Solid earnings fuel ViroPharma stock; Guidant sues Johnson & Johnson over proposed merger

By Sheri Kasprzak and Rebecca Melvin

New York, Nov. 7 - ViroPharma Inc.'s stock took off early in the day after the release of the company's third-quarter earnings report.

In pre-market trading, ViroPharma's stock gained close to 12% with the company ultimately gaining 14.82%, or $3.11, to end the day at $24.10. The stock lost a penny in after-hours trading.

For the third quarter of 2005, the Exton, Pa.-based biotech company posted net income of $18.7 million, up from a net loss of $3.3 million for the third quarter of 2004. For the nine months ended Sept. 30, the company posted net income of $41 million, up from a net loss of $25.3 million in the year-ago period.

The company's net income per share for the quarter ended Sept. 30 was $0.33 per share basic and $0.77 per share diluted, compared to a net loss of $0.13 per share basic and diluted for the same period in 2004.

"The third quarter of 2005 marked the third sequential quarter of record revenue and strong financial results for ViroPharma," said Michel de Rosen, the company's chief executive officer, in a statement. "Vancocin continued to perform well, with prescriptions growing 36% over the third quarter of 2004.

"We hired, and have since launched, our regional medical scientist team, who are working with key opinion leaders throughout the U.S. to ensure appropriate usage of Vancocin and rapid identification of patients at high risk of serious Colstridium defficile-associated disease.

"We further reduced our debt from the end of the second quarter, ending the quarter with only $86.7 million remaining."

De Rosen also said in the statement that the company expects to have clinical data from its phase Ib trial of HCV-796 and its phase II trial of maribavir in the fourth quarter of 2005 and the first quarter of 2006, respectively.

In July, ViroPharma converted the remaining $15.35 million of its 6% convertible senior secured notes due October 2009 into 6.14 million common shares.

After the conversion, ViroPharma's Vancocin assets are unencumbered and the company's outstanding debt is $86.7 million of its 6% convertible subordinated notes due 2007.

ViroPharma is focused on treatments for viral diseases.

Guidant stock slips, J&J gains after suit

Guidant Corp. said Monday that it has filed a lawsuit against pharmaceutical giant Johnson & Johnson to force a $25.4 billion acquisition of Guidant.

At the end of the day, Guidant's stock had dropped $1.40, or 2.38%, to settle at $57.52 while Johnson & Johnson's stock shook off early losses, posting a $0.55, or 0.9%, gain to end at $61.43.

Guidant, an Indianapolis-based medical device company, is suing J&J after the Friday deadline for completing their merger passed.

According to one sellside source, who has been following the news, talk had spread recently that J&J would pass on the acquisition after Guidant became the source of several recalls of heart defibrillators and pacemakers.

"There's no way they'll [Johnson & Johnson] touch this company with a 10-foot pole," said the source. "They [Guidant] can't possibly win this."

In fact, Johnson & Johnson said in a statement released Monday that it plans to "vigorously" fight the suit.

"Johnson & Johnson will vigorously oppose the lawsuit and take all necessary action to enforce its rights under the merger agreement," the J&J statement said.

Guidant's third-quarter earnings report was also released on Monday, and the results were less than stellar.

The company reported that its profit dropped to $65.4 million for the quarter ended Sept. 30, down from $153.6 million from the corresponding quarter in 2004.

Genzyme lowered by Bear Stearns

Shares of Genzyme Corp. dropped 4.3% on Monday after Bear Stearns downgraded the stock to peer perform from outperform.

The company's stock slipped $3.22 to $71.60 on Monday after Bear Stearns analyst Mark Schoenebaum said in a report that changes to Medicare will cut reimbursement for the company's Synvisc drug by more than 40% in 2006. The cut will remove an advantage that Genzyme had over similar products from competitors.

"Genzyme may need to cut prices so that physicians do not lose money prescribing the drug," Schoenebaum wrote in his report. "If the company does not cut prices, it could face significant share loss."

The company may have to slice its prices on the drug by up to 40% in order to keep physicians from prescribing alternative drugs, Schoenebaum said.

The painkiller, which is delivered through injection, accounts for about 8% of Genzyme's revenue, according to Schoenebaum.

