Sirna soars after hours on Merck $1.1 billion buyout; Emisphere plunges 24%; Point better by 19%

By Ronda Fears

Memphis, Oct. 30 - It was late in the day, but Monday finally produced some merger news after the closing bell, with Merck & Co. Inc.'s announcing it would buy Sirna Therapeutics, Inc. for $13 a share, or roughly $1.1 billion. The news sent Sirna shares sharply higher after hours, following a slightly lower close.

After closing with a loss of 45 cents, or 0.69%, to $6.45, Sirna shares (Nasdaq: RNAI) zoomed in after-hours activity on the merger news, adding $5.98, or 92.71%, to $12.43, just shy of the buyout price.

Sirna Therapeutics has been at the forefront of efforts to create RNAi-based therapeutics, medicines which could significantly alter the treatment of disease. RNAi-based therapeutics selectively catalyze the destruction of the RNA transcribed from an individual gene. This enables an entirely novel approach to discovering drugs with the potential to produce highly specific, potent and long-lasting effects.

Merck said the acquisition complements its "cutting-edge research on RNA expression" begun with its 2001 acquisition of Rosetta Inpharmatics, Inc. In particular, Merck said one area in which RNAi shows great promise is in cancer research.

Sirna's lead clinical development candidate, Sirna-027, however, is a chemically optimized, short interfering RNA, or siRNA, in phase 2 trials for wet age-related macular degeneration in a collaboration with Allergan, Inc. Sirna also has a strategic alliance with GlaxoSmithKline plc for the development of siRNA compounds for the treatment of respiratory diseases.

Already, Merck and Sirna said major stockholders holding some 36% of outstanding Sirna shares have committed to support the transaction.

"What a nice surprise," said a buysider in Boston.

Alnylam, CytRx up with Sirna

The buysider said Alnylam Pharmaceuticals, Inc. and CytRx Corp. were sympathy plays that probably will be getting a few looks Tuesday.

"This is what we've been waiting for," the buysider remarked.

In fact, both Alnylam and CytRx were higher in after-hours action along with Sirna.

Alnylam shares (Nasdaq: ALNY) closed off by 21 cents, or 1.25%, at $16.60 but shot up after the close by $2.70, or 16.27%, to $19.30.

Cambridge, Mass.-based Alnylam focuses on drugs that work through RNA interference system. Its lead drug candidate, ALN-RSV01, is in phase 1 trials for lung infections caused by respiratory syncytial virus. The company has alliances with Merck, Novartis AG and Medtronic, Inc.

CytRx shares (Nasdaq: CYTR) ended off 1 cent, or 0.76%, at $1.31 and were seen better in after-hours action by 18 cents, or 13.74%, at $1.49.

Emisphere eyed after slump

To the downside, which more accurately reflected the biotech sector Monday, Emisphere Technologies, Inc. took a plunge after it reported mixed results from a phase 2 trial of its oral insulin in type 2 diabetes.

After a brief halt in trading for the stock, traders said there was a massive dump, but late in the afternoon it seemed overdone and buying on the weakness was noted.

"The market reaction was overdone," said a sellside trader. "In the last hour, we were playing a bounce trade."

Emisphere shares (Nasdaq: EMIS) fell by $2.11, or 23.76%, at $6.77.

Tarrytown, N.Y.-based Emisphere reported results from a 90-day, phase 2 study of its oral insulin product using its Eligen oral delivery technology were mixed according to dosages, but said it is looking for collaborations to take the insulin product further, which players said was key to the company's survival.

"They said they will not do the phase 3 trial on their own," the trader continued. "They don't have the funding, and I don't think the market would support it right now. Not for another diabetes product."

Point rally prompts selling

Back to another gainer, Point Therapeutics, Inc. shot up after reporting that new data demonstrate its Talabostat antitumor and antimetastatic properties in preclinical osteosarcoma models. But traders said there was considerable selling into the rally.

"The news sounds very positive," said a sellside trader. "A lot of the early players, the venture capital funds, hedge funds, that have been in this name since the beginning were taking this opportunity to cash out."

Point Therapeutics shares (Nasdaq: POTP) ended higher by 24 cents, or 19.2%, at $1.49.

"With the positive news, an enormous amount of interest in the stock because of the news and, so far, no evidence of the company looking to tap the markets with a secondary [stock offering], anyone who was tied up in this one was swapping out," said a buyside market source in New York. "For one thing, this was the best liquidity we've seen in this stock for a while, maybe ever."

The new data were presented at the Annual Meeting of the International Society for Biological Therapy of Cancer Development. In one rodent experiment, the company said Talabostat was shown to decrease the growth of primary tumors. The National Cancer Institute is conducting a phase 1 clinical study of Talabostat in pediatric patients with solid tumors, including sarcomas.

Boston-based Point Therapeutics is developing a portfolio of dipeptidyl peptidase inhibitors for use in cancer, type 2 diabetes and as vaccine adjuvants.

Endocare inks equity line

In primary market action, Endocare, Inc. announced Monday that it has secured a $16 million equity line with Fusion Capital Fund II, LLC.

Under the terms of the deal, Fusion may buy shares of Endocare over the next two years at a price to be based upon the market price of Endocare's stock at the time of a draw, with no pre-set discount. The deal does set out, however, that Fusion does not have the right to purchase shares of Endocare in any trading day the stock closes below $1.00.

Endocare shares (OTCBB: ENDO) on Monday ended off by 5 cents, or 2.78%, at $1.75.

The company has reserved 8 million shares for the equity line. Fusion received 473,957 shares as a commitment fee for the agreement.

Irvine, Calif.-based Endocare said proceeds will be used for its work in prostate and renal cancer cryoablation. The rest will be used to expand its interventional radiology and oncology markets to treat lung and liver cancers and bone pain associated with cancer metastases.

Taro loses 9% on CFO exit

More on the downside, Israeli biotech Taro Pharmaceutical Industries Ltd. took a dive Monday after reporting that an independent law firm's investigation did not find intentional misstatements in the company's 2003 and 2004 reports related to wholesale reserves. But misleading statements were noted among management to staff, and on the report the company's chief financial officer and another member of its financial management staff resigned.

Taro shares (Nasdaq: TARO) fell by $1.13, or 9.41%, to $10.88.

One buyside source said the news was reassuring, insofar as no regulatory misstatements were found and apparently the culprits among management were dealt with. Although he said he was disappointed in the stock's slide, he was not confident enough to add to his position.

"I am not a seller today, I will put it that way," the buysider said.

"The audit, or whatever, did not find intentional misstatements of reserves. This, at least to me, was the most important and scary part of the whole pie. If Taro did intentionally misstate reserves, well then we would be in deep trouble. Fortunately they did not. Even if Taro is delisted they will be back. So, for now, all the bad news that's fit to print is out, and, to be honest, it's not nearly as bad as I thought."

Taro said Jenner & Block, an independent law firm retained by its audit committee to investigate facts related to a previously announced decision to restate financial results for 2003 and 2004, has advised that it did not find an intentional misstatement of reserves relating to sales to wholesale customers.

However, Jenner & Block further reported that it found that a member of the company's senior financial management caused the company to make misleading statements in correspondence to members of the staff of the Securities and Exchange Commission and that individual and another member of the company's financial management also made misrepresentations to employees of Ernst & Young.

After Jenner & Block delivered its report, Kevin Connelly, Taro's CFO, as well as another member of financial management employed by Taro resigned from their positions, effective immediately. Both individuals advised the board that they vigorously disagreed with the Jenner & Block findings with respect to their actions.

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