Gilead off, Myogen skyrockets; Accentia up, Biovest off; GTC up after close; Encysive off 3%

By Ronda Fears

Memphis, Oct. 2 - On the heels of last week's merger news from AnorMED, Inc. and Millennium Pharmaceuticals, Inc., Gilead Sciences, Inc.'s $2.5 billion buyout of Myogen, Inc. was fodder for more takeover buzz, but there were skeptics who say the pickings are slim for such fat offers.

It did spin out into some action on speculation about Encysive Pharmaceuticals, Inc. and Dendreon Corp., but both of those were lower in Monday's session.

Meanwhile, biotech players were preparing for a rather full slate of new deals, at least in comparison to activity in the primary market since spring. And, on Monday there were a couple of sizable PIPEs deals from Accentia Biopharmaceuticals, Inc. and GTC Biotherapeutics, Inc.

In addition to a trio of initial public offerings on the table this week, Exelixis Inc.'s follow-on offering of 9 million shares is scheduled for Wednesday's business. Exelixis shares (Nasdaq: EXEL) were off Monday by 14 cents, or 1.61%, to $8.57.

At bat with IPOs are ImaRx Therapeutics Inc., Light Sciences Oncology Inc. and Rosetta Genomics Ltd.

Cash to burn

Gilead's purchase of Myogen, though, captured much of the market's attention, chiefly because of the hefty price tag.

"My guess is that there are few buyers like Gilead Sciences that can afford to see the cash value of future cash flows," a buyside market source in Boston said sarcastically. "For one thing, there are not that many biotechs with pockets that deep, maybe your Amgen and Genentech. For another, I think it is a long stretch to call it a smart decision."

Gilead is buying Myogen for $52.50 a share - a whopping premium of nearly 50% over Friday's close. The deal gives Gilead ownership of Myogen's lead product candidate Ambrisentan for pulmonary arterial hypertension, extending its focus beyond infectious diseases like HIV, cancer and influenza vaccines into the cardiovascular area.

As might be expected, in response to the price tag Myogen holders were ecstatic while Gilead players were aghast.

"Myogen is a complete Wall Street hype. How did Gilead get duped into this? They have two drugs in the pipeline. Two! Both were castaway orphan drugs tossed out by Abbott Laboratories for less than $100 million, combined, because they were, at best, niche drugs. Neither drug has even been filed for FDA approval. The lead candidate drug, Ambrisentan, had all international rights sold to GlaxoSmithKline plc. The other drug [darusentan, for resistant hypertension] is only starting phase 3 testing," the Boston buysider said.

"The acquisition at such an absurd valuation is beyond belief."

Gilead shares (Nasdaq: GILD) fell $4.49, or 6.53%, to $64.28 on the news.

Myogen shares (Nasdaq: MYOG) shot up $16.36, or 46.64%, to $51.44.

Last week, AnorMED zoomed 28% after it picked a merger bid of $12 a share, or $515 million, from Millennium, which bested the latest bid of $8.55 a share, or $380 million, from long-time unwanted suitor Genzyme Corp. Millennium's offer was a 21% premium to the closing price of AnorMED's shares the previous day and a 40% premium to Genzyme's hostile bid three weeks before.

On Monday, AnorMED shares (Nasdaq: ANOR) were off 15 cents, or 1.19%, to $12.50. Millennium shares (Nasdaq: MLNM) ended down by 10 cents, or 1.01%, at $9.84. Genzyme shares (Nasdaq: GENZ) were off Monday by 76 cents, or 1.13%, at $66.71.

Mozobil - used in stem cell transplants for multiple myeloma and non-Hodgkin's lymphoma patients - was the big draw for AnorMED as it was seen as an extension of Millennium's hematology/oncology program. Millennium's program is led by Velcade - also to treat multiple myeloma and non-Hodgkin's lymphoma - but the similarities also drew criticism for the merger from analysts.

Gilead criticized for price tag

Foster City, Calif.-based Gilead and Westminster, Colo.-based Myogen said the merger transaction has been structured as a two-step acquisition comprised of a cash tender offer for all the outstanding Myogen shares at $52.50 per share, followed by a cash merger in which Gilead would acquire any remaining shares at $52.50 per share. On completion, Myogen will be a subsidiary of Gilead.

The deal is expected to be dilutive to Gilead's earnings in 2007 and 2008, neutral in 2009 and accretive in 2010 and beyond.

But with Myogen still in the lab with its potential drug candidates, players were skeptical.

"How can a pre-earnings biotech be worth $2.5 billion before the BLA [Biologics License Application] is filed?" said another buyside source in Boston.

In addition to the well-known drugs Tamiflu, a flu vaccine, and Macugen for the treatment of age-related macular degeneration, Gilead's products include Viread, Emtriva, and Truvada for HIV, Hepsera for chronic hepatitis B infection, AmBisome for fungal infections, Vistide for cytomegalovirus infection and DaunoXome, a liposomal formulation of the anticancer agent daunorubicin for the treatment of AIDS-related Kaposi's sarcoma.

Myogen currently expects to file a New Drug Application for Ambrisentan for pulmonary arterial hypertension with the Food and Drug Administration as early as the fourth quarter of 2006, with licensing outside the United States by Glaxo. Phase 3 trials for Darusentan for the treatment of patients with resistant hypertension was initiated in June.

"Another piece to the Myogen buyout that is puzzling is the existing relationships that Myogen has with other partners. Unless Gilead intends to buy out these deals, there are more people sharing the pie than makes sense, making the deal even more expensive," the buysider continued.

Encysive off over 3%

The Myogen news, though, did fuel speculation of another hypertension, or blood pressure, name, Houston-based Encysive Pharmaceuticals, Inc.

