Merck pressures biotech sector; Amgen, Genentech lead slide; Enzon, BioCryst, Pozen up a tad

By Ronda Fears

Nashville, Nov. 28 - Biotech players were jolted Monday by news that Merck & Co., Inc. will cut about 7,000 jobs, or 11% of its work force, and close or sell five of its 31 manufacturing plants by the end of 2008, aiming to save up to $4 billion by 2010.

Moreover, in Monday's action biotech players continued to show signs of risk aversion but with stilted hopes of a typical year-end rally.

"We're in the last week of the month, so you might expect some selling off," said a sellside equity trader. "December is usually upbeat, right? I don't see any reason why that won't be the case this year.

"The Merck news was a downer today but that's just an undertone for the biotech sector. I don't think it has any larger meaning than the face of it. In other words, everyone is still expecting that Big Pharma will be looking to do deals with the smaller biotechs, maybe even more than ever before."

Biotech giants Amgen, Inc. and Genentech, Inc. led the sector's slide, however. San Francisco-based Genentech saw its shares fall $2.28, or 2.34%, to $94.97. Amgen, based in Thousand Oaks, Calif., saw its stock drop $1.46, or 1.76%, to $81.33.

Merck shares lose 5%

Merck's restructuring sent its stock tumbling. But a buyside bond trader said long-dated Merck paper gained a couple of points while the shorter dated bonds were steady to slightly lower.

The stock ended Monday off $1.46, or 4.71%, at $29.52. The bond trader pegged Merck's 5.95% bonds due 2028 at 101.625, off 2.375 points, and the 4.25% due 2006 unchanged at 100.375. Those were the only two Merck bond issues seen in trade Monday, he said.

Half of Merck's planned job cuts will target its U.S. operations. Whitehouse Station, N.J.-based Merck did not identify which manufacturing plants would be closed or sold but said it also plans to reduce operations at a number of other sites and will close one basic research site and two preclinical development sites, which were not specifically identified.

The announcement comes as the company faces the loss of patent protection for its top-selling cholesterol drug Zocor next year and amid thousands of liability lawsuits from its recalled arthritis painkiller Vioxx. With expected Zocor sales of $4.2 billion to $4.5 billion in 2005, Merck said it expects sales to drop to $2.3 billion to $2.6 billion in 2006 because of competition from generic drug makers.

Restructuring costs are expected to be from $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. Merck expects about $2 billion of savings from a leaner manufacturing model. The company said it will provide further details on Dec. 15.

But Merck reiterated its 2005 earnings per share forecast of $2.04 to $2.10 after charges. And for 2006, the company projects earnings per share of $1.98 to $2.12 after charges.

Richard Clark, Merck chief executive, said Merck also plans to "pursue improved approaches to R&D, and marketing and sales." That statement supported views that Big Pharma is still looking to do deals with biotechs, the above-quoted equity trader said.

Pozen actively seeks partner

Pozen, Inc. announced Monday that it has received approval for its migraine drug MT 100, developed as an oral, first-line treatment, from the United Kingdom's Medicines and Healthcare Products Regulatory Agency and is now looking for a partner.

Yet, the stock ended in negative territory amid a selling spree in the last hour of trade after spending much of the session higher, market sources said. Pozen shares traded as high as $11.00 but ended the day off by 20 cents, or 1.86%, at $10.55.

Pozen chief executive John Plachetka said, in a statement, "The authorization for MT 100 by the MHRA is a milestone event for Pozen as it's our first regulatory approval for one of our drug candidates. We are currently seeking a partner who can bring MT 100 to market in the U.K. and eventually in other countries outside the U.S."

Chapel Hill, N.C.-based Pozen also is exploring the development of product candidates in other acute and chronic pain and pain-related therapeutic areas. Pozen has a development and commercialization alliance with GlaxoSmithKline plc.

In the United States, Glaxo shares closed Monday off 8 cents, or 0.16%, at $49.45.

Rigel stock plunges 5.5%

Rigel Pharmaceuticals, Inc. announced findings from a study identifying the role of E3 ubiquitin ligase, a five-year effort with Johnson & Johnson, in cancer treatments. The data appeared to be positive, one market source said, but Rigel shares took a dive alongside the broader market.

South San Francisco-based Rigel said findings from the study, published in Molecular Biology of the Cell, the journal of the American Society for Cell Biology, shows the potential of the protein E3 ubiquitin ligase, known as UHRF1, in the regulation of cellular proliferation and cellular repair as an attractive oncology target.

