Shire rises on Adderall news; New River retraces gain; Barr declines; Genaera gains; Oscient Pharma off

By Ronda Fears

Nashville, Aug. 24 - Shire Pharmaceutical Group plc rose Wednesday on news that its hypertension drug Adderall was reinstated for use in Canada, and New River Pharmaceuticals Inc. - its partner in a new hypertension drug - rode its coattails higher for most of the session before turning south at the close. Meanwhile, Barr Pharmaceuticals Inc., which wants to market a generic form of Adderall and has challenged Shire's patent, skidded on the news.

Gaining on equity upgrades related to positive trial data and/or Food and Drug Administration actions were Myriad Genetics Inc., Cell Therapeutics Inc. and NeoPharm Inc.

In the wake of the proposed merger between OSI Pharmaceuticals Inc. and Eyetech Pharmaceuticals Inc., which a buysider said still seems like an "unsettling" event, Genaera Corp. - another takeover target in the eye treatment space - gained sharply Wednesday. As for OSI and Eyetech, both lost ground Wednesday.

As the market anticipates some sort of financing deal from Oscient Pharmaceuticals Inc. on the immediate horizon, a buyside market source noted heavy insider selling and the stock was off more than 2% intraday but saw a late-day surge to close higher by nearly 3%.

Primary activity otherwise was very quiet with initial public offerings at a complete standstill, and even PIPEs and venture capital transactions were slim Wednesday with just a couple of deals on the tape.

Shire higher in U.S., London

U.K-based Shire Pharma announced the reinstatement of its Adderall XR in Canada for treating Attention Deficit and Hyperactivity Disorder, effective this Friday after being suspended since early February, and the news sent the stock up in the United States as well as in London, although some U.S. holders remained somewhat concerned about the cost of the ordeal as well as looming generic competition.

In the United States, Shire stock rose 35 cents, or 0.95%, to $37.22. The stock was higher in London, gaining 11.50p, or 1.7%, to close Wednesday at 686p.

"What a fiasco all this has been and at what cost to Shire?" remarked a buyside analyst. "I see that no mention was made of compensation - no apologies issued by Health Canada to Shire or inconvenienced Adderall patients."

He said generic competition for Adderall is a more pressing issue since Shire's finances seem impressive.

"What is amazing about Shire's finances is that in 2004 they generated that free cash flow despite $200 million in R&D investment and $58 million in capital improvements. They showed over $1.5 billion in net cash," the buysider said. "What that means is that Shire is highly profitable, generates huge amounts of cash and invests heavily in growing the business."

Barr set back by Adderall news

Shire has acknowledged preliminary talks with Barr to settle disputes involving generic versions of Adderall, but with a settlement still in the offing, the news Wednesday pushed Barr shares lower by 21 cents, or 0.46%, to $45.88.

Last week, Shire confirmed market chatter that a deal with Barr was in the making, but nothing has been further reported on that front by either company. Even if Barr wins its case to market a generic form of Adderall, whether by settlement or in the patent challenge, the buyside market source said it would likely be too late.

"Say Shire loses the Barr court case and appeals. It is likely that we would be in Q1 2007 before the appeal verdict is known. Barr won't dare sell the generic version of Adderall until the appeal verdict is known," he said. "If Shire could spin out its own generic version for another six months after that then all of their new ADHD products by then should be FDA approved and on the market.

"If Shire agrees with Barr not to go to court and will withdraw the original Adderall products in 2007 so long as Barr doesn't launch until then, surely its a good deal for us [Shire holders]. Shire by then will have a full range of competitive products to compete with Barr. It's got to be something like that that they are discussing. It's got to be a delaying process from Shire's viewpoint but an attractive money making opportunity for Barr."

New River skips up, slides

Shire is already working on those fronts and its partner in the development of an alternative to Adderall, New River Pharma, rode the Adderall news higher for most of Wednesday's session, but some late profit taking caused the stock to close off 19 cents, or 0.46%, to $41.21.

The buysider involved with Shire said the speculation that Shire will settle the patent dispute with Barr was somewhat of an overhang for New River but if that settlement ultimately delays generic Adderall competition, then it should be good news for New River.

New River is working with Shire on another hypertension drug, which would be marketed as a better alternative to Adderall, and analysts said part of the agreement with Shire states that the new drug, NRP104, has to be the forefront product Shire markets for hyperactivity.

"If the lawsuit is settled and Barr withdraws its challenge, we would view this as positive for New River because it would substantially reduce the risk of earlier than expected generic competition, allow a longer time for bridging patients from Adderall XR to NRP104 and allow the largest possible market for branded Adderall XR at the time of [NRP104's] launch," said Merrill Lynch analyst David Munno in a recent report.

Additionally, Munno noted that "New River's contract with Shire specifies that Shire must promote NRP104 as their lead ADHD drug. The delay of generic competition will likely give Shire's sales force sufficient time to cannibalize Adderall XR's current $800 million market with NRP104. Thus, the potential reduction or delay in generic competition would increase our confidence."

A settlement with Barr could also provide upside to New River if Shire is highly motivated to completely switch patients to NRP104 by a certain date, Munno said.

Genaera seen as takeover play

On the heels of the OSI move to acquire Eyetech for $935 million, merger chatter was turned up several notches, and one of the speculated targets in the eye treatment space, Genaera, spiked huge on Wednesday amid heavy buying.

Genaera shares were as much as 16.5% higher intraday but came off that to close Wednesday up 24 cents, or 14.72%, at $1.87. Volume was very high, with about 3 million shares changing hands, compared with the three-month running average of 436,274 shares.

"There is a lot of speculation that Genaera is a target for Genentech or maybe even OSI after the Eyetech deal," said a sellside market source.

Even if a deal doesn't transpire, a buyside trader said Genaera is a nice stand-alone choice outside of Eyetech and Genentech as an eye drugs play.

"Eyetech's Macugen has done well because it is a first mover. Other competitors are breathing down its neck. They include Lucentis from Genentech and Evizon from Genaera, both of which are in phase 3 development. Both of these drugs have looked good so far, and I expect both to be approved," the buysider said. "This will put substantial pressure on Macugen, and it could really put a hurt on sales. I doubt that Macugen grows much beyond 2006. So, Macugen is a huge risk and those revenues are shared with Pfizer."

Genaera has roughly $14.2 million in cash with a market cap of $107 million, he said, so it has enough funding to keep going until FDA approval of its lead drug, Evizon.

In addition to Evizon for the treatment of ophthalmic indications and cancer; Genaera's product candidates include interleukin-9 antibody, a respiratory treatment based on the discovery of a genetic cause of asthma, and Lomucin, a mucoregulator to treat the overproduction of mucus and secretions involved in various forms of chronic respiratory disease.

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