BB Biotech deal on tap Friday; Amgen, Abgenix ink long-awaited merger; Oxigene seen on deck

By Ronda Fears

Nashville, Dec. 14 - Amgen, Inc.'s acquisition of Abgenix, Inc. was a long-anticipated deal that just a week ago was thought to be put on the back burner when Amgen boosted its stock buyback program to $5 billion. But the $2.2 billion deal, plus the assumption of Abgenix debt, was nevertheless loudly cheered.

While the Amgen, Abgenix merger was not a huge surprise, the price tag was somewhat of an unexpected boon.

"This was the right fit, made total sense to me and I am not a rocket scientist," said a sellside market source. "I told people to buy it - I even begged - I guess you can lead a horse to water but you cannot make them drink. There are others out there that are no-brainers but people are just not willing to do the work. You just need to understand the companies."

In after-hours trading, Abgenix shares skyrocketed to near the takeout price after flirting with a new 52-week high during the regular session. Abgenix shares hit $14.79 intraday, surpassing the 52-week high of $14.69, but closed up by 48 cents, or 3.38%, at $14.67. Then, once the deal hit the wires, the stock rocketed upward and was last seen in after-hours activity, at 5:26 p.m. ET, higher by $7.22, or 49.28%, at $21.87.

Amgen shares also zoomed on the news after closing off by 68 cents, or 0.88%, at $76.78. Amgen was last seen, at 5:26 p.m. ET, up $2.22, or 2.89%, at $79.00.

The merger is expected to be completed by the end of first quarter 2006, and Amgen said it would be funded with cash on hand.

Amgen expects dilution of adjusted earnings per share in 2006 and 2007 in the range of $0.05 to $0.10, with adjusted earnings per share accretive thereafter, assuming commercial success of the colon cancer treatment Panitumumab that had previously been jointly developed by Amgen and Abgenix. Amgen said it expects to retain substantially all Abgenix manufacturing employees.

Amgen, Abgenix a win-win

Panitumumab is Amgen's and Abgenix's most advanced cancer drug. In Amgen's words, from the company's press release, "The acquisition of Abgenix provides Amgen with full ownership of one of its most important advanced pipeline products, Panitumumab."

Amgen and Abgenix believe Panitumumab has substantial commercial opportunity, including potential in the first-line treatment of metastatic colorectal cancer in combination with other agents. Amgen estimates potential peak worldwide sales for Panitumumab could reach or exceed $2 billion.

Later this week, Amgen and Abgenix expect to initiate a Biologics License Application for the treatment of metastatic colorectal cancer patients who have failed standard chemotherapy.

"We believe this transaction will allow us to advance Panitumumab to its full potential for patients and to maximize the value of both Abgenix's growing portfolio of antibody product candidates and our exceptional scientific platform," said Bill Ringo, chief executive of Abgenix, in a news release.

BB Biotech launches bonds

Swiss fund BB Biotech launched CHF 150 million of three-year convertible bonds, up to half of which will be mandatorily convertible at maturity, with price talk of a 3.25% to 3.50% coupon and an initial conversion premium of 15% to 20%.

Joint managers of the deal, which is slated to price in Europe on Friday, are Bank am Bellevue AG and HVB Corporates and Markets.

There is a greenshoe of CHF 50 million.

BB Biotech, which focuses on U.S. and European biotech stocks, said it would use the funds for investment purposes.

Holders of BB Biotech shares are being granted advance subscription rights through Thursday.

BB Biotech shares closed unchanged Wednesday on the Swiss stock exchange at CHF 49.30.

BB Biotech deal seen rich

The BB Biotech issue, however, was considered expensive by sellside analysts. Additionally, onlookers expect little liquidity in the convertible post-issuance.

Barclays Capital Markets convertible analysts said in a report Wednesday that, assuming a credit spread of 200 basis points over Libor, an 18% stock volatility and 75 bps borrow cost, they see the bond worth about 96, or 4% rich, at the worst end of the indicated range and 99, or 1% rich, on best terms.

Narrowing the credit spread to 100 bps, the analysts said, would only improve their estimated fair value of the issue to 97, or 3% rich, to 100, or fair value.

Oxigene deal seen on deck

Buyside market sources said they were hearing that the Oxigene Inc. follow-on offering of 6 million shares was on deck for pricing after Wednesday's close, although that was not confirmed by any of the syndicate members. Bookrunner is SG Cowen & Co. LLC, with Lazard Capital Markets LLC as co-manager.

Shares of Waltham, Mass.-based Oxigene, which is focused on treatments for cancer and certain eye diseases, ended Wednesday off by 25 cents, or 5.49%, at $4.30.

"We were hearing that it would be going tonight [Wednesday]," said a buyside source. "I'm just hoping it gets done this week, or we will be seeing a no-go due to unfavorable conditions. With the holiday break coming up it seems to be now or never. Looking at today's price action I am a little concerned."

Another buysider, who runs a fund primarily focused on initial public offerings, said he thought the Oxigene deal would price a bit higher than it appears to be headed, given news out on the story earlier this week.

Oxigene announced Monday it was cleared to start a phase 3 study of its lead drug candidate, Combretastatin A4P, in patients with advanced inoperable lung cancer. Combretastatin A4P is designed to disrupt blood vessel formation by changing the shape of cells that line vessel walls, keeping them from attaching, and the company said it is the first drug of this type to enter a phase 3 trial.

"They got out the good news believing the stock would be in the upper $5 to $6 range, but it went to about $4.50 and has steadily come off that," the IPO fund manager said. "I am pretty bullish on cancer research and think the market cap for Oxigene should be double plus from these prices. I think once the deal gets priced and there are the routine exits on dilution, it will rebound nicely."

Human Genome drops 1%

Human Genome Sciences, Inc. shares declined Wednesday in the wake of news that it would spin off a research unit, as the finer details have yet to emerge. Traders also noted that the news was not entirely unexpected.

The stock closed Wednesday lower by a dime, or 1.11%, at $8.91.

Rockville, Md.-based Human Genome announced Tuesday that it plans to spin off its CoGenesys division, which was created in first-quarter 2005 with about 60 employees, contingent on a successful completion of CoGenesys funding by no later than May 31, 2006.

Human Genome Sciences said it will provide CoGenesys with a start-up loan of $10 million to be repaid either in cash or equity, after it secures outside funding.

Further details about what route CoGenesys may take in establishing more permanent funding have not been ironed out, Human Genome executives said in a conference call late Tuesday.

CoGenesys will be focused on early development of selected gene-based products and monetization of intellectual property and technology assets. Human Genome Sciences will have the right to retain an equity investment in CoGenesys and will receive an upfront payment, either in cash or equity, for the assets, intellectual property and technology licensed to CoGenesys.

The spinoff will reduce Human Genome Sciences' anticipated operating costs by more than $35 million over the next three years, the company said.

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