Amgen, Abgenix easier; takeover talk fuels rise in Imclone, several other biotechs; Kos slide continues

By Ronda Fears

Nashville, Dec. 16 - Imclone Systems Inc. was among the biggest gainers moved Friday by buyout buzz in the biotech sector, fueled by Amgen, Inc.'s $2.2 billion deal mid-week to buy Abgeinx, Inc., plus the assumption of debt.

Amen and Abgenix, meanwhile, were cooling off from the flap by Friday. Amgen shares ended off $1.45, or 1.8%, at $78.99 while Abgenix slipped 16 cents, or 0.74%, at $21.52, safely beneath the Amgen offer of $22.50 a share.

Imclone initially was pressured lower by the Amgen, Abgenix news, as their combined effort on the colon cancer drug Panitumumab was seen as more formidable competition for its Erbitux, a sellside analyst said. But the rise in Imclone on Friday was fueled by hopes that its Erbitux partner, Bristol-Myers Squibb Co., might look at a similar union to counter the Panitumumab push by Amgen and Abgenix.

"If Amgen is speculating about a $2 billion market for its Panitumumab drug, then what is Erbitux's share? That came to mind and then a lot of other arguments that make a Bristol-Myers buyout sprang out of that," the sellsider said. "If this is a $5 billion market [for the cancer drugs] then Erbitux could arguably fetch $3 billion of that. That makes Imclone look very, very cheap. Erbitux needs an aggressive partner."

On Friday, Imclone shares gained $1.24, or 3.85%, to $33.44.

Imclone has a collaboration with Bristol-Myers for developing and promoting Erbitux in the United States, Canada and Japan. The company also is evaluating Erbitux for head and neck, lung, and pancreatic cancers, in addition to colorectal cancer, as well as other indications.

Kos slide continues

Kos Pharmaceuticals Inc. continued to decline Friday, however, after losing more than 25% Thursday after Merck & Co., Inc. announced it was developing a drug that would compete directly with its lead products aimed at raising "good" cholesterol. Some traders were spouting speculation that amid the M&A frenzy in the biotech sector Merck might look to buy out Kos, but skeptics of that scenario apparently won out.

Kos shares Friday lost 49 cents, or 0.96%, to close at $50.37.

"Yeah, we heard it, that Merck is going to buy out Kos, like Kos is dirt cheap here and MRK could buy it in order to improve its market position and until then, enjoy $700 million in Kos revenues per year," one trader said.

"I don't buy it, though," the sellsider continued. Sounds like a really icky idea to me. I don't like it one bit. Maybe Merck offered cheap money to buyout Kos before the news, but now they have entered Kos' arena, so now it seems moot to me"

Kos largely depends on sales of its drug Niaspan, which is used to raise HDL, which is commonly referred to as "good cholesterol." The stock shot up sharply over the past year, the sellside market source said, because there virtually was no competition for Niaspan and they had been working on a plan to combine Niaspan with a generic version of Merck's cholesterol lowering drug Zocor, which will lose patent protection next year.

Merck announced Thursday, however, that it expects in 2007 to seek approval from U.S. regulators for a combination cholesterol pill that includes an extended release niacin component to raise HDL.

Some onlookers thought the news was less negative than currently perceived and expect the Kos drug that combines agents to lower bad LDL cholesterol and raise HDL cholesterol to reach the market a year ahead of the Merck drug.

Citigroup analyst Andrew Swanson said in a report Friday, however, he thought the pullback was justified because Merck's advance directly attacks Kos' core franchise. "We believe the share price response was justified as Merck's products are directly aligned with Kos' and will likely take share from Kos, in our view," Swanson said. "Kos' options for stemming the potential damage are limited."

Medarex piggybacks Abgenix

Medarex, Inc. and Alexion Pharmaceuticals, Inc. were two antibody biotech names that tracked Abgenix higher on the Amgen buyout, with several analysts propelling the postulation.

"Abgenix was a wake-up call," said a stock trader on the sellside. "Unless Medarex's poison pill defense makes this prohibitive, Bristol-Myers [its partner] would be crazy not to do this even if it cost three-four billion dollars."

Princeton, N.J.-based Medarex has been developing its own human antibody drug to treat cancer, Ipilimumab, in partnership with Bristol-Myers, though Medarex's drug will target different types of cancers than Panitumumab. Additionally, 5% of Medarex is already owned by Pfizer, Inc., which has shown interest in the cancer antibodies area. Sellside analysts have said the phase 2 study data for Ipilimumab has been very compelling but phase 3 data isn't expected until the second half of 2006.

