Amgen up after-hours as $4 billion convert emerges; Genentech off; Adolor down on deal; Alnylam up

By Ronda Fears

Memphis, Feb. 13 - The top two biotechs were the headliners Monday with Genentech, Inc. shares tumbling as it suspended phase 3 trial enrollments for its colon cancer drug Avastin amid safety concerns and Amgen, Inc. taking off in after-hours activity on a $3 billion stock buyback plan that will be funded with $4 billion of convertible notes.

While it was a negative session for the major biotech indexes, there were several names heading north Monday on a variety of news, including an $80 million acquisition by Caliper Life Sciences, Inc. of Xenogen Corp.

Alnylam Pharmaceuticals, Inc. also was higher ahead of fourth-quarter and 2005 results that are scheduled to be reported Wednesday. The stock has come off the 52-week high of $15.42 hit Jan. 23 significantly, in part as a result of dilution from a follow-on offering later in January. Alnylam shares (Nasdaq: ALNY) on Monday added 22 cents, or 1.85%, to settle at $12.13.

"I'd say that the short-term pain has to be over soon," said a sellside biotech stock trader.

DOV Pharmaceutical, Inc. took off Monday on the company's announcement that the Food and Drug Administration has decided that existing studies by the company on its chronic pain drug bicifadine are sufficient to submit a New Drug Application. As a result, the company expects to submit the application in the first half of 2007. DOV shares (Nasdaq: DOVP) added 63 cents, or 3.41%, to $19.10.

Generex Biotechnology Corp. also took flight after a meeting with the FDA about plans for starting clinical trials for a bird flu vaccine on the heels of news during the weekend that the H5N1 avian influenza virus was found for the first time in two European Union countries, Italy and Greece. The company said it must conduct several studies before a trial actually begins, and gave no time frame. Still, Generex shares (Nasdaq: GNBT) gained 14 cents, or 9.93%, to end at $1.55.

Amgen reverses after the bell

Amgen, the biggest Big Biotech out there, on Monday settled the session lower but quickly reversed in after-hours action after launching $4 billion in convertible notes with $3 billion of proceeds earmarked to buy back stock.

"Using $3 billion to buy back stock is not bad," said a market source involved strictly in biotech stocks. "I can see the stock riding further."

Amgen shares (Nasdaq: AMGN) ended off by 31 cents, or 0.43%, at $71.14 but on news of the buybacks the stock was last seen, at 5:04 p.m. ET, higher by 51 cents, or 0.72%, at $71.65.

Convertible players also were flocking to the name. One convertible fund manager based in New York remarked that the deal "seems irresistible."

Pricing on the converts (A2/A+) is slated for Tuesday's business after the close. The Rule 144A placement will be in two tranches, at $2 billion each, with the five-year tranche talked to yield 0.125% to 0.625% with an initial conversion premium of 10% to 13% and the seven-year tranche talked to yield 0.375% to 0.875% coupon with an initial conversion premium of 10% to 13%.

Thousand Oaks, Calif.-based Amgen intends to use proceeds to enter into convertible note hedge and warrant transactions to increase the effective premium to 50%, and some $3 billion of proceeds are earmarked for share repurchases. The company said any remaining proceeds will be used for working capital and general corporate purposes.

Amgen is not new to the convertible market. It's zero-coupon convertible due 2032 was marked at Monday's close by a big sellside shop at 75.75 bid, 75.875 offered, off a tad from Friday's close of 75.875 bid, 76 offered.

Adolor on tap for Wednesday

Adolor Corp. launched early Monday a follow-on offering of 5 million shares of common stock with pricing slated for after the close Wednesday and buysiders involved in the story seemed to be pleased with the plans.

"It's holding well," said a buyside market source. "I thought we might be down a buck today after such a move. Of course it'll go down to the offering price, but maybe we have found a base. After that, it'll resume its uptick."

Adolor shares (Nasdaq: ADLR) ended Monday off by 48 cents, or 1.98%, at $23.81.

Exton, Pa.-based Adolor, which concentrates of pain medications, plans to use proceeds for general corporate purposes, which may include increasing its working capital, acquisitions, in-licensing of products or technologies and capital expenditures.

Entereg is Adolor's lead product candidate under development with GlaxoSmithKline plc for the management of the gastrointestinal side effects associated with opioid use. Adolor also is developing a sterile lidocaine patch which is in phase 2 clinical development for post-surgical incisional pain.

Adolor shares hit a new high of $25.24 last Thursday after the company announced positive results for a late-stage study of Entereg to treat people who have had bowel resection surgery.

"It's just plain smart for management to raise some cash when the stock is this high," the buysider remarked. "It would be stupid to wait until they really had to raise cash. They are doing the right thing for the long-term."

Genentech falls on trial news

Back to Big Biotechs, Genentech took a tumble Monday after announcing that it has halted recruitment of a phase 3 Avastin trial after seven unexpected deaths were reported.

Genentech shares (NYSE: DNA) dropped $1.92, or 2.3%, to $81.60 on heaving volume with 3.95 million shares changing hands compared with the norm of 3.28 million.

Analysts were not overly concerned about the development.

"Because of the small numbers of deaths, it is possible that the difference between trial arms is a statistical anomaly," said Merrill Lynch biotech analyst Eric Ende in a report Monday, who maintained a neutral rating on Genentech shares.

Jefferies & Co. biotech analyst Adam Walsh said, "We do not view this morning's news as a major setback ... and we would be buyers on expected headline weakness."

Genentech announced early Monday that enrollment into an international phase 3 study of Avastin with Xelox and Folfox chemotherapy regimens in early-stage colon cancer has been temporarily suspended to enable the data safety monitoring board to conduct a review of 60-day safety data. Avastin was approved in the U.S. in 2004 to treat advanced colorectal cancer in combination with chemotherapy regimens based on oncology drug 5-FU. The Folfox regimen also contains 5-FU.

Caliper, Xenogen up on merger

Caliper Life Sciences, Inc. and Xenogen both went up after announcing a definitive agreement to merge under which Caliper will issue stock and warrants, currently valued at $80 million, to Xenogen shareholders.

"I can only think it will be positive, a very nice surprise on a Monday morning," said a buyside market source in Boston.

On the news, Xenogen shares (Nadaq: XGEN) shot up by 99 cents, or 34.26%, to $3.88 and was higher by another 37 cents, or 9.54%, to $4.25 in after-hours activity. Caliper shares (Nasdaq: CALP) also rose, adding 59 cents on the day, or 10.83%, to close at $6.04.

Under the terms of the agreement, in exchange for Xenogen's outstanding common shares and warrants to purchase common shares, Caliper will issue 13.2 million common shares and 5.125 million five-year warrants to purchase Caliper common shares at a strike price of $6.79 per share. Final exchange ratios will be based on the capitalization of Xenogen at the closing of the proposed transaction. Preliminary estimates are for each holder of a Xenogen common share to receive 0.575 of a share of Caliper common stock and 0.223 of a warrant to acquire one Caliper common share.

The transaction is expected to close in the second quarter of 2006. The companies expect the merger to be EBITDA accretive in 2006 and 2007, and EPS accretive in 2008.

Hopkinton, Mass.-based Caliper makes tools and instruments used by the biotech industry. Alameda, Calif.-based Xenogen develops products and technologies to acquire, analyze and manage complex image data from live animals used in biotech research.

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