Amgen up; Abgenix, Cell Genesys lower; Chiron drops; Gilead sold on nice quarter; Genzyme seesaws

By Ronda Fears

Nashville, Oct. 18 - Biotech players were bucked around in Tuesday's session, which traders described as a roller coaster ride marked by profit taking and extreme swings because of volatility players. Meanwhile, primary market sources said they still expect the initial public offerings of Electro-Optical Sciences Inc. and Predix Pharmaceuticals Holdings Inc. to get done but maybe more toward the end of the week.

Elsewhere in capital-raising activity there was a couple of good-sized PIPEs deals on the tape from Sonus Pharmaceuticals Inc. and Avanir Pharmaceuticals.

Sonus completed a private placement with Schering AG for $15.7 million as part of a licensing agreement for its Tocosol Paclitaxel breast cancer drug. Schering bought 3.9 million shares of Sonus at $4.02 each - the closing price on Oct. 14 - and five-year warrants with a strike price of $4.42. Under the licensing pact, Schering will pay Bothell, Wash.-based Sonus $20 million upfront and milestone payments of up to $132 million as certain milestones are reached.

In pre-market action, Sonus Pharma shares were up a whopping 22% but the stock came off that to close Tuesday up by 34 cents, or 8.37%, at $4.40.

Avanir has received agreements from a group of institutional investors for a $16.15 million direct placement. The company will sell 6.1 million class A shares to the investors, including Xmark Funds, Federated Kaufmann, Jennison Associates and OrbiMed Advisors, at $2.65 each - equal to the closing price on Oct. 17. San Diego-based Avanir is focused on chronic diseases. The stock gained 17 cents on Tuesday, or 6.42%, to end at $2.82.

In secondary action, traders said that despite very nice earnings reports from biotechs, the market was still feeling too expensive, thus many experienced heavy profit taking.

Amgen Inc., partners with Abgenix Inc. on the cancer drug panitumumab, however, was higher Tuesday ahead of its results that are slated to come out after Wednesday's close. Many onlookers are expecting some new information about panitumumab, as Abgenix and Amgen continue to guide toward a fourth-quarter Biologics License Application filing for Panitumumab in third-line colorectal cancer. Amgen shares gained 47 cents, or 0.62%, to close Tuesday at $75.87.

Abgenix sees volatility spike

Abgenix took a hard slide Tuesday with traders - in both the stock and convertibles - noting rising stock volatility ahead of the widely anticipated news on panitumumab. The stock dropped 62 cents, or 6.16%, to $9.45, and the 1.75% convertible due 2011 lost about 4.25 points outright or around 2 points on swap.

"I was thinking of buying more on this dip," said one buysider, referring to Abgenix stock. "But, I don't know how many more dips there will be."

Onlookers are expecting key ex-U.S. phase III trial results evaluating panitumumab for treatment of metastatic colorectal cancer to be announced shortly. Jefferies & Co. analyst Adam Walsh said in a report Tuesday that he is "reasonably optimistic that panitumumab will meet the primary endpoint" in ongoing trials but "nevertheless, we are maintaining our cautious stance" with a hold rating on Abgenix shares.

At current prices, Walsh said it seems a positive outcome for panitumumab is largely priced into the stock. He pegged sustainable upside at $13 per share but if there is a negative trial outcome the stock could crop to the sub-$6 range and possibly as low as $3, accelerated by the company's debt-laden balance sheet, high cash burn rate and lack of a late-stage pipeline beyond panitumumab.

Cell Genesys eyed on Abgenix

Some who are skeptical of Abgenix might look to South San Francisco-based Cell Genesys Inc., in which Abgenix holds a 7% equity stake, one sellside convertible analyst said.

"An interesting way to play it might be to buy Cell Genesys," the analyst said.

Cell Genesys shares on Tuesday lost 6 cents, or 1.24%, to close at $4.78. The 3.125% convertible due 2011 was quoted off 2.375 points at 73.25.

"I think that's valid," said a hedge fund manager who is involved in Abgenix. "Panitumumab we know won't have much impact on Amgen, unless maybe there is a negative surprise. Say, it was delayed until 2007, Abgenix, though, would be greatly affected by such a delay since it has risen on the potential. Given that Abgenix has priced in panitumumab, it makes sense that Cell Genesys might be a better scheme."

Chiron shot down on warning

On the heels of Chiron Corp.'s warning that its Fluvirin influenza shot production was short of its target and thus earnings would suffer, the company's securities took a dive Tuesday although traders said there wasn't a mass exodus.

