Takeover Bids Shine in Lackluster Week for Stocks

It was a lackluster week for biotech stocks, with Celgene dragging on the sector. But a flurry of takeover bids, and rumors of offers to come, boosted stocks elsewhere in the healthcare sector.

This article published with permission from The Burrill Report.

After being twice rebuffed, hedge-fund firm Ramius LLC revealed that it was still hungry for a deal. In a letter sent Dec. 9 to the board of directors of Cypress Bioscience Inc. (NASDAQ: CYPB), it outlined its willingness to acquire all of the specialty pharmaceuticals’ outstanding shares for $5.50 per share.

The sweetened offer represents a 120% premium over the $2.50 closing price of the San Diego company’s stock on July 16, the last trading day before Ramius publicly proposed to acquire the company for $4 a share in cash.

The new offer has some strings attached, however. The Cypress board must make its decision by end of day Friday, the day of this posting, and enter into a definitive merger agreement by Sunday, Dec. 12. Shares of Cypress were trading at $4.82 Monday morning, with no word on what its board will do.

Ramius already owns 9.9% of Cypress and commenced a tender offer on Sept. 15 for the remainder of the company for $4.25 per share. In the meantime, Cypress sold off its diagnostics business to Exagen Diagnostics Inc. of Albuquerque, N.M., for $4 million upfront and up to $4 million more in milestone payments plus royalties on product sales.

Until this new bid, shares have been trading around $4 while Cypress mulls its strategic alternatives. Ramius thinks its $5.50 offer will make its board see that the new deal is the best course to provide stockholders with a high degree of certainty that they will receive immediate full and fair value for their shares.

Ramius has lined up financing to enable it to follow through on the $5.50 a share deal if it is accepted. It has also extended its $4.25 tender offer, scheduled to expire Dec. 10, by one week. So far about 7.8% of outstanding shares have been tendered.

In other merger activity, Sanofi-Aventis S.A.’s (SNY) extended its tender offer for Genzyme Corp. (NASDAQ: GENZ) to midnight on Jan. 21, "unless it is further extended," the company said in a statement. The offer was scheduled to expire Dec. 10. Sanofi has not budged in its $69 per share offer. Genzyme’s board thinks that’s too low. Genzyme CEO Henri Termeer has brought up the possibility of contingent value rights for its blood-cancer drug Campath. Genzyme, based in Cambridge, Mass., says Campath works as a treatment for multiple sclerosis and is preparing to get approval for that indication by 2013.

Campath brought in less than $150 million in revenue last year, according to Genzyme. If it is approved for multiple sclerosis, the company predicts sales of $3 billion by 2017. Sanofi’s estimate for peak sales from MS are only $700 million, as reported in Bloomberg.

Analysts had been expecting Sanofi to extend its deadline to give the companies time to come to terms. Sanofi’s board is open to either upping its offer or adding contingent value rights, but remains unwilling to do both, people familiar with the deliberations told Bloomberg. In early trading Monday, Sanofi’s American depositary shares were trading at $32.73, while Genzyme’s shares were at $70.38.

Elsewhere, Johnson & Johnson (NYSE: JNJ) plans to formally launch a $2.3 billion tender offer for the outstanding shares of Dutch vaccine maker Crucell NV (NASDAQ: CRXL). Johnson & Johnson already hold about 17.9% of Crucell shares.

The deal was originally announced in September after the boards of both companies agreed to the merger. But it has been delayed after Crucell suspended operations at its South Korea facility and halted vaccine shipments from the plant because of sterility issues. J&J is waiting for an update on the contamination issues before launching an unconditional offer. In trading Monday, J&J’s shares were at $61.70, while Crucell’s American depositary shares were at $31.90.

Finally, in what could be one of the biggest partnering deals of the year, Cephalon Inc. (NASDAQ: CEPH) is teaming up with Australian stem-cell company Mesoblast Ltd. to develop and commercialize stem cell therapeutics for degenerative cardiovascular and central nervous system diseases. Cephalon hopes the deal will help it become a leader in regenerative medicine.

Cephalon, of Frazer, Pa., will pay Mesoblast $130 million upfront, up to $1.7 billion in milestone payments, and take close to a 20 percent stake in the company for another $220 million. In return, Cephalon will get exclusive global rights in three treatment areas to products derived from Mesoblast’s adult Mesenchymal precursor stem cell technology.

The alliance also extends to products for augmenting hematopoietic stem cell transplantation in cancer patients.

Mesoblast will be responsible for certain Phase IIa trials and Cephalon will assume all further development and commercialization costs. Mesoblast will retain all manufacturing rights and will share significantly in the net product sales (Read more here). Early Monday, shares of Cephalon were at $62.81.

In other market-moving news:

It was a lackluster week for biotech stocks, with Celgene Corp. (NASDAQ: CELG) dragging on the sector. The Summit, N.J., company’s shares skidded 5% on news that two studies reported at the American Society of Hematology showed that patients in a group taking its drug Revlimid as a maintenance therapy had a higher incidence of certain types of secondary cancers than a control arm. Its shares were at $57.28.

The diagnostic-instrument sector received a boost after Beckman Coulter Inc. (NYSE: BEC) jumped 23% following analysts' reports that the company was positioning itself for a sale. Rivals such as Abbott Laboratories (NYSE: ABT) or J&J have been rumored to be among the Brea, Calif., company’s potential suitors, according to The Wall Street Journal, Beckman’s shares were at $70.97; shares of Abbott Labs were at $47.36.

Orexigen Therapeutics Inc.’s (NASDAQ: OREX) experimental obesity drug Contrave cleared a crucial hurdle at the U.S. Food and Drug Administration, allowing the drug to advance a step closer to possibly landing the agency’s first approval for a new diet pill in a decade.

Members of the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee met Dec. 7 to scrutinize Contrave’s potential risks, voting 13-7 in favor of recommending it for approval. The victory set Orexigen’s shares on fire, boosting their value by more than 80% to $8.77 during the Nasdaq trading session that followed the vote. In trading Monday, the San Diego company’s shares were at $8.60. (Read more here.)

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