 2011.

MGI Pharma shares (Nasdaq: MOGN) closed Thursday off by 6 cents, or 0.36%, at $16.58.

The sellsider noted that one of the near-term events for MGI Pharma securities is the anticipated approval May 15 for its drug Dacogen to treat MDS, or Myelodysplastic Syndromes, a disorder in which the bone marrow does not produce enough blood cells.

As for the stock, the sellsider said it should be trading at $26 to $31 based on a 2008 fully taxed EPS of $1.37 and a 30% to 35% price to earnings multiple.

For 2006, MGI Pharma has said it expects revenue of $370 million to $385 million, gross profit of $237 million to $250 million and operating income of $7 million to $20 million.

Hana buyer steps in on dip

Another biotech getting some buying action on the down swing was Hana Biosciences, which has been mentioned by another sellside shop as a likely buyout candidate.

"Hana is being held back by the falling biotech index, which is at five-month lows and is down 2% today," said a source at a hedge fund in New York. "That's really of no concern to us, but we are watchful right now that we may have to shift our strategy here because there is increasing noise about a takeover."

On Friday, a sellside shop had a report in circulation that stated if Hana is as successful as many expect with its cancer-related nausea drug Zensana then it could rapidly become a takeover target.

The company is expected to file for FDA approval of Zensana - a spray form of leading anti-nausea drug Zofran, marketed by GlaxoSmithKline plc - in second quarter. Some analysts predict that Hana could reach sales of $100 million by 2009, which could trigger a price spike by 50% or more.

In addition, Hana has five other pipeline candidates in various stages of development and has made a number of licensing deals that makes a potential acquisition "a real possibility," the buysider said. He said at least one analyst has suggested the company could see a take-out price near $20 a share.

Hana shares (Amex: HBX) ended Thursday off by 24 cents, or 2.33%, at $10.08.

Allergan notes yield 5.788%

Allergan, Inc. priced an $800 million 10-year note alongside $700 million of convertible notes late Thursday while the stock was reeling on the convertible deal, which analysts and investors in that asset class said was pitched with aggressive terms.

But equity players liked the move, particularly the plan to buy back roughly $250 million to $300 million of stock with proceeds, which is expected to provide a boost to the upside once shorting by hedge funds participating in the convertible winds down.

Irvine, Calif.-based Allergan, focused on the ophthalmic, neurological, medical aesthetics, medical dermatological and other specialty markets, also is taking out its older zero-coupon convertible issue and repaying the remaining $825 million of a bridge loan related to its acquisition of breast implant maker Inamed Corp.

Final terms of the convertible were not available by press time, but the straight notes priced at 99.717 to yield 5.788%, or a spread of 90 basis points over Treasuries. The 5.75% notes will mature in 10 years.

Allergan convertible off in gray

Allergan's planned $700 million of 20-year convertibles was seen struggling in the gray market ahead of pricing Thursday. The issue was seen with an offer at 0.5 point above issue price, but that fizzled to the last offer seen at 99.875 and no one spoke of any bids for the paper.

The convert was talked with a coupon of 1.0% to 1.5% and initial conversion premium of 20% to 25%.

Market sources on both sides of the fence - buyside and sellside - said the price talk was too aggressive. One sellsider said it modeled at 99.5 on the cheapest end of guidance and would be somewhat of a coup if accomplished.

"It looks aggressive, but if they manage to get it done that would bode well for the convertible market, because that means people will pay well for volatility," the analyst said.

Ahead of the deal, Allergan shares (NYSE: AGN) lost $1.60, or 1.49%, to $105.55.

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