"A lot of Chiron is held by Novartis, remember," one sellsider said. "What else is out there is not trading that much. A lot of people still think that Novartis will be coming back with another buyout offer soon, so they are holding on. I'm not sure how long they will hold out, though."

Chiron shares lost 15 cents on the day, or 0.35%, to close at $43.15. Its 1.625% convertible traded early Tuesday at 97 when the stock was at $42.80, and was not seen again in the session. The 2.75% convertible was quoted at 98.25, also with the stock at $42.80, but traders said volume in that issue was very light, too.

Merrill Lynch analyst Eric Ende said in a report Tuesday that Chiron's vaccine problems cloud the acquisition story angle. He continues to believe that the parts of Chiron are worth more than the intact company, estimating total break-up or acquisition value of Chiron at about $38 per share. In contrast, he sees fundamental fair value for Chiron shares under current management closer to $32 to $36.

Too, Ende sees Novartis' enthusiasm to take Chiron under its wing dwindling.

"While Fluvirin is back on the market, we believe Novartis may have new concerns about entering a market with excess supply and potential for price declines," Ende said in the report.

"We believe this lowers the likelihood that Novartis raises its original bid by more than 10% over the original $40. Also, if no subsequent offers emerge, Chiron's board decides to reject future offers, and Novartis divests its 42% stake, we believe the shares would be fundamentally overvalued and the stock could trade toward 52 week lows of $30."

Tamiflu up for grabs

Tamiflu, which has been designated as one vaccine to use against the avian flu that has caused a pandemic scare worldwide, is marketed by Roche Holdings AG, and Gilead Sciences Inc. receives royalties as the drug's discoverer. Both were higher Tuesday, but traders said their gains were beyond Tamiflu, which now may be in the hands of many more players.

Roche said Tuesday that it would consider granting other firms licenses to make the drug. Specifically, Roche said it would be willing to discuss production with Cipla Ltd., India's largest drug company, which said over the weekend that it aims to make a generic version of Tamiflu.

Thailand also said earlier it would bypass Roche to make its own version of Tamiflu by next October.

At the same time, however, Roche announced on Tuesday that it will build a U.S. plant to make more Tamiflu.

Roche shares were higher by around 5% in Europe. Cipla shares were unchanged in Bombay.

Gilead sinks after-hours

Gilead Sciences, the No. 3 biotech behind Amgen and Genentech Inc., gained in the regular session Tuesday ahead of its earnings but took a dive in after-hours trading. Again, traders attributed the slide to profit taking, as Gilead posted a spike in profits as well as revenues, driven largely by strong demand for its HIV drugs.

"Gilead is up about 36% year to date," one sellsider said. "The stock trades at about 27 times estimated 2006 profits, compared to a price-to-earnings ratio of 21 for Amgen Inc., the No. 1 biotech. That just doesn't seem sustainable."

Gilead posted third-quarter net income of 2005 was $179.2 million, or $0.38 per diluted share, up from $113.2 million, or $0.25 per diluted share, in third-quarter 2004. Revenues came to $493.5 million, up 51% from $326.2 million.

Tamiflu accounted for a large part of the 70% rise in royalty income in third quarter, the company said. Those royalties were $12.1 million of the total royalty stream of $26.2 million for the quarter. Tamiflu royalties were up from $1.7 million in third quarter 2004.

On June 23, Gilead launched a battle with Roche to take back marketing rights for Tamiflu, asserting Roche has not been aggressive enough. The company said Tuesday that the matter is now in confidential binding arbitration.

Genzyme takeover buzz anew

Genzyme Inc. posted robust results Tuesday, too, and took off but also snapped back similar to Gilead. Traders said, however, that in addition to profit-taking undertones, renewed takeover buzz targeting Genzyme also put pressure on the stock.

The stock closed up by just 13 cents, or 0.19%, at $69.45 after opening at $70.26. It traded as high as $71 and ended near the session low of $69.25. The Genzyme convertibles were active, too, with the 1.25% issue traded at 114.25 early on in the day when the stock was at $70.75. But the bond went out at 104.5, down 8.5 points on the day, a trader said.

Genzsyme posted net income of $115.7 million, or 43 cents a share, up from $97.8 million, or 41 cents a share, a year ago. Revenue for the quarter shot up 24% to $708.1 million from $569.2 million.

"It wouldn't surprise me if Genzyme was a takeover target for one of the big pharmaceuticals. They have a great pipeline, lots of talented people, lots of cash and, again, a great pipeline," the sellside convertible trader said. "But the stock price is looking expensive for these times. Of course, I have been known to be wrong."

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