OSI Pharma players debate new policy; Serono slips as 'for sale' sign stands; CuraGen gains 11%

By Ronda Fears

Memphis, Feb. 6 - It was a blasé Monday for biotech traders, who had little news to work with, but a highlight of the day was a new acquisition policy announced by OSI Pharmaceuticals, Inc. that will give its stockholders a louder voice in acquisitions.

"The move today should be applauded by all OSI shareholders," said a sellside biotech stock trader. "For some, it may be a little late in coming."

After being lambasted last year for its acquisition of Eyetech Pharmaceuticals, Inc., the Melville, N.Y.-based biotech on Monday announced that its board of directors has adopted a policy whereby the acquisition of any business with a purchase price in excess of 20% of its market capitalization at the time will be put to a stockholder vote, irrespective of the funding terms - cash, stock or other consideration.

In addition, OSI also announced that the board has determined to propose an amendment to company bylaws that will allow stockholders owning at least 20% of shares to call a special meeting of stockholders upon 90 days written notice. That matter is to be put to a stockholder vote at the annual meeting June 14.

"The OSI announcement is an encouraging one toward re-establishing more credibility in the OSI management following the Eyetech merger. Many larger investors viewed the Eyetech merger as an unwarranted, extraordinarily highly leveraged move left completely unchecked by any shareholder oversight," said a buyside biotech analyst.

OSI's focus was predominantly on cancer drugs before buying Eyetech, whose top product is Macugen - a treatment for wet age-related macular degeneration. Macugen is on the market but is about to face stiff competition from biotech giant Genentech, Inc.'s Lucentis, which is broadly expected to gain Food and Drug Administration approval later this year.

"Whether that merger was beneficial or their general opinion is right or wrong time will tell. Nonetheless, the move had created an underpinning perception of a lack of corporate credibility and accountability, which has kept the share price down beyond the company's fundamental progress," the buysider said. "No money manager in the world relishes the notion of putting millions of future investment dollars into a potentially 'loose cannon' run enterprise."

OSI shares (Nasdaq: OSIP) were little changed on the news, however, adding just 21 cents on the day, or 0.74%, to close at $28.58. The OSI convertible, a 3.25% issue due 2023, saw a couple of trades, sources said, edging up about 0.375 point to 96.5.

OSI debated, criticized as suitor

"This is a major, major, major move for some shareholders who own a big position or about to hold a big position. Actually these two changes [are] a fundamental shift from the company's shareholder policy," said another buyside market source. "If you remember, in the Eyetech acquisition, the only shareholder meeting held to vote for the deal is Eyetech shareholders. OSI shareholders did not have any say."

Fidelity affiliates are the top players in the OSI story, he noted, so the move heartened holders but also caused some anxiety about the possibility that OSI could be thinking about another acquisition, or considers itself a target.

Market chatter has pitted OSI as a target for the likes of Genentech, as they are partners on the lung cancer drug Tarceva. Many also believe Genentech would just as soon pick up OSI and have Macugen along with Lucentis, but some also argue that there would be steep anti-trust issues to overcome with the latter theory.

"I don't think OSI is a target, but even just the thought that they may be looking at another acquisition was unsettling," a sellside market source said. He said he would be a buyer of OSI, but mostly from the cancer angle rather than the eye business.

"The Macugen/Lucentis debate is losing focus in favor of Tarceva sales and future potential there," the sellsider said. "Any upside surprises regarding Macugen sales will have to be priced into OSI's shares by way of abrupt re-adjustments in its share price - upward. Meanwhile, the Tarceva locomotive pulls us."

Serono 'for sale' sign stands

Swiss biotech Serono SA eased Monday in reaction to earnings as well as the company keeping the "for sale" sign out despite lackluster interest expressed in buying the company, which makes the multiple sclerosis drug Rebif and several other commercialized drugs.

Serono shares in the United States (NYSE: SRA) dropped 16 cents on the day, or 0.86%, to $18.42.

The company reported that fourth-quarter revenue declined 1.4% to $669.9 million, adversely influenced by the strengthening U.S. dollar versus the euro. Serono had reported fourth-quarter net income of $144.1 million, up from $83.7 million in fourth-quarter 2004. For the year, revenues increased by 5.2% to $2.6 billion from $2.5 billion, with a reported net loss of $106.1 million, compared with reported net income of $479.7 million in 2004.

Serono reiterated that it is pursuing a sale, having put itself on the auction block so to speak last November. But it has seen few public bidders and the company stated the typical, "there is no assurance that any transaction will be consummated."

On a positive note, the company reported that Rebif sales last year were up 16.4% to $1.3 billion with U.S. sales up 31.8% to $389.5 million. Also, sales of Raptiva, a psoriasis treatment, grew to $33.4 million from $4.9 million in 2004. Serono noted that its research and development pipeline expanded by new collaborations with BioMarin Pharmaceutical, Inc., Genmab AS, NovImmune SA and Rigel Pharmaceuticals, Inc.

