King Pharma off, Pain increases; ViroPharma falls on generic risk; Eyetech, OSI seesaw on merger

By Ronda Fears

Nashville, Nov. 10 - King Pharmaceuticals, Inc. and Pain Therapeutics, Inc. inked an agreement for the development of abuse-resistant opioid painkillers. Also, Durect Corp. tagged along with the rise in Pain Therapeutics, as it makes the drug delivery platform used by Pain Therapeutics.

Eyetech Pharmaceuticals, Inc. and OSI Pharmaceuticals, Inc. seesawed as Eyetech announced its shareholders had approved its buyout by OSI Pharma, but OSI Pharma then confirmed that its board of directors was rethinking the acquisition because of competition for Eyetech's one drug in commercialization - Macugen, to treat age-related macular degeneration, or AMD - from Genentech Inc.'s Lucentis. The news sent Eyetech shares off as much as 7% and OSI Pharma stock higher by as much as 12.5%, but both came off those levels.

In addition to ongoing mention of tax-related selling, traders said there was notable positioning for other much-anticipated mergers that could be announced before year-end. One stand-out was Abgenix, Inc., with the stock up 7.5% and its convertibles trading sharply higher, as it has been widely considered a target for Big Biotech and drug partner Amgen, Inc.

But there were some big decliners, which traders attributed to tax selling and profit taking. Two notables were Indevus Pharmaceuticals, Inc., which dropped 31 cents, or 6.51%, to $4.45, and previous high-flying vaccine maker Novavax, Inc., which fell 49 cents, or 14.08%, to $2.99.

ViroPharma stock falls 17.5%

Another was ViroPharma, Inc., plunging as the specter of generic competition for its Hepatitis C drug overshadowed promising trial data released Thursday. The stock fell $3.85, or 17.5%, to $18.11 but was seen rebounding slightly in after-hours trade as the company staged a conference call on its trial data.

ViroPharma shares were seen after the close moving up by 14 cents, or 0.77%, to $18.25. A convertible trader on the sellside of the market said the ViroPharma 6% bond due 2007 wasn't seen in trade Thursday but the issue traded at 99 on Wednesday and that was a gain of about 0.75 point.

Early Thursday, ViroPharma announced that treatment with its HCV-796 was found to reduce Hepatitis C virus levels in a phase 1b proof of concept study. The drug, also known as Vancocin, is an orally dosed viral polymerase inhibitor that is being co-developed with Wyeth.

Although the news from ViroPharma was considered a positive event, the stock fell in reaction to renewed concerns about a possible generic version of Vancocin by Akorn, Inc. and India-based Cipla Ltd.

On Nov. 8, Akorn announced a drug development deal with Cipla that could be the first attempt to develop a generic version of Vancocin, an antibiotic that ViroPharma bought from Eli Lilly & Co. in December. The drug lost its patent protection before ViroPharma bought it. Akorn and Cipla said only that their collaboration is for a generic version of an oral anti-infective drug that is primarily used in U.S. hospitals and has a market size of about $100 million.

JMP Securities analyst Adam Cutler said that he sees a high barrier to entry for generic Vancocin competition, so he considered the reaction to ViroPharma shares "overblown."

Akorn shares rose 15 cents on the day, or 3.9%, to $4.00.

Abgenix shares, convertible spike

Abgenix, Inc. has been a name widely considered a takeover target by the likes of Amgen, and the volatility in the stock has created considerable interest aside from the buyout speculation. On Thursday, traders said Abgenix issues were moving on a big buyer stepping into the story, most likely because of the impending year-end.

Abgenix shares climbed 96 cents, or 7.59%, to close at $13.60. Its 1.75% convertible bonds due 2011 added 5 or 6 points, according to a sellside trader, to 117.5 bid, 118.5 offered. Both moved on nice volume, too.

"Year-end will trigger a lot of mergers that have been on the table," the sellsider said. "The bonds were 113, 114, 115 all day and pretty active. Then, bang! Right before the closing bell rang they shot up to 117.5, 118.5."

Another sellsider, though, said volatility or pure risk arbitrage motives are behind a lot of the activity in Abgenix.

"I bet if you asked 98.9% of all traders or brokers on the sellside what a monoclonal antibody is and what Abgenix does for a living they would not know. They would say, 'Oh, I got to pick up the other line, it's my boss or Fido on the line, let me get back to you.' I give up," he said.

"Amgen will buy them [Abgenix] for $21.00. Vol is for [the faint-hearted]. Take a damn direction. I mean, vol, has it worked for two years? No. They need to get a life."

Abgenix's most talked about product is Panitumumab, a colon cancer drug in development with Amgen, which is a direct competitor with Imclone System Inc.'s Erbitux.

King punished for Pain pact

King Pharmaceuticals, Inc. announced Thursday it has entered into a strategic alliance with Pain Therapeutics, Inc. to develop and commercialize Remoxy and other abuse-resistant opioid painkillers. Remoxy (long-acting oral oxycodone) is an investigational drug in late-stage clinical development by Pain Therapeutics for the treatment of moderate-to-severe chronic pain.

On the news, King Pharma shares pulled back from a sharp rise on Wednesday in reaction to a spike in third-quarter profits. The stock rose as much as 6% or more Wednesday after the company posted a profit of $122 million, or 50 cents a share, compared with a loss of $8 million, or 3 cents a share, a year before. Revenue shot up to $518 million from $395 million.

King Pharma shares dropped 83 cents on the day, or 4.88%, to $16.17.

"I bet Remoxy gets early approval from phase III and in use before end of '06," said a buysider buying King Pharma shares on the downdraft. "The price tag is a great deal for King."