The biotech company's convertibles were also weaker on word of the downgrade.

The 1.25% convertibles of Genzyme were seen in about 0.25 point, with an early market at 113.75 bid, 114.125 offered, versus a stock price of $71, and a late trade at 112.50. The weaker price for Genzyme's 1.25% convertible compares with trades at 114.25 versus a shares price of $70.75 on Oct. 18 and at 112.125 versus a share price of $70.30 on July 15.

Based in Cambridge, Mass., Genzyme develops therapies for pain, cancer and other ailments.

Cephalon strengthens

In biotech convertibles on Monday, Cephalon's convertibles were stronger amid no particular news. Last week, the Frazer, Pa.-based biotechnology company offered a mixed outlook in its third-quarter report; however, it was one company that has potential, with five possible new drugs on the horizon.

In its earnings report, the company reiterated a previously reduced earnings prediction for full year 2005 but lowered guidance for 2006, saying that it "will be a transitional year" as the company seeks to market five new drugs in the next 18 months.

The new drugs include Sparlon, a treatment of attention deficit hyperactivity disorder, or ADHD; Vivitrex, a treatment for alcoholism that Cephalon is marketing with the drug's developer, Alkemes Inc.; Accelanyl, which is now under review by the FDA as a treatment for breakthrough cancer pain; and Gabitril, which is sold as a treatment for epileptic seizures and is undergoing clinical trials for anxiety disorder. A fifth drug is Nuvigil, which is related to Cephalon's successful sleep-disorder drug Provigil.

Cephalon's 2% convertible due 2015 traded at 112 versus a share price of 46.40. The company's shares actually closed six cents higher, representing a 0.39% increase, at $46.46. Last week the 2s were at 109.5 bid, 110 offered.

"There's been decent trading," a New York-based sellside convertibles trader said of Cephalon convertibles. The trader also mentioned Amgen Inc. as trading on Monday, but in line with its shares.

Amgen's 0s traded Monday at 78.5 versus a $79.20 share price at the time.

Imclone Systems was weaker, with its 1.375% convertibles trading at 82.25, which was below an early market at 82.50 bid, 82.75 offered, versus a stock price of $32.65. Imclone shares closed higher than that Monday but off that trade's level, at $32.20, a gain of $1.35, or 4.38%.

Meanwhile no trades were reported of Sepracor convertibles after the Marlborough, Mass.-based company presented results of its study that assessed its Xopenex HFA inhalation aerosol treatment, which showed a "significantly greater mean peak percent change in FEV (1) from pre-dose levels compared with a placebo."

The drug was administered in a metered-dose inhaler versus a placebo in pediatric patients from age four to 11 who experience bronchospasm associated with asthma.

Sepracor, which focuses primarily on treatments for respiratory and central nervous system disorders, said it's targeting commercial launch by the end of 2005.

Tm Bioscience to raise $8 million

Looking to biotech PIPEs, Toronto's Tm Bioscience Corp. has entered into a non-binding term sheet for a $8 million convertible note offering.

A U.S.-based investment fund has agreed to buy the three-year note, which bears interest at the greater of Prime rate plus 200 basis points or 8.5%.

The note will be repaid in 33 equal monthly installments, and the fixed conversion price for each year will be 110%, 120% and 130% of the price per share on the day the one-third payment of principal and interest is due, respectively.

The investor will also receive warrants equal to 15% of the shares issuable upon conversion. The warrants are exercisable at a 120% premium to the five-day volume weighted average price of the company's stock the day before closing.

After the offering and the company's third-quarter earnings were announced Monday morning, Tm Bioscience's stock remained unchanged at $1.88.

Canaccord Capital Corp. and Versant Partners were the placement agents for the offering, which is expected to close Nov. 30.

As to its earnings, the company reported revenue of C$2.2 million for the third quarter of 2005, compared to revenue of C$1.1 million for the same quarter of 2004.

The company reported a net loss of C$3.1 million, or C$0.07 per share, compared to a net loss of C$3 million, or C$0.09 per share, for the third quarter of 2004.

Tm Bioscience is a diagnostics company focused on a suite of genetic tests, including tests for genetic disorders, drug metabolism and infectious diseases.

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