The trader said, however, "It's absolutely necessary for Medarex fundamentals to remain intact and execute [clinical trials] without any hiccups. I am definitely aware of the fact that Abgenix was a little ahead of the game."

Medarex shares gained 32 cents, or 2.8%, to close Friday at $11.75 - flirting with the 52-week high of $11.85 - after a double-digit run-up on Thursday.

Alexion less appealing

Alexion Pharmaceuticals, Inc. gained Friday, but the sellside trader said it seemed a less likely takeover candidate from the antibody angle.

"Considering all the brouhaha over the recent results, their net loss widened in fiscal first quarter, Alexion is holding up rather well, I suppose," he said. "Realistically I'm anticipating there will be a downturn and it will be slow and excruciating for stockholders in the next two years."

Cheshire, Conn.-based Alexion discovers and develops human antibody therapeutics. Its two lead product candidates are eculizumab and pexelizumab and the major upcoming catalyst is Alexion's presentation of phase 3 data for eculizumab in paroxysmal nocturnal hemoglobinuria, a chronic hematologic disease, in first quarter.

Pexelizumab is in clinical development to reduce heart attacks and other complications associated with coronary artery bypass graft surgery. Alexion has a strategic alliance with Procter & Gamble Pharmaceuticals for the development of pexelizumab.

After declining Thursday, Alexion shares saw a nice rebound on Friday, adding 24 cents on the day, or 1.21%, to $20.14.

Onyx, Sonus targeted as well

In addition to the antibody angle, Onyx Pharmaceuticals, Inc. and Sonus Pharmaceuticals, Inc. are seen as likely takeover targets as they already have strong backing from Big Pharma. It is more of a continuing theme in the sector in which Big Pharma companies with dwindling new drug pipelines pick off biotechs with drugs in late stage development.

"Onyx is the next Abgenix," said another sellside stock trader. "There is just three weeks left for FDA approval. It could come any day. They have a market cap of $2 billion. I say just get ready for a big move!"'

On Friday, Onyx shares added 2 cents, or 0.07%, to $29.03.

Emeryville, Calif.-based Onyx develops therapies that target the molecular mechanisms that cause cancer. Its drugs include Nexavar, to treat kidney cancer, in collaboration with Bayer Pharmaceuticals Corp. In mid-November, the company raised $126.25 million from a follow-on stock offering, with proceeds earmarked in part to fund clinical trials and marketing activities in anticipation of the commercial launch of Nexavar.

Sonus Pharma works with Schering AG on Tocosol Paclitaxel as a first-line treatment for metastatic breast cancer. In mid-October, as part of a licensing agreement for Tocosol Paclitaxel, Bothell, Wash.-based Sonus sold 3.9 million shares to Schering for $15.7 million, plus five-year warrants. Under the terms of the licensing agreement, Schering will pay Sonus a fee of $20 million upfront and milestone payments of up to $132 million upon the achievement of certain U.S., European and Japanese clinical and regulatory milestones.

Sonus shares Friday slipped 4 cents on the day, or 0.78%, to $5.10.

"I think it is highly unlikely Sonus will be bought out in the near term," the trader said. "I think they will use this time of market enthusiasm to raise more money and get back to work on their Tocosol trials. Management doesn't want Sonus to be viewed as a one-product company. At this point there is no reason why the company should sell out before they have built up some value."

OSI Pharma gets warm reception

The new 2% convertibles of OSI Pharmaceuticals opened up in the aftermarket at 101 and traded higher, to a close of 102.5 bid, 103 offered, according to a syndicate source.

The Melville, N.Y.-based biotechnology company priced $100 million of 20-year convertible senior subordinated notes at par to yield 2% with an initial conversion premium of 25%. There is an option for an additional $15 million of the notes.

Allocations were tight and not all players who wanted to buy the issue were able, according to one would-be buyer of the notes.

UBS Investment Bank was bookrunner for the Rule 144A offering, which priced at a yield within talk of 1.75% to 2.25% and with an initial conversion premium at the rich end of the 20% to 25% talk.

The OSI notes are non-callable for five years and have a put in years five, 10 and 15.

OSI said it would use up to $25 million of proceeds to buy stock concurrently with pricing of the notes. It also would enter into call spread transactions to reduce dilution from conversion of the notes, with remaining proceeds earmarked for general corporate purposes.

In connection with the call spread transactions, the initial purchaser of the notes or its affiliates have indicated that they will purchase shares of OSI's common stock in secondary market transactions and enter into various derivative transactions near to the time that the notes price.

OSI Pharmaceuticals shares also closed higher Friday, up 40 cents, or 1.7%, at $23.94.

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