BofA coverage boosts biotechs; Human Genome, other biodefense names mostly up; Transkaryotic firmer

By Ronda Fears

Nashville, July 8 - Biotech players capped off a slow week with strong buying conviction, propelled by new coverage of some 11 names in the sector by Banc of America Securities analyst David Witzke that was cited in the nearly 3% gain in the Nasdaq Biotech Index. On the primary market front, many were looking for an increase in activity from the improved view on the group.

Next week, the market is looking for maybe a couple of initial public offerings to price and Mylan Laboratories Inc. has a $500 million bond set to price in the high-yield market.

Accentia BioPharmaceuticals Inc.'s IPO of 6.25 million shares, proposed at $11 to $13, is pretty firmly scheduled for Wednesday or Thursday, following a couple of delays, syndicate officials said. And, buyside sources said there are still rumblings that CryoCor Inc. may try to get its IPO done, a another deal that has been delayed a couple of times. CryoCor is aiming to sell 3 million shares, also at $11 to $13.

Back to stocks, following the terrorist bombings in London on Thursday, several biodefense names were active as well as several biotechs based in Europe. Of note in that group, Acambis plc acknowledged it has been in discussions about an acquisition of vaccines but those talks have come to no result.

BofA beefs up biotech coverage

Banc of America Securities launched coverage of 11 biotech stocks, most with a buy recommendation, on Friday and that was largely responsible for a surge in the sector. All the stocks initiated by Banc of America, even a handful begun with a neutral rating, were up sharply on Friday.

ImClone, Human Genome lifted

ImClone Systems Inc. and Human Genome Sciences Inc. were two on the new coverage list of Banc of America that saw both their stocks and bonds get lifted Friday.

ImClone, based in New York, was initiated with a buy rating by Banc of America Securities. The company focuses on biologic medicines for cancer, with a lead product Erbitux targeted for colorectal cancer.

The ImClone 1.375% convertible due 2024 added 1 point to 82.875 bid, 93.375 offered, while ImClone shares gained $1.96, or 6.14%., to $33.89.

Human Genome, based in Rockville, Md., also was initiated with a buy rating. Human Genome has various strategic partners, including GlaxoSmithKline plc, Takeda, Schering-Plough Corp., Sanofi-Synthelabo, Merck, Transgene, MedImmune Inc. and Pharmacia & Upjohn.

All three Human Genome convertibles traded Friday, a sellside trader said, while he attributed much of the underlying stock's gain to short covering. The 2.25% bonds due 2011 climbed 5 points to 103.25 bid, 103.5 offered on an outright basis, he said, and the 3.75% bonds due 2007 added 0.625 point to 95.125 bid, 95.625 offered and the 5% bonds due 2007 rose 0.5 point to 99 bid, 100 offered. Human Genome shares shot up $1.07, or 8.78%, to $13.25.

Human Genome also was rising in connection with a perception of increased business from the terrorist strike in London on Thursday, traders said.

Biodefense stocks mostly higher

Human Genome, which is developing an anthrax vaccine, was among a couple of names in the biotech space referred to as "biodefense" - those developing products to fight biological, radiological or chemical attacks - that were mostly extending sharp gains Friday on the heels of the terrorist bombings in London.

In addition to Human Genome's rise Friday, Cepheid Inc. was up 67 cents, or 9.03%, to $8.09, following a 1% rise Thursday. Cephid makes DNA detection systems, and has been a major supplier of biohazard detection systems to the U.S. Postal Service in the wake of the 2001 anthrax scare.

Avant Immunotherapeutics Inc. added another nickel, or 3.79%, to $1.37, on the back of a 7% rise on Thursday. The Needham, Mass.-based company is developing a combination vaccine to protect against anthrax and the bubonic plague.

The only decliner among the group was San Diego-based Hollis-Eden Pharmaceuticals Inc. It gave back a dime on Friday, or 1.27%, to close at $7.80, after a 5% jump on Thursday. The company is conducting clinical trials for its drug Neumune, a treatment for radiation poisoning. The company has been pursuing a federal contract for Neumune under the recently passed Project Bioshield initiative.

Acquisitions in the space have been a source of several gainers, too, with British concern Acambis plc seen a hunter at the top of the heap, a stock trader in London said. Cambridge-based Acambis plc extended gains Friday even as it said that while merger discussions have taken place, they are over now.

Acambis shares in London rose 4p, or 1.72%, to 237p and in the U.S. added another 19 cents, or 2.28%, to $8.54 on Friday, after marking a roughly 3% increase on Thursday.

"Acambis plc notes press speculation that the company is in discussions about the acquisition of a significant vaccines business," the company said in a prepared statement. "The board confirms that discussions have taken place although they are not currently ongoing."

Other gainers on BofA coverage

Incyte Corp. based in Wilmington, Del. was among the companies added to the coverage list. Incyte has collaborative agreement with Pharmasset Inc., Senomyx Inc., Genomic Health Inc. and Medarex Inc. Incyte rose 61 cents, or 7.7%, to $8.53.