"It seems consistent with [study findings] last year," the buyside analyst said. "Someone is shaking the tree and seeing what falls out. Take out the stops, and then wait for the pop. [There's] nothing quite like having good news and a price drop."

Donald Payan, chief scientific officer of Rigel, said E3 ubiquitin ligase could be an attractive therapeutic strategy in the treatment of multiple myeloma. The study is part of a five-year collaboration between Rigel and J&J that began in December 1998. Over the course of this collaboration, J&J accepted eight targets that Rigel researchers discovered and validated. J&J is moving these targets forward to discover and develop drug candidates, which inhibit tumor cell growth or sensitize tumor cells to chemotherapeutic agents.

Rigel shares fell Monday by $1.21, or 5.5%, to close at $20.79.

Enzon shares drop 3%

Enzon Pharmaceuticals, Inc. and Micromet AG announced Monday that they have agreed to end their research collaboration, which was focused to identify and develop antibody-based therapeutics for the treatment of inflammatory and autoimmune diseases.

Enzon shares also spent most of the day slightly higher but took a hard hit in the latter part of the session, ending off by 22 cents, or 3.19%, at $6.68. A convertible trader on the sellside said there was a little action in the Enzon 4.5% issue due 2008 with the bonds moving up about 0.25 point on swap. He closed the issue at 90.25 bid, 90.75 offered.

The Micromet termination was jointly agreed upon, as Enzon said it has decided to redirect its investments to projects strategically aligned with its near- and long-term business objectives, including an increased concentration on cancer.

Enzon is based in Bridgewater, N.J. The company markets four products - Abelcet to treat immuno-compromised patients with invasive fungal infections, the chemotherapy drug Oncaspar for leukemia, Adagen for the immunodeficiency disease known as Bubble Boy disease, and the chemotherapy Depocyt for meningitis.

BioCryst up 1% on flu news

Birmingham, Ala.-based BioCryst Pharmaceuticals, Inc. has submitted an Investigational New Drug Application to the FDA for injectable formulations of Peramivir, its influenza neuraminidase inhibitor that in preclinical studies has shown promise against multiple strains of flu, including the H5N1 virus, or avian flu.

"If the FDA approves our development plan we anticipate phase 1 human clinical testing could begin early next year," the company said in a press release.

BioCryst shares closed Monday up by 13 cents, or 1.09%, at $12.10.

"Institutional traders and hedge funds are loading up quietly," said a buyside equity trader. "Hedge funds are loaded with shorts and a few are covering. What I think will happen is as the stock will move higher from institutional buying and that will force hedge fund managers to cover their shorts. It's like a domino effect. When it's started, it can't be stopped!"

"Don't forget fast track, too. It can be as quick as six months. When was the last time that the U.S. has had to prepare for a pandemic? Don't forget that Peramivir has gone through trials in pill form. The drug is safe for humans. With pandemic of avian flu in the horizon, the FDA will push the drug through the channel as soon as there are positive results in a human trial."

Amylin shares slide 2.5%

Analysts said Amylin Pharmaceuticals, Inc.'s diabetes treatments still have the upper hand over the competing product from Novo Nordisk AS, for which news emerged over the long weekend. San Diego-based Amylin also has convertible bonds in circulation, but traders said they didn't see the debt trading Monday.

Amylin stock dropped Monday by 94 cents, or 2.45%, to close at $37.50.

Novo Nordisk's diabetes drug Liraglutide has shown impressive results for phase 2b trials with a low 5% to 10% rate of nausea and no hypoglycemia reported. Novo Nordisk also reiterated its intent to begin a 3,800-patient, phase 3 program in February.

Piper Jaffray reiterated an outperform rating and $43 target price for Amylin shares, according to a buyside market source, saying Amylin should continue to hold multiple competitive advantages with its diabetes franchise with Byetta, including more convenient dosing frequency, timeline and first mover advantage.

Merrill Lynch analyst Thomas McGahren basically agreed, saying in a report that Liraglutide could launch in the 2008 time-frame and compete favorably with Byetta. But, McGahren added that Amylin and Eli Lilly & Co.'s efforts to develop Exenatide LAR, a once weekly version of Byetta, could launch in the late-2008 to early 2009 time frame.

The Merrill analyst said that Exenatide LAR plans for larger phase 2 trials or pivotal phase 3 trials should emerge in early 2006, and its future success is taking on greater importance for Amylin as the competitive landscape becomes more complex. The buyside market source said Piper took a view that Amylin can get regulatory approval for Exenatide LAR with a much smaller patient database, thus potentially beating Novo Nordisk to market.

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