IPOs, Medical-Device Maker Deals Top Strong Week for Healthcare Stocks

This article published with permission from The Burrill Report.

Two big merger-and-acquisition deals in the medical-device sector, and a couple of lackluster biotech IPOs, were among the highlights of an upbeat week for healthcare stocks.

Aegerion Pharmaceuticals Inc. (NASDAQ: AEGR) priced its shares at $14 to $16 in its initial public offering last week, but with no takers by Friday morning, it lowered its price to $9.50 a share. The Bridgewater, N.J., drug developer sold 5 million shares to raise $47. In its first day of trading, Aegerion’s price rose slightly to $10.80. Early Monday, its shares were trading at $11.13.

Aegerion’s late-stage drug therapeutic is a treatment for homozygous familial hypercholesterolemia, a rare genetic disease that causes dangerously high levels of LDL cholesterol in the blood. The company plans to file for marketing approval in the U.S. and the European Union before the end of 2011, if the outcome of a current late-stage trial is successful.

The IPO was the third try for Aegerion, after withdrawing efforts in 2007 and 2008 due to poor economic conditions. Investor reception for drug companies without revenues has been lukewarm at best, with most companies shaving at least a quarter off their expected price to complete their offerings. Post-offering performance has not helped bolster investor enthusiasm, with IPOs completed since August 2009 trading 24% below their offering price.

The story for Chinese healthcare companies has been quite different, where many offerings have been oversubscribed. As of August, Chinese life-sciences companies have raised $6.1 billion in 23 offerings, after the government lifted a moratorium on IPOs in August 2009.

ShangPharma Corp. (NYSE: SHP), one of China’s largest contract-research organizations, went public last week, pricing its offering at $15 per share -- the middle of its expected range -- and sold 5.8 million American depositary receipts to raise $87 million. But its shares dropped 15% immediately following its debut and ended the week down 7%. Unlike many Chinese pharmaceutical companies that are riding on the growth of China’s economy and healthcare needs, the Shanghai-based CRO depends on U.S. pharmaceutical companies for more than a third of its revenue. ShangPharma’s two largest customers are Eli Lilly & Co. (NYSE: LLY) and GlaxoSmithKline PLC (NYSE: GSK), and any strengthening of the Chinese currency, the yuan, could have a negative impact on its bottom line. ShangPharma’s ADRs were trading at $13.77 Monday; Eli Lilly’s shares were at $35.60 and GlaxoSmithKline’s American depositary shares were at $40.86.

Medical devices were the focus of the two largest merger-and-acquisition transactions last week. St. Jude Medical Inc. (NYSE: STJ) of St. Paul, Minn., said it will acquire AGA Medical Holdings Inc. (NASDAQ: AGAM), based in Plymouth, Minn., for $20.80 per share in a cash and stock deal valued at approximately $1.3 billion, including about $225 million in outstanding debt. The transaction is expected to be conducted as an exchange offer followed by a merger, and is expected to close by the end of the year.

AGA Medical, with sales of about $199 million in 2009, makes a comprehensive line of devices used to treat structural heart defects and vascular abnormalities through minimally invasive transcatheter treatments. The acquisition gives St. Jude programs across all major categories that include structural heart defects, left atrial appendage occlusion, transcatheter aortic valve implantation and percutaneous mitral valve repair. Early Monday, St. Jude shares were at $39.17 and AGA Medical shares were at $20.99.

Meanwhile, GE Healthcare, a division of General Electric Co. (NYSE: GE), is beefing up its presence in molecular diagnostics with the acquisition of Clarient Inc. (NASDAQ: CLRT) of Aliso Viejo, Calif., in a tender offer for all its outstanding common and preferred shares. The $587 million deal is expected to accelerate the development of new integrated tools for the diagnosis and characterization of cancer. Directors of both companies’ boards have approved the transaction, which is expected to close in late 2010 or early 2011. Early Monday, shares of GE, based in Fairfield, Conn., were at $16.26, while Clarient shares were at $4.97.

In other market moving news:

Biotech stocks edged higher, helped by the broader market rally. Among the sector’s blue-chip companies, Gilead Sciences Inc. (NASDAQ: GILD) recorded the largest gain of 3.7%. The Foster City, Calif., company announced that its head-to-head Phase III clinical trial of Cayston versus tobramycin inhalation solution in cystic fibrosis patients with Pseudomonas aeruginosa achieved its co-primary endpoint of superiority of Cayston for improvement in lung function. The company also reported third-quarter results that surpassed Wall Street expectations. Gilead shares were trading at $39.49 Monday.

Biogen Idec Inc. (NASDAQ: BIIB) climbed almost 2%. The company reported that it had amended a development agreement with Roche Holding AG’s Genentech Inc. unit on a potential multiple sclerosis treatment. Genentech will now have responsibility for the further development of ocrelizumab in multiple sclerosis and will fund all the costs going forward. Biogen, based in Cambridge, Mass., will receive tiered, double-digit royalties on U.S. sales that will approximate its current 30% interest in the compound. Ocrelizumab recently completed a mid-stage study with positive results. Biogen’s shares were at $59.79.

Amylin Pharmaceuticals Inc. (NASDAQ: AMLN) shares plunged after the U.S. Food and Drug Administration denied approval of the company's diabetes drug Bydureon. The agency requested additional clinical studies from the San Diego drug developer before reconsidering approval. The news also hurt shares of co-collaborators Alkermes Inc. (NASDAQ: ALKS) and Eli Lilly. Early Monday, Amylin shares were at $11.53 and Alkermes were trading at $11.09.

The FDA also refused to approve Arena Pharmaceuticals Inc.’s (NASDAQ: ARNA) obesity drug lorcaserinl, citing potential safety risks and data showing the drug has little effect on weight loss. Arena’s shares were at $1.64.

And Genzyme Corp. (NASDAQ: GENZ) issued a stronger-than-expected profit projection for 2001, forecasting earnings of between $4.30 and $4.60 per share, and continued to rebuff a $18.5 billion hostile takeover bid from Sanofi-Aventis SA. The Cambridge, Mass., company said the French drug giant’s hostile takeover bid of $69 a share doesn't properly value the company. Genzyme’s shares were at $72.42.

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