King will record net sales of all products and pay Pain Therapeutics a 20% royalty, except as to the first $1 billion in cumulative net sales, which royalty is set at 15%. King is also responsible for the payment of third- party royalty obligations of Pain Therapeutics related to this alliance.

Upfront, King will pay Pain Therapeutics $150 million plus up to $150 million more in milestones based on progress in gaining regulatory approval for Remoxy. King, based in Bristol, Tenn., will also pay research and development costs and royalties to Pain Therapeutics.

"The technologies at Pain Therapeutics rose to the top of our list of the most attractive opportunities in this market," said Brian Markison, chief executive of King.

Pain rises 32% on King deal

Meanwhile, shares of Pain Therapeutics skyrocketed on the pact with King Pharma. The stock gained more than 40% before coming off the highs of the session to close up by $2.05, or 32.33%, at $8.60.

"We see this alliance as a winning combination of commercial expertise and unique technology," said Remi Barbier, chief executive of Pain Therapeutics, in a news release. "King has enjoyed considerable success in commercializing neuroscience drugs, while our track record is in drug development. By pooling expertise, we aim to position abuse-resistant opioid painkillers, such as Remoxy, as a new class of drugs in the biopharmaceutical industry."

Remoxy is being developed as an abuse-resistant version of long-acting oxycodone. Remoxy, like Oxycontin made by closely held Purdue Pharmaceutical Corp., releases the narcotic oxycodone slowly over a matter of hours. But people have figured out how to extract Oxycontin's entire dose at once, producing a euphoric high, which is not possible with Remoxy.

Markison added, "Our primary research indicates that safe and appropriate use of opioid painkillers is a major concern among physicians, patients, managed care and regulatory agencies. Remoxy addresses this concern, while at the same time its technical foundation serves as a platform to develop a pipeline of other abuse-resistant opioid painkillers. Our vision is to create a large market opportunity around this platform to complement our existing neuroscience portfolio."

Pain Therapeutics is designing a pivotal phase III study with Remoxy in patients with severe chronic pain. Oxycodone is a leading opioid used in the treatment of moderate-to-severe pain, with U.S. sales of nearly $2 billion for the 12-months ended August 2005, according to IMS Health data. Oxycodone is also the active drug ingredient in Remoxy and in the branded product Oxycontin.

Durect to see trickle effect

Pain Therapeutics' Remoxy is delivered with a delivery platform developed by Durect Corp., and the latter's shares rode the coattails of Pain Therapeutics' rise Thursday.

Durect shares added 19 cents, or 3.63%, to $5.42 but were as high as $5.75.

Under a previous agreement between Pain Therapeutics and Durect, Pain Therapeutics has exclusive worldwide rights to develop and to commercialize Remoxy and certain other opioid drugs formulated with Durect's Saber drug delivery technology. Durect is reimbursed for its expenses for formulation and other work performed under the contract and will receive milestone payments based on the achievement of certain technical, clinical or regulatory milestones, in addition to receiving royalties on product sales.

"I think it better validates the platform and better insures the royalty stream, but no upfront money. Pain comes out like a bandit. They're getting millions right now for what is essentially a Durect product," said a fan of Durect.

"It doesn't exactly make Durect look very good, stupid in fact. When Durect did its portfolio management process and decided to out-license Remoxy early on they blew it. Not only in oxycodone, but as you see in the deal, Durect also gave up rights to formulations of all other opioid drugs.

"But that's water under the bridge. Durect should benefit from a spillover from Pain Therapeutics. Pain Therapeutics is thought of very poorly, so Remoxy wasn't getting much respect. But seeing what King spent upfront, the program is bound to be valued much more highly now.

"It's not bad news; it's just that it's not much news for Durect. The royalty rate will stay the same, but they'll be paid by a bigger and better financed company. The idea that Pain Therapeutics is making hundreds of quickie millions on work done by Durect, makes one wonder about the competency of management.

Eyetech votes for OSI buyout

Eyetech Pharmaceuticals, Inc. and OSI Pharmaceuticals, Inc. trading was halted Thursday morning on an update Thursday on the status of their pending merger. Then the stocks took pole positions, with Eyetech plunging and OSI Pharma gaining on confirmation that OSI Pharma was reconsidering the entire deal.

The market all along had not reacted well to the union, as OSI Pharma's main drug is the cancer treatment Tarceva while Eyetech is focused on eye treatments.

Eyetech shares fell $1.03, or 5.71%, to $17.00 but were off as much as 7% during the session.

On Thursday, Eyetech held its special meeting of stockholders to consider adoption of the merger agreement with OSI and more than 71% of its outstanding shares of common stock were voted in favor of the merger, more than enough to meet legal requirements.

But also Thursday, OSI Pharma confirmed it has advised Eyetech that its board of directors wants to assess, prior to closing of the acquisition, the possible impact of Genentech's announcement Nov. 7 of preliminary data from a phase III clinical study of its Lucentis product candidate, another AMD treatment that is expected to be in direct competition with Eyetech's Macugen soon.

OSI Pharma also advised Eyetech that it has made no decision at this time not to proceed with the closing, and indeed closing is scheduled for 10 a.m. ET on Nov. 14.

In reaction, OSI Pharma shares were as much as 12.5% higher but came off that to end Thursday up by $1.14, or 4.35%, at $27.35.

"Shorts are screwed if OSIP backs out," said one sellside trader.

"But the long term holders really like the idea that they may back out, even with a break-up fee. No one has really liked this deal from the start, at least among the OSIP holders," he continued. "If OSIP would have nixed the deal at the right time then it never would have fell under $30. I said many times that they should walk away and fight it in court if they had any brains. If they cancel the deal then it goes to $32, if they don't we will see new lows in the next few weeks."

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