Elan, Biogen Idec up on Tysabri update; Human Genome convertible rises; Celgene, King Pharma gain

By Ronda Fears

Nashville, Aug. 9 - Biotech stocks were on the rebound Tuesday, led by gains in Elan Corp. plc and Biogen Idec Inc. after the partners in the multiple sclerosis drug Tysabri provided an update in efforts to return the drug to the market.

Also, King Pharmaceuticals Inc. took off after the company reported second-quarter profits that were double Wall Street expectations, and the results rekindled chatter that the company is a top takeover target. Renewed buzz about Celgene Corp. as a nice takeover target boosted that stock, as well.

It was subdued on the primary side of the fence with just one deal to speak of, a PIPEs offering from Conceptus Inc., as players await the Coley Pharmaceutical Group Inc. initial public offering anticipated after Wednesday's closing bell, as well as follow-ons from Kosan Biosciences Inc. and BioDelivery Sciences International Inc.

Meanwhile, recent new deals were languishing in the aftermarket. Advanced Life Sciences Inc.'s IPO from last week, priced at $5 versus cheapened guidance of $8 to $9, continues to hover around issue price, ending Tuesday off a penny at $5.09.

Human Genome Science Inc.'s new convertible bond, issued last week at a reoffered price of 98.5, was seeing some buying, sellside market sources said. Yet, the issue was still way underwater, gaining 2.25 points on the day to 95.5 bid, 96 offered while the underlying stock added 41 cents, or 3.18%, to end Tuesday at $13.31.

Conceptus raises $23 million

Conceptus Inc., developer of the Essure non-incisional permanent birth control system, on Tuesday fetched $23 million with the sale of 3.2 million shares of common stock in a private placement led by new investor VantagePoint Venture Partners.

Other purchasers were existing investor Federated Investment Management Cos. (The Kauffman Fund) and certain officers and directors of Conceptus. The institutional investors' price was $7.20 per share, and the officers and directors' price was $8.00 per share.

On Tuesday, Conceptus shares gained Tuesday by 45 cents, or 5.62%, to close at $8.45.

"VantagePoint's investment in Conceptus recognizes the company's recent achievements in obtaining a five-year effectiveness claim for Essure, achieving a favorable CPT code and obtaining private payer approvals which will drive broader reimbursement of this procedure," said Annette Bianchi, managing director of VantagePoint, in a prepared statement.

"In addition, we believe that this financing provides the company with an expanded base of capital to support its continuing growth."

The Essure procedure deploys a soft micro-insert into the fallopian tube through the cervix using a minimally invasive transcervical tubal access catheter.

On Monday, Conceptus announced the termination of a co-promotion agreement with Gynecare Worldwide, a division of Johnson & Johnson's Ethicon Inc., dating back to October 2003. Conceptus said the event would not affect 2005 results.

Elan, Biogen up on Tysabri data

Elan shares rocketed as much as 18% higher in early trade Tuesday after the Irish drugmaker and partner Biogen said a safety review of patients who took the drug Tysabri to treat multiple sclerosis revealed no new confirmed cases of a potentially fatal brain disease.

On the news, Elan shares climbed to $9.49 before easing back to close Tuesday up $1.09 on the day, or 13.63%, at $9.09. Biogen shares rose $2.82 on the day, or 7.34%, to end at $41.24.

Elan's run-up, traders said, was aggravated by short covering. One noted that the squeeze would not impact Biogen short positions greatly until the stock reaches almost $44.00.

In the junk bond market, Elan's 7¼% notes due 2008 were seen by a market source as having firmed to 97 bid from 95.5 on Monday, while its 7¾% notes due 2011 advanced to 90 bid from 87.25.

At another desk, a trader saw the 71/4s move up to 96 bid, 97 offered from 94.5 bid, 95.5 offered Monday and the 73/4s rise to 89 bid, 90 offered from 86 bid, 88 offered.

The companies also confirmed preliminary steps to restart clinical trials for MS are under way and they plan to make submissions to regulators in the early fall. After the safety review is completed, the companies plan to meet with the FDA to discuss the feasibility of putting Tysabri back on the market.

In February, they removed Tysabri from the market and have since been in exhaustive reviews of the drug trial data. They are still conducting a review of Tysabri patients who took the drug to treat Crohn's disease or rheumatoid arthritis, which is expected to be completed by the end of the summer.

The FDA approved Tysabri for the treatment of multiple sclerosis in November 2004.

Skeptics discount Tysabri value

Many onlookers have speculated that while it is probable that Tysabri will eventually be put back on the market, but to what extent is the big question.

Smith Barney Citigroup analyst Andrew Swanson is among the skeptics about Tysabri being the blockbuster it once was thought to be as an MS treatment.

"We were not surprised to see a significant price jump given the stock's recent reactions to Tysabri-related news flow, but we would characterize this morning's announcement as incremental," Swanson said in a report Tuesday. "Not only do we continue to exclude Tysabri revenues from our financial projections, as we remain unconvinced that it will return to commercial use, we reiterate that current share prices imply significant Tysabri sales under our calculations."

Swanson said a price of $9.25 for Elan shares implies annual peak Tysabri sales of a whopping $1.53 billion, on top of Elan's other operations.

"An expectation that Tysabri returns as a market-leading therapy, as suggested by these calculations, is optimistic in our view," Swanson said. "Recent statements from the companies also cast the product's potential return in the context of providing 'therapeutic option' that will carry new 'restrictions' on use, comments that we believe are an acknowledgement that Tysabri has a diminished market potential."

King Pharma target talk anew

King Pharmaceuticals Inc. took off Tuesday after the company reported second-quarter profits that were double Wall Street expectations, and the results rekindled chatter that the company is a top takeover target.

"King is on the radar screen" as an acquisition target, said a buyside analyst. "I think the blip got bigger today."

In trade Tuesday, King shares gained $1.65, or 15.08%, to $12.59.

The Bristol, Tenn.-based company's $4 billion acquisition by Mylan Pharmaceuticals Inc. was foiled in February after King announced it would restate 2003 and 2004 financial results. That deal had been hotly contested by Carl Icahn, a big Mylan shareholder who has since announced he would divest most of his stock in the company.

King reported second-quarter earnings of $20.5 million, or 8 cents a share, reversing a loss of $62.9 million, or 26 cents a share, in second-quarter 2004. Revenue gained 68% to $462.9 million, largely due to strong demand for its branded prescription drugs. The company also markets generic drugs.

For third and fourth quarters, King Pharma executives said the company expects earnings per share similar to that in second quarter if its muscle relaxant Skelaxin retains U.S. patent protection through year-end, thus avoiding competition from cheaper generic forms of the drug.

Renewed chatter about Celgene Corp. as a takeover target boosted that stock Tuesday, as well, the buysider remarked. Celgene shares rose 87 cents, or 1.89%, to $46.95.

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