Alpharma gains on deal chatter; OSI plunges, Eyetech up on deal; QLT higher; Acambis slides

By Ronda Fears

Nashville, Aug. 22 - Merger news sent several biotech names higher Monday while deal flow was pretty much limited to venture capital transactions, though there were two sizable deals. Meanwhile, market sources also said no further details had emerged regarding plans by a Quintiles Transnational Corp. unit to sell $150 million of bonds.

OSI Pharmaceuticals Inc.'s agreement to purchase Eyetech Pharmaceuticals Inc. for $935 million in cash and stock sparked speculation that the move might garner rival bids from Big Biotech (Genentech Inc.) or Big Pharma (Pfizer Inc.) partners of the two companies.

QLT Inc., whose Visudyne is a competing wet age-related macular degeneration drug for Eyetech's Macugen, also was the source of merger chatter, both as a target and being a company on the hunt for an acquisition.

In a separate arena, generic drugmaker Alpharma Inc. has apparently put itself in play for a merger deal, and speculation was rampant about what if anything might transpire.

Positive trial results pushed several biotechs higher, too. Panacos Pharmaceuticals Inc. was nearly 68% higher in pre-market activity but the stock came off that to close up 46.81% with a gain of $3.30 to $10.35 on news that trial results for its oral HIV drug candidate PA-457 were very positive and the drug had been granted fast track approval status.

Endo Pharma and marketing partner Penwest climbed, too, Monday on news of positive results in an additional study requested by the Food and Drug Administration for the extended-release painkiller oxymorphone that is expected to lead to approval for the drug next year. Endo shares gained $1.24, or 4.53%, to $28.60, and Penwest zoomed up $3.00, or 26.82%, to $14.19.

Alpharma shares, convertibles rise

Alpharma shares rose sharply, although the credit made a more muted rise, on news from the company Monday that it was still actively considering various strategic alternatives to maximize shareholder value, which was interpreted by many players to mean that a deal was imminent.

The Fort Lee, N.J.-based company said it hasn't entered into any material agreements regarding strategic alternatives nor has its board approved any agreements, but traders said that since the company has been searching out "strategic alternatives" for months now, it makes sense that the update was because some deal is in the works.

"There wouldn't be any reason for this [statement] unless something is going on," one sellside trader on a convertible desk said.

Alpharma shares climbed $4.81, or 24%, on the day to close Monday at $24.82. The credit reaction was less, the trader said, because it has already priced in some sort of deal to pay off the $150 million issue. He said the 3% convertible due 2006 did show a small trade Monday at 129, moving up about 0.75 point.

In March, Alpharma said it planned to reduce the convertible balance to $10 million or less by Dec. 1, as required by covenants in its credit facility, noting that as of Dec. 31, there was $153.9 million outstanding on the issue.

OSI off 22%, Eyetech up 30%

OSI Pharma's purchase of Eyetech would transform it into a "bigger, more mature company," said OSI Pharma chief executive Colin Goddard, and produce a profitable company in 2006 with combined revenues of an estimated $600 million.

But the markets seemed to think, as some sellside analysts suggested, that OSI Pharma was paying too much for Eyetech, which has competition from QLT and more coming from Genentech next year for its eye drug Macugen.

OSI Pharma shares lost $8.85, or 21.71%, to close Monday at $31.92. Eyetech shares gained $4.14, or 29.59%, to $18.13.

OSI Pharma is paying $20 each for Eyetech shares - a 43% premium over Friday's closing price of $13.99 - consisting of 75% cash, or $15 a share to Eyetech holders, and 25% stock, or 0.12275 OSI shares for each share of Eyetech. OSI Pharma estimates issuing 5.7 million shares of stock, which will amount to a pro forma 10% equity stake in the combined company and dilution of about 11% to current OSI Pharma holders.

With the acquisition, OSI Pharma expands beyond its core cancer and diabetes market into eye-disease treatments. Beyond the financial scenario, there is a direct link in potential research programs related to eye treatments and diabetes.

Market sources said there was speculation that Eyetech could a fetch rival bid from its Macugen partner Pfizer Inc. and/or OSI Pharma's partner in the cancer drug Tarceva, Genentech Inc. Genentech's bid would be a two-fold gain as it has the eye drug Lucentis expected to hit the markets next year. Macugen, which has been on the market since January, is largely anticipated to lose market share to Lucentis.

QLT a player, or in play?

QLT's Visudyne was first on the market last November and is now a competitor for Eyetech's Macugen, so news of the OSI deal sparked a good deal of market chatter. However, onlookers said QLT could be on the hunt, possibly making a play for Eyetech, as well as a takeover target, perhaps from the likes of Genentech.

