Eye drug names viewed in mixed fashion; Ligand gains on hopes of sale; Endo plunges on secondary

By Ronda Fears

Nashville, Sept. 26 - In a relatively lackluster session Monday the most visible moves in biotech names were those with treatments for wet age-related macular degeneration, which causes blindness. Genentech Inc. took the brunt of the blows to eye drug makers, but Eyetech Pharmaceuticals Inc. also was sharply lower while its acquisition suitor OSI Pharmaceuticals Inc. was slightly higher.

QLT Inc., another biotech largely involved in wet AMD drugs, saw a nice bounce Monday, but traders said it was due to its chief executive resigning rather than a reaction to the Genentech situation.

Elsewhere in secondary action, Ligand Pharmaceuticals Inc. was up sharply on hopes of a potential sale of the company, which many believe would be at a nice premium to where the stock is now.

In the primary market, there are a couple of deals expected to price for the week. Also, Endo Pharmaceuticals Inc., known mostly for its painkillers, took a huge dive on its announcement of a 26 million share secondary offering that is on for next week's business.

Endo shares lost more than 50% after the deal was announced. Endo shares closed up 13 cents on the day, or 0.45%, at $28.94, but in after-hours trade the stock was seen falling by $15.51, or 53.59%, to $13.43.

Traders said the plunge in Endo shares was two-pronged: First, the company will see no additional funds from the sale, but, as one trader said, more importantly it represents an exodus of major backing in the company and insider selling. The majority of the shares being sold are held by Endo's largest shareholder, Endo Pharma LLC, an affiliate of Kelso & Co., a private equity investment firm, and afterward Endo Pharma's stake will be about 20.5%. Certain members of management and directors also are selling their shares in the offering.

Genentech extends losses

Genentech analysts were mixed on their views of the company, but the stock slumped for the second consecutive session, dropping nearly 4% on Monday, as concerns about its wet AMD drug Lucentis compounded concerns about its suspended trial enrollments for the ovarian cancer drug Avastin on Friday.

Following a 2.5% decline on Friday, Genentech shares Monday lost $3.28, or 3.82%, to close at $82.55.

Analysts at Jefferies & Co. and Merrill Lynch stood by their buy ratings on the stock, with Jefferies holding to a price target of $98 and Merrill keeping a target of $103. Yet, SG Cowen & Co. was out early Monday with a report suggesting that off-label use of Avastin for wet AMD is on the rise and could severely trim sales estimates for Lucentis, which has been thought of as the new blockbuster treatment for AMD.

Genentech shares dropped Friday after Genentech said it had suspended enrollment in the Avastin clinical trial for ovarian cancer due to an 11% incidence rate of gastrointestinal perforations.

According to reports on SG Cowen's research note, however, Avastin is increasingly being prescribed by eye doctors as a treatment for AMD. Avastin is not approved by the Food and Drug Administration for the treatment of AMD, but doctors can prescribe a drug for other ailments, or "off label" uses.

Lucentis is due to be launched in early 2006.

QLT bounces as CEO exits

Canadian-based QLT Inc. and Novartis AG have Visudyne, the forerunner drug to treat wet AMD, that also met with new competition in January from Eyetech's Macugen, which is marketed with Pfizer Inc. QLT shares have been hit by the increasing competition and rebounded Monday, but traders said it was more of a cheering of the departure of QLT chief executive Paul Hastings.

QLT announced Monday that Hastings had resigned amid differences with the board of directors. The stock gained 23 cents, or 3.3%, to close at $7.19 in the United States.

"Hastings became the scapegoat in everyone's disappointment with QLT," said one sellside trader.

Not only was Hastings blamed for the 60% slump in QLT's share price over the last year, he said that many blamed him for less-than-stellar sales in the prostate cancer drug Eligard - acquired with the purchase of Atrix Labs last year.

QLT senior vice president of marketing and sales Robert Butchofsky has been named acting CEO, the Vancouver, B.C.-based company said. The company said it will include Butchofsky in its search for a permanent CEO.

"As you know, obviously I am new to this world, so clearly am not about to present at this time a whole new strategy for QLT moving forward," Butchofsky said on a conference call with analysts and investors.

"We will focus on maximizing our marketed products ... enhancing our pipeline and, where appropriate, especially in specialty markets like ocular and dermatology, self market our own products."

Some analysts saw the event as negative, however, as it adds further uncertainty about the company's direction, particularly in light of competition threatening its core revenue stream from Visudyne.

Ligand surges on sale hopes

Ligand Pharmaceuticals Inc. executives cancelled an appearance at the UBS health care conference on Monday, reportedly because its financial statements are still not in order, but the stock was up on optimistic hopes of a sale of the company being spurred by one of its big stockholders.

Daniel S. Loeb, chief executive officer of Third Point, which has amassed a 9.5% equity stake in Ligand, said in a letter to Ligand CEO David Robinson that the company should "sell the company to the highest bidder."

Based on due diligence, Loeb said in the letter, Ligand shares at around $7.50 per share are trading at about half the value of a worst-case estimated value of $14 per share.

"We have already spoken to investment bankers who would be happy to take the assignment and believe that there are strategic buyers interested in purchasing the company for a significant premium," Loeb said in the letter.

Ligand shares on Monday gained 62 cents, or 7.72%, to close at $8.65. A buyside trader said that while chatter about Ligand being the target of a buyout is not new, the "added pressure form a big stockholder" was a boon to the buzz.

Ligand probe could be barrier

The buysider said one obstacle that might nix some "lookers" in considering Ligand would be its situation still brewing at the Securities and Exchange Commission.

On Sept. 12, Ligand said it had been informed that the SEC has opened a non-public formal investigation in connection with the restatement of the company's financial statements for the years 2002 and 2003 and for the quarters of 2003 as well as the first three quarters of 2004.

The company said it intends to fully cooperate with the investigation.

The probe stems from the company's announcement in May that it would restate financials for those periods.

Earlier this month, the company's stock began trading on pink sheets, but the company said it remains committed to regaining compliance with all SEC filing requirements and re-listing its common stock within the 60-day period granted by Nasdaq to meet listing standards.

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