Inhibitex falls more than 5%; SciClone seen as takeover target; El Paso gains on asset sale

By Ronda Fears

Memphis, Dec. 22 - Inhibitex, Inc. took a dive Friday on news of a new chief executive and word from the biotech concern that it would not ink a partnership or merger transaction by the end of the year, as was previously expected, but traders said there was strong buying into the slump.

"This is a good move by Inhibitex," said one trader, who was a buyer on the weakness.

"Putting the guy that controls the purse strings in charge is a brilliant move. With their cash burn going down and over $2 in cash per share, the hunter might soon become the hunted. Inhibitex is a gimme at this price. The ones that bailed didn't think this one through."

Inhibitex shares (Nasdaq: INHX) lost 10 cents on the day, or 5.65%, to $1.76.

Atlanta-based Inhibitex, announced that effective Dec. 30 it has appointed Russell Plumb as CEO. Plumb has been the company's chief financial officer for the past six years and will succeed William Johnston, who will remain a member of the board of directors.

Key news that moved the stock lower, however, was the company's statement that it "will not enter into an in-licensing, acquisition or merger arrangement by the end of 2006 as it had previously anticipated, as it is no longer pursuing a transaction that until recently was the subject of final negotiations and due diligence."

Inhibitex develops novel antibody based products for bacterial and fungal hospital-associated infections, such as Staphylococcus.

"The company remains committed to a strategy of broadening its development pipeline through in-licensing, acquisition or merger," the company said.

"In addition, subject to the outcome of its strategic activities, the company plans to substantially reduce its net cash burn from operations in 2007 by further leveraging its MSCRAMM platform and aligning its operations and cost structure with its strategic focus."

More specific financial guidance concerning its 2007 operating plan and anticipated burn rate will be discussed in first quarter, the company said.

SciClone surges over 38%

In another biotech name, SciClone Pharmaceuticals Inc. surged on news that it has adopted a poison pill, triggering much speculation that it has been approached about a buyout and a frenzy of short covering. The company also had positive trial data on the wires.

SciClone shares (Nasdaq: SCLN) gained 87 cents, or 38.59%, to $3.13.

"Shorts are out in force huge today," said an equity trader. "In my opinion, it is better to hide and wait it out."

The San Mateo, Calif.-based biotech, whose lead drug candidate Zadaxin is in late-stage clinical trials for melanoma and hepatitis C, said its board of directors had adopted a stockholders rights plan "in the event that an unsolicited attempt is made to acquire SciClone" but was "not in response to any proposal."

Also Friday, SciClone and E.U. partner Sigma-Tau Finanziaria SpA announced encouraging interim P2 results evaluating Zadaxin in the treatment of patients with stage IV malignant melanoma.

In the poison pill announcement, SciClone said Sigma-Tau was an exception to the 15% ownership threshold to participate in the rights plan, noting that Sigma-Tau owns 20% of its outstanding stock.

"The real question now (besides a long wait to set up and execute a phase 3 trial) is will SciClone do the phase 3 themselves or will they seek a partner to do it?" said a biotech fund manager in Boston.

"SciClone has a very checkered past about their abilities to design and execute important trials. Also, does SciClone have the money and expertise to design, implement and execute correctly a proper large phase 3 cancer trial. Do they have a contract research organization on the line? Do they have sites in mind? Researchers? I don't think so.

"In my opinion, SciClone now would be best served by proceeding with FDA [Food and Drug Administration] talks and get input. Then make Zadaxin available to a large pharma that has expertise in doing phase 3 cancer trials. The advantage of this is SciClone gets a large payment upfront and then the big pharma whom has experience in doing cancer phase 3 will take over all trial aspects. At that point, SciClone would not have to sell more equity to fund a phase 3 trial and the onus on doing the phase 3 will be on the big pharma experts."

He said he would expect the company could get a $20 million to $30 million upfront payment plus milestones and perhaps a 10% royalty.

El Paso lifted by over 4%

El Paso Corp. announced Friday the sale of its interests in ANR Pipeline Co., its Michigan storage assets, and 50% stake in Great Lakes Gas Transmission to TransCanada and TC PipeLines for $4.135 billion, including the assumption of $744 million of debt, and while the stock got a nice bounce, traders said they were taking out some insurance.

"The company needed to do something to reduce the debt and they have, but we are not sure it's enough," said a risk arb trader. "I'm taking cover to the $15 mark."

El Paso shares (NYSE: EP) in fact came off the day's high of $15.84 pretty sharply, settling with a gain of 63 cents, or 4.25%, at $15.45.

Because it will use tax loss carryovers in this transaction, the Houston-based company said it expects its after-tax cash proceeds to be roughly $3.3 billion. In addition, El Paso said it will still have roughly $1 billion of tax loss carryovers remaining after the transaction closes.

"Coupled with the restructuring efforts over the last three years, this transaction immediately elevates our credit statistics to a level that is at or very near an investment grade level, one of our primary long-term objectives," said Doug Foshee, chief executive of El Paso, in a news release.

"We also preserve our earnings outlook and our position as North America's largest interstate natural gas pipeline franchise with approximately 43,000 miles of pipelines."

El Paso said the transaction will be neutral to slightly positive on earnings per share and will provide an increase in the pipeline group long-term growth rate.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.