"Investors may view QLTI as an acquisition candidate at the currently depressed price," said Merrill Lynch analyst Hari Sambasivam. "However, any substantial price movement would require clarity on the outlook for Visudyne... In the interim, QLTI is likely to look for further acquisitions/in-licensing to strengthen its pipeline, especially with its healthy cash balance" of $415 million.

QLT is trading at a sizable discount to Eyetech's takeout value, the analyst said in a report Monday. QLT also is already profitable whereas Eyetech's move into profits is just forecasted for 2006. For 2005, Merrill estimates QLT will post net income of $67 million and Eyetech will record a net loss of $17 million.

Applying the same ratios as with Eyetech, Sambasivam said QLT should trade in the $11 to $15 range.

QLT shares closed at $8.73 on Monday, up 45 cents on the day, or 5.43%.

The discount, the analyst said, could be attributable to several factors, including the launch of Genentech's Lucentis, competition from Macugen and its own poor launch to date for the its cancer drug Eligard.

QLT has a $173 million convertible bond in play, the only debt on its books. Against the stock's rise, traders said the issue was steady at about 90 bid, 91 offered.

Acambis slides on patent suit

Acambis plc and Bavarian Nordic - which are considered the top two bidders to provide the U.S. government with smallpox vaccine stockpiles - are now in a patent dispute and the news sent Acambis shares lower in London and in the United States.

Closely held Bavarian Nordic has filed a challenge with the U.S. International Trade Commission alleging that Acambis' MVA3000 MVA smallpox vaccine infringes on its patents. In addition, Bavarian has filed a misappropriation of trade secrets case, claiming that Acambis received proprietary information about Bavarian's Imvamune MVA smallpox vaccine and used strain and dosing details to develop its MVA3000 vaccine.

The news hit the tape after the market's closed Friday.

On Monday, Acambis shares on the Nasdaq dropped $0.15, or 1.64%, to $9.00, and in London the stock lost 5.45p, or 2.29%, to 245p.

"We have always maintained, having consulted throughout with external patent counsel, that we have freedom to research, develop, manufacture and sell our MVA vaccine candidate," said Gordon Cameron, Acambis chief executive, in a statement.

"That position still stands and we do not expect either of the BN legal actions to affect that position, in particular for the current U.S. government tender process, for which a request for proposals was issued last week. We continue to believe that we are very well positioned to win an award under that process."

Merrill Lynch analyst Peter Welford has said in previous reports that he sees Acambis and Bavarian Nordic as the top bidders to provide the United States with smallpox vaccines, and he sees the contract being divided between the two companies.

In a report Monday, Welford said there are three possible scenarios for the outcome of the current dispute, but he left his recommendation on Acambis shares at neutral. There could be no impact to Acambis and no change to forecasts with a win by Acambis, there could be a settlement between the two companies resulting in some pressure to Acambis, or perhaps a delay to the U.S. contract award as the dispute it litigated, he said.

Cerenis, Arbor tap VC funds

Arbor Surgical Technologies Inc. raised $20 million in series B financing announced Monday, with venture capital fund Baird Venture Partners as lead investor.

Other investors included Affinity Capital Management, Fisk Ventures, Delphi Ventures, Alloy Ventures, Johnson & Johnson Development Corp., Three Arch Partners, chairman and co-founder Thomas J. Fogarty, Sapient Capital, Kaiser Venture Capital, David Chonette of Versant Ventures and Sage Venture Partners.

"This financing milestone enhances an already strong team of investors and personnel at Arbor. The rapid and enthusiastic subscription in this round speaks to the momentum we have garnered by the achievement of significant milestones over the past several months," said Steve Bacich, Arbor chief executive, in a news release. "Our mission is to develop a better heart valve product utilizing our simplified and proprietary implantation method."

To date, Arbor has raised $34 million. The Irvine, Calif.-based medical device company is focused on the heart valve replacement market.

Also Monday, France-based Cerenis Therapeutics announced a €25 million round of venture capital funding through a series A placement with lead investors Sofinnova Partners and HealthCap, in addition to Alta Partners, EDF Ventures and NIF Ventures.

"We are very happy to have received such strong global financial support to start Cerenis," chief executive Jean-Louis Dasseux said in a news release.

"We look forward to bringing HDL-related therapies to the market as a treatment option for millions of people with cardiovascular disease."

Cerenis develops high-density lipoprotein, or HDL-related, drugs for cardiovascular and metabolic diseases. Proceeds will go toward establishing its internal and external research and development programs.

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