Roche, Gilead gain on flu talks; niche flu names higher as well; Schering, Wyeth, Pfizer watched

By Ronda Fears

Nashville, Oct. 24 - Influenza vaccine makers, or practically any company involved however remotely with that, were a definite target for buyers Monday, traders said. Otherwise, several remarked that biotech players were largely sitting on the sidelines as the broader markets as well as the biotech indexes gained.

Earnings from several Big Pharmas like Pfizer Inc., Wyeth and Schering-Plough Corp. were being watched closely as they continue to take an aggressive line toward buying small biotechs. That is a more dicey bet to call, one sellside analyst said, and the most likely "target" biotechs have priced in a buyout by now.

Roche Holding AG continued to steer activity in the flu names. On Monday, Roche cautioned against countries producing on their own a generic versions of Tamiflu, which so far experts believe is the lead vaccine against a pandemic of the avian flu. Roche, the lone marketer of Tamiflu, has said will not relinquish the patent, which is protected until 2016 but last week began talks with four generic drug companies to explore ways of boosting the output of Tamiflu.

In Europe on the Xetra, Roche shares gained €2.26, or 1.61%, to €142.30.

Gilead Sciences, the vaccine developer, also is trying to recoup Tamiflu marketing rights from Roche. Meanwhile, two Taiwanese companies have made small amounts of Tamiflu, the most effective treatment for avian flu, in a step toward stockpiling the drug. India-based Cipla Ltd. has said it has developed a generic version of Tamiflu.

In the U.S., Gilead shares rose $2.16, or 4.73%, to $47.78.

Niche flu vaccine names soar

The biggest gainers in the flu vaccine story, however, continue to be the niche biotechs, far off the beaten track. On Monday, Novavax, Inc. was one of the rising stars again Monday with a double-digit gain as it gains more exposure on the wires as a flu vaccine maker.

Malvern, Pa.-based Novavax, though, has a lot of its resources focused on hormone therapies, another big market, pointed out a sellside analyst. Still, he said, any position in the avian flu story will be a boon for the company. Novavax shares gained 42.01 cents on Monday, or 11.26%, to close at $4.1501.

Novavax also has a convertible bond in circulation, although the issue is very illiquid and market makers are few and far between. Still, another sellside market source said Monday that the Novavax convert "is rocking and rolling, the convert was so cheap" when it came to market. In July 2004, Novavax sold $35 million of 4.75% convertible notes with a 17% initial conversion premium in a private placement via Banc of America Securities. In July, the company completed a $4 million all-or-none follow-on offering of 4 million shares at $1.00 per share.

"A lot of the so-called bird flu names moving are really just vaccine makers, some of which may or may not be tapped to help in the production or discovery of a vaccine specialized for the bird flu," said the sellside analyst. But he acknowledged the biotechs moving on flu vaccine interest were seeing huge trading volumes, "because there are lots of cases where one vaccine can be shifted to the bird flu."

Peregrine Pharmaceuticals, Inc. was an example of the latter. It shot up after the company said it would advance its study of Tarvacin to treat flu viruses, including the avian flu. The drug is currently in a phase I clinical trial for the treatment of chronic hepatitis C infections. Peregrine shares rose 5 cents on the day, or 5%, to $1.05 on volume of 4.6 million versus the average 636,091 shares.

Hemispherx Biopharma, Inc. was a new one to move in that group, gaining as much as 8.5% on Monday before easing back to close up by 15 cents, or 6.73%, at $2.38.

Par Pharma higher by 2%

While the generic manufacturing of Tamiflu is still very uncertain, generic drug names were hot Monday. Par Pharmaceutical Cos. Inc. was one such generic drug name moving up after it announced Monday that it had made a pact with Turkish drug maker MN Pharmaceuticals.

Financial terms of the agreement were not disclosed, but Par Pharma - formerly Pharmaceutical Product Development Inc. - said it will help MN Pharma develop up to 10 generic versions of injectable drugs. MN will be responsible for making the drugs. Par will provide regulatory support for MN and act on behalf of the company to file the drug applications with the FDA.

