Biotech Stocks Surge Amid Pre-Christmas Buying Spree

The healthcare sector, and biotech stocks in particular, surged last week as life-sciences companies embarked on a $6.7 billion shopping spree during the waning days before Christmas.

This article published with permission from The Burrill Report.

After months of wrangling, Cypress Bioscience Inc. (NASDAQ: CYPB) finally agreed to be bought by hedge fund Ramius LLC, one of its majority shareholders. The deal was sealed after Ramius teamed up with New York’s Royalty Pharma to offer Cypress shareholders $6.50 per share in cash, valuing the transaction at $255 million. It was one of the few purchases in the traditional innovative-drugs space, however as life-sciences companies around the world embarked on a $6.7 billion shopping spree during the waning days before Christmas.

Ramius was unhappy with the way management was running Cypress, a San Diego-based specialty pharmaceutical that develops drugs to treat central nervous system disorders. As a shareholder with close to a 10% stake in the company, Ramius decided to make an unsolicited offer to acquire Cypress for $4 per share in July, a 60% premium to its trading price of $2.50 before the offer. Cypress’ board rejected the offer, refused to open its books to Ramius, and quickly began evaluating its options. A hostile takeover attempt in September at $4.25 a share was also rejected. Finally on Dec. 9, Ramius offered to acquire Cypress for $5.50 a share, an offer that would be rescinded if not acted upon within 24 hours. That brought Cypress to the negotiating table.

The final purchase price represents a 160% premium to Cypress’ unaffected share price on July 16, the last trading day before public disclosure of Ramius’ first offer. In trading Monday, Cypress shares were at $6.45.

“For more than two months, Cypress’ board of directors undertook a comprehensive evaluation of the company’s strategic alternatives,” Daniel Petree, lead independent director of Cypress’ board said in a statement. “After thorough and extensive analysis with our financial advisors, Cypress’ board unanimously concluded that this transaction with Ramius and Royalty Pharma provides significant cash value to our stockholders and is in the best interests of our stockholders, customers, and employees.” The tender offer is open until Dec. 29.

Novartis AG (NYSE: NVS) also sweetened its offer for the eye-care company Alcon Inc. (NYSE: ACL) and finally sealed the deal for the remaining shares it did not own. The Swiss biopharma had acquired three quarters of the giant Swiss eye-care company from Nestlé, paying $10.5 billion in April 2008 and another $27 billion in January 2010. Minority shareholders, however, refused to tender their shares because Novartis’ offer to them was significantly less than what it agreed to pay Nestlé. The new deal, which Alcon’s board has approved, values the outstanding shares at $168 per share. Payment will be made in Novartis shares, and, if necessary, a cash contingent value amount to result in a total value of $168 per share.

After the merger is complete, Alcon will become the second-largest division within Novartis, with Ciba Vision and select Novartis ophthalmic medicines integrated into Alcon. The combined company will have more than $8.7 billion in sales covering more than 70% of the eye-care segment. Novartis American depositary shares were trading at $58.69 Monday; Alcon shares were at $161.80.

Fresh off its $3.8 acquisition of SSL in July, which gave it Durex condoms and Scholls footcare, U.K. consumer-goods group Reckitt Benckiser Group PLC announced that it will pay $726 million for India’s Paras Pharmaceuticals, Reuters reported. Private equity-backed Paras makes over-the-counter medications. In October, India’s Business Standard newspaper reported that GlaxoSmithKline PLC, Sanofi-Aventis S.A., Novartis and Johnson & Johnson had all submitted concrete bids to acquire majority stake in Paras.

GlaxoSmithKline (NYSE: GSK) also expanded its consumer healthcare division with the purchase of Maxinutrition, Europe’s premier sports nutrition company, for $256 million in cash from its private equity owners. Maxinutrition produces Maximuscle, Maxifuel and Maxitone.

Maxinutrition’s products will complement GSK’s carbohydrates nutrition business, and allow the company to contemplate a range of innovations in the future, Chief Executive Andrew Witty told Reuters in an interview: “You could then imagine a whole series of new products at all levels of the system -- you could imagine elite sports products, you could imagine nutrition for the elderly, and you could also imagine daily nutritional supplements for people in Africa.” GlaxoSmithKline’s American depositary shares were trading at $39.38 on Monday.

Thermo Fisher Scientific Inc. (NYSE: TMO) is expanding into the water-analysis business in China with the acquisition of Sunnyvale, Calif.-based Dionex Corp. (NASDAQ: DNEX) for $2.1 billion. The $118.50 per share offer price represents a premium of 21% over its closing value before the announcement. Dionex made the first ion-chromatography system for water analysis. The acquisition will increase the Waltham, Mass.-based company’s business in China, where there is demand for measuring water quality, according to the companies. Thermo Fisher shares were at $55.23, while shares of Dionex were at $118.25.

Finally, Japan’s Otsuka Holdings Co. completed its initial public offering, raising $2.4 billion, the largest IPO on record for a pharmaceuticals firm. Otsuka is Japan’s second-largest drugmaker by sales after Takeda Pharmaceutical Co. Ltd.

In other market-moving news:Biotechnology stocks posted a strong gain last week, with the sector on track to close out the year with double-digit gains. The leading gainer in the group was Exelixis Inc. (NASDAQ: EXEL) with a 32% increase. The South San Francisco-based company may be an acquisition target, according to reports. Monday, its shares were at $8.60.

InterMune Inc. (NASDAQ: ITMN) shares soared after the Brisbane, Calif., company won European Union regulatory approval for its drug Esbriet, a treatment for the fatal lung disease idiopathic pulmonary fibrosis. Its shares were trading at $36.62.

Affymetrix Inc. (NASDAQ: AFFX) rose 14% gain for the week on news a federal judge had dismissed patent infringement lawsuits against the Santa Clara, Calif., company brought by its rival Illumina Inc. (NASDAQ: ILMN), headquartered in San Diego. Affymetrix shares were trading at $5.10; Illumina shares were at $64.29.

Gilead Sciences Inc. (NASDAQ: GILD), based in Foster City, Calif., agreed to buy closely held Arresto Biosciences Inc. of Palo Alto, Calif., for $225 million. Arresto’s lead product, a monoclonal antibody, is being tested for cancer and idiopathic pulmonary fibrosis, a condition that robs lungs of their ability to transfer oxygen into the bloodstream, according to a report by Bloomberg. Gilead’s ambrisentan drug treats the same lung disease and is in the final stage of human testing. In trading Monday, Gilead shares were at $37.24.

And AstraZeneca PLC’s (NYSE: AZN) shares slumped after its blood-thinning drug Brilinta failed to win approval from the U.S. Food and Drug Administration, which requested more information on the drug. AstraZeneca’s American depositary shares were at $45.89.

Copyright 2010 Burrill & Co. For more life-sciences news and information, visit www.burrillreport.com.