For 2006 Serono said it expects high single-digit product sales growth, based on 2005 average currency exchange rates.

The company's liquid financial assets were $1.5 billion at the end of 2005.

"During 2006, we will maintain our focus on maximizing the potential of our marketed products, the efficiency of our business operations and the advancement of our most promising clinical programs," said Ernesto Bertarelli, chief executive of Serono, in a statement.

DOV bounces on trial update

DOV Pharmaceuticals, Inc. announced Monday that it has begun dosing in a phase 2 clinical trial of bicifadine, its novel analgesic, in patients with painful diabetic peripheral neuropathy, which is the first study of bicifadine in patients with neuropathic pain. DOV expects to complete dosing in third quarter.

The stock has been buffeted hither and thither in recent weeks on takeover chatter, but traders said that seems to have died out.

"There is no buyout, not at this price - just rumor BS," one sellsider said.

DOV shares (Nasdaq: DOVP) on Monday added 30 cents, or 1.76%, to $17.35. The 52-week range on the stock is $12.79 to $21.49, having hit a string of new highs last summer when the Hackensack, N.J.-based biotech announced it had hired Dr. Leslie Hudson as its new chief executive.

On Friday, DOV was a big gainer after announcing late Thursday that it has completed enrollment in a phase 3 trial for bicifadine.

CuraGen climbs on upgrade

CuraGen Corp. rose sharply Monday after a sellside shop raised its investment rating on the stock, citing the potential of two new products, a sellside stock trader said. A source in the convertible market also remarked that the CuraGen bonds added 3 points or more amid speculation that the company may be looking to tap the capital markets sometime this year.

Branford, Conn.-based CuraGen has PXD101, a cancer drug targeting multiple myeloma that is in phase 2 clinical trials with results expected to be released midyear. There also is discussion, the trader said, in combining PXD101 with Cambridge, Mass.-based Millennium Pharmaceuticals Inc.'s drug Velcade, which is being co-developed with Johnson & Johnson.

CuraGen shares (Nasdaq: CRGN) gained 44 cents, or 10.97%, to $4.45. The CuraGen 6% convertible bonds were pegged by a sellside trader at 99.375, up 3.375 points, and the 4% convertibles at 76.25, up 3 points.

"The 2006 guidance is out, my analysis stands: This company needs more cash," the convertible trader said.

CuraGen expects 2006 revenue between $35 million to $38 million, up from $23.5 million in 2005.

Isis roars to hit new high

Isis Pharmaceuticals, Inc. announced Monday it has started a development program for a drug to treat familial hypercholesterolemia.

The Carlsbad, Calif.-based biotech, best known so far for its Triangulation Identification for Genetic Evaluation of Risks, or Tiger, technology, a biosensor system for identification of infectious diseases, said it has designed a development program for ISIS 301012 in patients with familial hypercholesterolemia - a genetic disorder that causes extremely high cholesterol levels and results in the early onset of heart disease.

The phase 2 studies in patients with familial hypercholesterolemia are part of a broad phase 2 program of ISIS 301012 - a second-generation antisense drug that reduces levels of apoB-100, a protein critical to the synthesis and transport of "bad" cholesterol involved in heart disease.

Isis shares (Nasdaq: ISIS) climbed 30 cents on the day, or 5.55%, to $5.89 - passing the previous 52-week high of $5.80.

"Wall Street is beginning to realize Isis' potential," said one trader. "The stock is way undervalued. Antisense is the way to go. Isis is a gem and leader in that group."

Geron up on short covering

Geron Corp. was up sharply amid very high volume Monday, which sellside traders attributed to short covering on the heels of positive news from the Menlo Park, Calif.-based stem cell research firm on Friday.

"Volume is very unusual, and Friday's news can justify price increase but not this kind of volume," one trader remarked. "Geron is moving up because shorts are covering."

Geron shares (Nasdaq: GERN) on Monday gained 48 cents, or 6.2%, to $8.22 with 2.52 million shares changing hands, versus the three-month running average of 619,435 shares.

On Friday Geron said that research on two of its compounds shows that they help the body's own immune cells to fight the production of viruses in HIV-infected cells. The company said that studies show that two small-molecule telomerase activators, named TAT0001 and TAT0002, enhanced the ability of immune cells called CD8+ T-cells to kill other immune cells that have been infected with the HIV virus.

"This recent news about the utility of telomerase activation in fighting AIDS is starting to connect the dots with many investors," said a buyside analyst. "While many have waited on the sidelines to see what, if any, benefit telomerase inhibitors and telomerase-based cancer vaccines might have in treating cancer before putting their money behind this new science, they are for the first time seeing the first practical benefit of telomerase activation.

"It cannot be long before this awareness extends to use of telomerase-activation for rejuvenation of skin, failing organs, and life-extension. Yet this fails to take into consideration the potential of Geron's equally impressive science platforms, ESCs and Nuclear Transfer. Geron possesses so much mind-boggling potential to change everything we know about human biology and medicine. I believe it is a complicated picture that could take years for the public and even the most informed investors to appreciate."

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