Bristol-Myers' buy narrows drug field; Noven tender opens; TransAlta offer considered risky

By Cristal Cody

Tupelo, Miss., July 23 - Bristol-Myers Squibb Co.'s $2.4 billion acquisition of antibody drug producer Medarex, Inc. places potential deal targets on the handful of antibody makers left, an analyst told Prospect News on Thursday.

In other situations, Hisamitsu Pharmaceutical Co., Inc. on Thursday opened the tender offer to purchase shares of Noven Pharmaceuticals, Inc. for $16.50 each, but some investors may be holding out hope for a second bidder, an analyst said in an interview.

On the hostile front, a market source said Thursday that TransAlta Corp.'s C$654 million offer for Canadian Hydro Developers, Inc. is risky because shareholders are unlikely to take the bid.

Meanwhile, investors sprang back to life on Thursday. The Dow Jones Industrial Average closed up 188.03 points, or 2.12%, at 9,069.29.

The Standard & Poor's 500 index gained 22.22 points, or 2.33%, to close at 976.29, and the Nasdaq Composite index rose 47.22 points, or 2.45%, to 1,973.60.

Focus on antibody makers

Medarex shares soared to close up $7.49, or 89.17%, at $15.89 on Thursday. Shares have traded from $3.40 to $10.12 over the past year.

Bristol-Myers Squibb said it would acquire Medarex for $16.00 a share in cash, an offer that represents a 90.00% premium to the company's closing stock price on Wednesday.

Princeton, N.J.-base Medarex has agreed not to solicit competing offers in the merger agreement.

The deal must receive antitrust clearance under the Hart-Scott-Rodino Antitrust Improvement Act.

Bristol-Myers Squibb said it plans to start a cash tender offer by Monday.

Jason Kantor, an analyst with RBC Capital Markets Corp., told Prospect News on Thursday that the premium is more than fair.

"Medarex shareholders are getting a great value," he said. "We can argue whether Bristol overpaid or not. But from Bristol's perspective, it's still a fairly small deal."

Kantor expects to see more consolidation in the biotech sector, particularly for public companies that develop antibodies.

"It puts a scarcity premium on the remaining antibody companies," he said. "We've seen many large deals in this space over the last several years, including most of Medarex's competitors. That leaves a few remaining public antibody companies as speculative targets."

Some of those companies mentioned as potential targets include Seattle Genetics, Inc. of Bothell, Wash., ImmunoGen Inc. of Waltham, Mass., XOMA Ltd. of Berkeley, Calif., Regeneron Pharmaceuticals Inc. of Tarrytown, N.Y., and Alexion Pharmaceuticals, Inc. of Cheshire, Conn.

The biotech companies could be viewed as more valuable to pharmaceutical companies because antibody drugs used for chronic diseases such as rheumatoid arthritis are difficult to produce generically, Kantor said.

Shares of New York-based Bristol-Myers added 57 cents, or 2.81%, to close at $20.86.

Seattle Genetics' stock rose 64 cents, or 6.86%, to $9.97, while Regeneron shares jumped $1.65, or 9.18%, to close at $19.62.

Alexion's stock closed up $2.79, or 7.31%, at $40.98, and ImmunoGen shares gained 41 cents, or 4.55%, to $9.43.

Shares of XOMA rose 3 cents, or 4.56%, to 78 cents.

Noven up on tender offer

Hisamitsu Pharmaceutical on Thursday opened the tender offer to purchase shares of Noven for $16.50 each. The tender offer expires Aug. 19.

The $450 million deal, announced on July 14, represented a 22.00% premium to Noven's closing stock price on the last day of trading before the offer was announced.

Hisamitsu already beneficially owns 4.90% of Noven's outstanding shares.

The transaction must receive Hart-Scott-Rodino clearance.

Noven shares closed up 13 cents, or 0.79%, at $16.60 on Thursday.

The offer may no longer be fair since the stock is trading up, Robert M. Wasserman, an analyst with Dawson James Securities Inc., said in an interview Thursday.

"I don't think it's reflective of the strength in the stock market," he said.

Miami-based Noven is a specialty prescription pharmaceutical company.

Tosu, Japan-based Hisamitsu Pharmaceutical was founded in 1847 and develops and markets prescription and over-the-counter drug products.

"There may be a little speculation of another offer," Wasserman said of why investors have pushed the stock up a dime more than the tender. "There's maybe a 10.00% chance they would get another offer. It's not great, but it's possible."

Market frowns on TransAlta bid

Canadian Hydro urged shareholders to reject TransAlta's offer in a statement on Thursday.

"This offer is inadequate and its timing is purely opportunistic," Kent Brown, chief executive officer of Canadian Hydro, said in the statement. "This offer does not represent compelling value, and we believe we can do better for our company and our shareholders through any one of a number of alternatives."

TransAlta opened its hostile tender offer for the stock at C$4.55 a share in cash on Wednesday.

Canadian Hydro's board said its independent special committee will review alternatives to improve shareholder value, and a data room will be opened for interested parties.

Shares of the Calgary, Alta.-based green energy company traded well above TransAlta's offer price.

Canadian Hydro's stock rose C$0.02, or 0.39%, to close at C$5.10. The stock has traded from C$2.01 to C$5.43 over the past year.

"Canadian Hydro is currently trading at a 5.50% premium to the offer price, suggesting that its shareholders are unlikely to accept the offer at the current price," a market source said Thursday. "We believe that TransAlta has little room to increase its offer significantly."

Regulatory reviews also are a given.

"Although TransAlta downplayed the significance of regulatory approvals, we would not rule out extended reviews," the source said. "We understand that the provincial energy regulators will review the acquisition with respect to its effect on the public interest. Many environmental groups speculate that TransAlta is buying Canadian Hydro to comply with pending legislation on carbon emissions."

Calgary, Alta.-based TransAlta produces power to sell in Canada, the United States and Australia.

The deal is expected to require approval from regulators that include the Canada Competition Bureau, Alberta Utilities Commission and the Ontario Energy Board.

U.S.-listed shares of TransAlta added 26 cents, or 1.37%, to close $19.23 on Thursday.

Mentioned in this article:

Alexion Pharmaceuticals, Inc. Nasdaq: ALXN

Bristol-Myers Squibb Co. NYSE: BMY

Canadian Hydro Developers, Inc. Toronto: KHD

ImmunoGen Inc. Nasdaq: IMGN

Medarex, Inc. Nasdaq: MEDX

Noven Pharmaceuticals, Inc. Nasdaq: NOVN

Regeneron Pharmaceuticals, Inc. Nasdaq: REGN

Seattle Genetics, Inc. Nasdaq: SGEN

TransAlta Corp. NYSE: TAC

XOMA Ltd. Nasdaq: XOMA

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