Bristol-Meyers predicted to continue deal pace; proxy firm sides with Foundation Coal buyout

By Cristal Cody

Tupelo, Miss., July 24 - Bristol-Myers Squibb Co. may be in the market for additional deals on top of its latest $2.4 billion acquisition of antibody drug producer Medarex, Inc., an analyst said Friday.

In other situations, Alpha Natural Resources, Inc. said Friday that proxy advisory firm Glass, Lewis & Co. reiterated its support for the company's $1.5 billion merger with Foundation Coal Holdings Inc., despite an objection from Alpha's largest shareholder.

An analyst who did not want his name used told Prospect News on Friday that Alpha shareholder Duquesne Capital Management, LLC has a point.

On Wall Street, stocks closed mixed on Friday.

The Dow Jones Industrial Average added 23.95 points, or 0.26%, to close at 9,093.24.

The Standard & Poor's 500 index closed up 2.97 points, or 0.30%, at 979.26, while the Nasdaq Composite index fell 7.64 points, or 0.39%, to 1,965.96.

Eyes on Bristol-Meyers partners

Bristol-Myers may be on the hunt for more deals, and the drug maker seems to look at its current drug partners first for potential transactions, an analyst said Friday.

The company is building clusters in key therapeutic areas including cardiovascular disease, solid tumors, hepatitis C and Alzheimer's disease, Christie Main Groves, an analyst with Pali International Ltd., said in a research note.

"Bristol-Myers is looking for potential targets at [less than] $2 billion," Groves said. "Bristol-Myers indicated in the investor conference that it would not rule out bids in the range of $6 billion to $8 billion if it could find extreme value."

Late Wednesday, New York-based Bristol-Myers Squibb said it would acquire Princeton, N.J.-based Medarex for $16.00 a share in cash, an offer that represented a 90.00% premium to the company's closing stock price on that day.

Bristol-Myers is Medarex's partner for the development of a melanoma treatment drug called ipilimumab now in phase III clinical trials.

"Bristol-Myers has acquired three companies, Kosan, Adnexus and Medarex, since 2007," Groves said. "With these companies, Bristol-Myers was in a strategic partnership or approached the companies prior to launching the bid."

Potential partners that could be targeted for a future transaction with Bristol-Myers include South San Francisco, Calif.-based Exelixis, Inc. and Seattle-based ZymoGenetics, Inc., Groves said.

Exelixis has four collaboration partnership agreements with Bristol-Myers, while ZymoGenetics has a global collaboration with the drug maker.

Jason Kantor, an analyst with RBC Capital Markets Corp., said in a research note released to Prospect News that Bristol-Meyers has been looking for deals for a while.

"We believe that Bristol has been seeking to enhance its antibody infrastructure for some time - first through its partnership with ImClone [Systems Inc.] and later through its attempted acquisition of ImClone. The eventual sale of ImClone to Eli Lilly [& Co.] most likely set the stage for the current transaction," Kantor said.

"Despite good reasons for the acquisition, we believe the purchase price is too high," he said. "However, this underscores the scarcity value of good antibody technology companies and ups the price for future transactions in this space."

Kantor said biotech companies that control their assets without any drug production partners could be targets for multiple acquirers.

Some of the larger biotech companies without drug partners include Cheshire, Conn.-based Alexion Pharmaceuticals, Inc.; Seattle-based Dendreon Corp.; Lexington, Mass.-based AMAG Pharmaceuticals, Inc. and East Brunswick, N.J.-based Savient Pharmaceuticals, Inc.

"Nearly all of the recent public acquisitions have targeted companies with positive phase III data or marketed products," Kantor said.

Medarex shares rose 1 cent, or 0.06%, to close Friday at $15.90.

Shares of Bristol-Meyers added 54 cents, or 2.59%, to end at $21.40.

ZymoGenetics shares closed down 6 cents, or 1.13%, at $5.24, while shares of Exelixis jumped 70 cents, or 13.89%, to $5.74.

Alexion shares gained $2.22, or 5.42%, to close at $43.20.

Dendreon shares fell 21 cents, or 0.86%, to $24.26.

AMAG shares slipped 28 cents, or 0.55%, to $50.67.

Savient shares rose 44 cents or 2.86%, to $15.84.

Shares of Indianapolis-based Eli Lilly closed up 40 cents, or 1.17%, at $34.68.

Alpha shareholder a sticking point

Alpha Natural Resources said Friday that Glass Lewis reported that the merger is in the best interests of shareholders.

Under the terms of the agreement to create America's third-largest coal producer, Foundation shareholders would receive 1.084 shares of the new company for each share of Foundation.

Duquesne, which owns 8.31% of Alpha outstanding shares, said earlier this week it would vote against the merger over concerns about exposure to less-profitable coal markets.

Shareholders will vote July 31.

Abingdon, Va.-based Alpha Natural Resources supplies Appalachian coal to the steel industry, electric utilities and other industries, but the majority of its production is for metallurgical steel-making coal.

Linthicum Heights, Md.-based Foundation is a major thermal coal producer for electricity production.

"The metallurgical coal used to make steel is starting to recover," an analyst told Prospect News on Friday. "On Wednesday, we saw Walter Energy [Inc.] - all they do is metallurgical coal - beat expectations in their quarter."

Tampa, Fla.-based Walter Energy reported second-quarter income of $11 million, or 21 cents a share, compared with $50.8 million, or 94 cents a share, a year ago. Analysts had expected a loss of 5 cents a share.

"About 92.00% of the coal we produce in America is thermal coal used to boil water. That market may have seen the bottom," the analyst said. "The stockpiles at the utilities are still very high. The demand for electricity is way down because of the recession."

U.S. power utilities usually stockpile about 45 days' worth of thermal coal, the analyst said.

"It's currently running at 65, 67 days," the analyst said.

Alpha itself was a takeout target last year until a shareholder went against the deal.

Alpha had agreed to a $2.7 billion buyout in 2008 by Cleveland-based iron ore producer Cliffs Natural Resources Inc., but the deal broke over objections from a Cliffs investor.

Foundation Coal's stock added $1.22, or 3.48%, to close at $36.24 on Friday, and Alpha shares rose 21 cents, or 0.62%, to $34.19.

Walter Energy shares closed up $1.48, or 3.13%, at $48.70.

Shares of Cliffs rose 40 cents, or 1.47%, to $27.54.

Mentioned in this article:

Alexion Pharmaceuticals, Inc. Nasdaq: ALXN

Alpha Natural Resources, Inc. NYSE: ANR

AMAG Pharmaceuticals, Inc. Nasdaq: AMAG

Bristol-Myers Squibb Co. NYSE: BMY

Cliffs Natural Resources Inc. NYSE: CLF

Dendreon Corp. Nasdaq: DNDN

Eli Lilly & Co. NYSE: LLY

Exelixis, Inc. Nasdaq: EXEL

Foundation Coal Holdings Inc. NYSE: FCL

Medarex, Inc. Nasdaq: MEDX

Savient Pharmaceuticals, Inc. Nasdaq: SVNT

Walter Energy, Inc. NYSE: WLT

ZymoGenetics, Inc. Nasdaq: ZGEN

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