The two companies will share in the net profits of resulting products, and Par will retain all U.S. marketing rights.

Par Pharma shares on Monday added 44 cents, or 1.96%, to close at $22.92.

Wyeth issues reverse course

Several sources said biotech players were closely watching the Big Pharma group's earnings, and there are some players involved in both groups. Aside from the pure telling of the earnings figures, many are watching for more signs of Big Pharma picking off smaller biotechs to refurbish their dwindling drug pipelines.

Wyeth was seeing a reversal Monday of activity Friday on its earnings, sources said. The stock gained Monday by 50 cents, or 1.11%, to $45.50 while most of its credit was lower on an un-hedged basis. But, as one trader pointed out, there is heavy hedge fund participation in the name, so many of the bond issues were "OK" on hedge.

The Wyeth convertible floater (Baa1/A) was quoted at the end of the day at 99, off from around 103 on Friday, but was seen trading as high as 101 during Monday's session. Wyeth's straight debt also was very active, a sellside trader said, with the 5.5% bonds due 2014 trading down by about 2 points but firming to end off just a tad at 102.125 and the 6.45% bonds due 2024 closing off around 1 point at 108.5.

The Madison, N.J.-based company's results failed to meet Wall Street's expectations. While sales were off in some of its big anti-depressants, worldwide revenues were up 7%. And, while third-quarter profits were $869.9 million, or 64 cents per share, compared with $1.42 billion, or $1.05 per share, a year earlier, without special items the earnings were a better-than-expected 81 cents per share.

A few analysts were pounding the table for Wyeth shares following the earnings, perhaps best illustrated by Bear Stearns analyst John Boris' research item Monday, "Take a Closer Look At This Stock!"

Schering played on plays

Indeed, many eyes were on Big Pharma, and Schering-Plough Corp. was seeing buyers as executives suggested it will be on the hunt for an M&A play.

Schering's stock rose just 2 cents on Monday, or 0.09%, to $21.12 but its 6% mandatory convertible was up a half-point to 542.5 and its straight bonds saw several trades, although little in the way of price change. The Schering 5.55% bonds due 2013 (Baa1/A-) were quoted at the end of the day at 102.25, up just a tad, and the 6.75% bonds due 2033 (Baa1/A-) at 114.75, about even with Friday's close.

In a Wall Street Journal article, Schering's top executive was quoted saying the company is now out of survival mode and searching for drugs to fill its pipeline.

Schering CEO Fred Hassan said he will use the $9 billion repatriated from overseas to make deals for late-stage drug candidates from other companies and possibly buy companies outright. The Street has thought Schering might be a target by the likes of peer Merck & Co., but Hassan told the Journal he believes the company is strong enough to survive on its own but will remain open to the possibility of a deal.

Pfizer credit panned

Pfizer Inc. already has openly discussed using its billions of dollars of repatriated profits for acquisitions, plus an ambitious stock buyback program. But credit analysts say the Pfizer paper is expensive for the story, and traders said Monday that the Pfizer bonds were off about 1 point.

The Pfizer 2.5% bonds due 2007 (Aaa/AAA) dropped to 97.75 and the 4.5% bonds due 2014 (Aaa/AAA) fell to 100.375, a buyside bond trader said. Pfizer shares ended off 16 cents, or 0.75%, to close Monday at $21.09.

The trader specifically referred to a research report by independent research house GimmeCredit as his impetus to sell the Pfizer paper.

GimmeCredit director of research Carol Levenson said in the report out Monday that Pfizer's third-quarter results "continued this year's trend of worsening margins and weaker sales, even when adjusted for everything management would like investors to ignore." The company's withdrawal of 2006 and 2007 guidance was unsettling, the analyst said, but added that she always thought its projections were overly ambitious anyway.

"Financial flexibility remains Pfizer's key strength amid its declining franchise drug sales, but bond investors are unlikely to benefit from it," Levenson said in the report, noting she expects the company to continue with stock buybacks. "We continue to view Pfizer paper as rich, and see more value in Bristol Myers."

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