OSI Pharmaceuticals Inc., based in Melville, N.Y., also made the list. OSI Pharma develops oncology products. Its flagship product, Tarceva, is an oral, once-a-day, small molecule inhibitor of the epidermal growth factor receptor. The company has collaboration agreements with Pfizer Inc., Cold Spring Harbor Laboratory, EiRX Therapeutics plc, Genentech Inc. and Roche Holdings AG. OSI Pharma gained $3.07, or 7.41%, to $44.50.

In addition to Human Genome Sciences and ImClone Systems, others initiated by Banc of America Securities were Ariad Pharmaceuticals Inc., Elexis Inc., Millennium Pharmaceuticals Inc., Onyx Pharmaceuticals Inc., Vertex Pharmaceuticals Inc., Zymogenetics Inc. and Abgenix Inc.

Lonza issues up ahead of results

Swiss drugmaker Lonza Group AG is due to report results July 27 and its securities were up nicely Friday on a report from Deutsche Bank Securities analysts in London saying they expect a surge in its performance.

Lonza shares gained CHF 60, or 0.85%, to close Friday at CHF 71.05 and its new 1.5% convertible bond added 0.25 point to 100.625 bid, 101.125 offered, a trader in London said, noting good two-way action in the new convertible. Lonza's older 2% convertible, meanwhile, was quiet and ended unchanged at 100.25 bid, 100.5 offered, he said.

Despite Lonza losing some drug manufacturing business recently from large drug clients like Genentech Inc. and Bristol-Myers Squibb Co., which have decided to integrate their own drug production, the Deutsche analysts said they expect "Lonza is likely to show the first signs of earnings uplift from its New Hampshire investments at the H1 stage."

Lonza is adding a 20,000-liter bioreactor train into its existing large scale mammalian-derived biotherapeutics manufacturing facility in Portsmouth, N.H., according to a report Wednesday in London-based Business Weekly. And the company is growing its manufacturing capabilities in the U.K. with a £6.1 million investment in its Slough production site.

Deutsche analysts Glynis Johnson, Campbell Gillies and Jonathan Jayarajan have a hold rating on Lonza stock with a target of CHF 73, but expect EBITA of CHF 148 million - a 35% surge year-over-year.

"The group is likely to confirm our view that Genentech's recent acquisition of Biogen's mammalian facilities is good news for Lonza and the industry," the Deutsche analysts said. "We also expect Lonza to confirm that Asian competition in this area remains relatively subdued."

Taking a negative view on the Genentech/Biogen news, analysts at Barclays Capital Markets and Morgan Stanley had initially seen it as a huge negative development for Lonza. Deutsche and Barclays analysts also view Lonza as having some takeover risk in light of the big biotech players consolidating and integrating their own drug production.

Serono, Roche, Shire all higher

Like in the United States, biotechs were showing considerable strength in the European markets following the bombings in London on Thursday.

"I wouldn't say everything is back to normal, but we are certainly going about business as usual," said a convertible trader at a bulge bracket firm in London.

European pharma issues have been under pressure for several weeks because of anxiety about new labeling requirements anticipated from the U.S. Food and Drug Administration but like counterparts in the United States, the group on whole was feeling firmer Friday, the trader said.

Roche Holdings AG, Serono AG, Novartis AG and Shire Pharmaceuticals Group plc were all mentioned moving northward. The Shire, Serono and Roche convertibles also were active, moving slightly higher alongside the shares, the trader said.

Transkaryotic up ahead of vote

Transkaryotic Therapies Inc. was advancing along with the pack of biotechs moving up Friday but the stock is still just pennies over the merger bid of $37 per share, or $1.6 billion, from Shire Pharmaceuticals Group plc, which is disputed by some holders as a lowball bid. The matter comes up for a stockholder vote on July 27.

"There is modest optimism that the [Shire] offer could get bumped up," said a desk analyst at one of the major convertible shops on Wall Street.

Transkaryotic shares on Friday added 3 cents, or 0.08%, to close at $37.09. Its 1.5% convertible bond due 2011 was not active Friday, a sellside convert trader said, who noted that its most recent trade a week or so ago was at around 198.

Millenco, which holds 8.8% of Transkaryotic, and Porter Orlin, with 5.6%, have argued against the merger, saying the Cambridge, Mass.-based company, amidst a turnaround plan, is worth considerably more. When Shire announced its bid on April 21, Transkaryotic shares jumped $4.77, or 16%, to $35.21, after having gained 23% in the previous three weeks.

Last week, Millenco and Orlin filed open letters with the SEC, arguing that the merger vote should be delayed and Transkaryotic management should seek a better offer. Millenco said it believes Transkaryotic's true valuation is in the mid-$40s to mid-$50s per share range, with support from a recent successful clinical trial.

The acquisition would be a major prong in Shire's strategy to broaden its portfolio, placing it firmly into the biotechnology sector. Reports in Europe last week suggested Shire investors were initially skeptical about the purchase but doubts were dispelled by positive clinical trial data in June on Transkaryotic's experimental treatment for Hunter syndrome, a rare genetic disorder.

Millenco and Orlin said the merger offer in April did not factor in the value of the positive trial results that came down the pike in June, which they expect would soon be a very strong revenue and profit generator for Transkaryotic.

Warburg Pincus and affiliates, which together own some 14% of Transkaryotic, have expressed support for the merger.

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