Encysive has Thelin for pulmonary arterial hypertension approved in Europe in August but has met with resistance in the United States with a second approvable letter from the FDA in July requesting further data. The company also develops Argatroban, which is used for the treatment of heparin-induced thrombocytopenia, and has collaborations with Mitsubishi Pharma Corp., GlaxoSmithKline plc and Schering-Plough Corp.

"This [Myogen news] may very well be a forerunner of things to come for Encysive. This can only be positive for Encysive," said a buyside market source in Atlanta. "I picked up a bit on the dip and wouldn't mind a further dip to buy more."

Market reaction wasn't positive for Encysive overall, however. One sellside trader said the setback for Thelin's approval in the United States and a line of thinking that Myogen was picked over Encysive pressured the stock.

Encysive shares (Nasdaq: ENCY) dropped 13 cents on the day, or 3.02%, to close at $4.17.

"While I am an Encysive guy, I have to say that Myogen knows how to maximize shareholder value. On that thinking, Encysive should sellout for $15 to $20," the trader said.

"The market has given Myogen a valuation of $2.5 billion! Does this not add clarity to the potential value of Encysive? Or was Encysive's value better understood last Friday? I agree that the price was outrageous, and I would pick up Encysive on any reactionary decline."

Dendreon dips over 2%

Outside of a directly related biotech, there also was considerable chatter about cancer targets, namely Dendreon Corp.

"Anyone interested in another roll of the dice with significant short-term and long-term upside potential should look at Dendreon, I say," the sellside trader added.

"The FDA response on Provenge is expected no later than mid-2007. It has shown significant survival benefit, virtually no side-effects, addresses unmet need and has fast track status/priority review. Completion of the BLA is coming anytime this quarter."

Seattle-based Dendreon's lead product candidate, Provenge, addresses prostate cancer. Dendreon also has Neuvenge for breast, ovarian and colon cancers and has collaborations with Genentech, Inc. and with Amgen, Inc. by virtue of Amgen's acquisitions of Abgenix, Inc.

"Encysive should be up $2 on the Myogen news. But, Dendreon should be up $10. Bully for Dendreon. I think at the least the company is going to strike a deal in the next few months for a lucrative ex-U.S. partnership and then will gap up," the trader said.

"You have to own the shares in advance of the news or you will pay several multiples to get in. Provenge is the most important breakthrough in fighting cancer since surgery and radiation.

Dendreon shares (Nasdaq: DNDN), however, dropped Monday by 10 cents, or 2.24%, to $4.37.

Accentia bags $25 million

In the PIPEs market, Accentia Biopharmaceuticals, Inc. announced early in the day that it was gearing up to conclude a $25 million private placement of 8% exchangeable convertible debentures due Sept 29, 2010, convertible into common shares of Accentia at $2.60 each.

Holders have the option, after the first year, to exchange their principal of the debentures for common shares of Biovest International, Inc., a subsidiary of Accentia, at $1.00 each, assuming the total amount of Biovest shares issued does not exceed 18 million. The debentures are redeemable at 120% of the principal being redeemed plus interest any time after the first year.

Accentia shares (Nasdaq: ABPI) gained 2 cents, or 0.78%, to $2.60.

Biovest shares (OTCBB: BVTI) fell 5 cents, or 4.76%, to $1.

Investors in the deal include Midsummer Investments, Ltd., Whitebox Convertible Arbitrage Partners, LP, Whitebox Hedged High Yield Partners, LP, Guggenheim Portfolio Co. XXXI, LLC, Pandora Select Partners, LP, Whitebox Intermarket Partners, LP, Laurus Master Fund, Ltd., Wolverine Convertible Arbitrage Fund Trading Ltd. and Rockmore Investment Master Fund, Ltd.

Those investors will receive warrants for 3,136,201 shares, exercisable for five years at $2.75 each. After the first year, the investors may elect to exercise their warrants for shares of Biovest at $1.10 each.

Tampa, Fla.-based Accentia, focused on respiratory disease and oncology, said proceeds will be used to commercialize specialty pharmaceutical products and develop SinuNase, its intranasal antifungal therapy for chronic sinusitis. The rest will be used to repay short-term debt.

GTC gains 9% after close

In another late-day PIPEs deal, GTC Biotherapeutics, Inc. announced that the French biotech concern LFB Biotechnologies has agreed to fund a $25 million financing of common stock, convertible preferred stock and convertible debt in three tranches as part of a collaboration agreement.

The first tranche of the offering, expected to close later this week, will be for convertible preferreds, which will be convertible into 5 million common shares at $1.23 each. The preferreds do not pay dividends, but the company may force conversion of the preferreds after 2012 if the stock is trading above $2.46 per share.

The second tranche of the offering will also be for convertible preferreds, which will be convertible into 9.6 million shares at the same price as the first tranche.

Both tranches comprise 19.9% of the GTC's outstanding common stock on conversion.

A third tranche, set to close in early January 2007, will include 3.6 million shares at $1.23 each for proceeds of $4,428,000.

LFB also will fund a $2.6 million five-year convertible note with a 2% coupon, with the conversion price to be determined.

The offering is part of a collaboration with LFB to develop selected recombinant plasma proteins and monoclonal antibodies using GTC's transgenic production platform. Framingham, Mass.-based GTC will be responsible for the production system and products and will retain exclusive North American commercial rights. LFB will be responsible for clinical development and regulatory review.

GTC (Nasdaq: GTCB) closed unchanged Monday to settle at $1.24 but in after-hours trade gained 11 cents, or 8.86%, to $1.35.

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