Investor Edge: Rumors of a Big Buyout Boost Biotech Stocks

A report in Bloomberg News that Sanofi-Aventis S.A. (NYSE: SNY), France’s biggest pharmaceutical company, was planning a major U.S. acquisition sparked heated speculative trading in biotech stocks this week.

Shares of U.S. companies with market valued of $10 billion or more surged on the report, including Biogen Idec Inc. (NASDAQ:BIIB), up 8.8 percent this week; Genzyme Inc. (NASDAQ: GENZ), up 6.3 percent; and Allergan Inc. (NYSE: AGN), up 11.1 percent.

TheStreet.com biotech reporter Adam Feuerstein downplayed the rumors, citing a number of convincing reasons why Sanofi is probably not in the market to purchase a large U.S. biotech:

• Biogen Idec: Just announced a new CEO, and the company’s drug pipeline is weak.
• Genzyme: The company is plagued by manufacturing woes.
• Gilead Sciences Inc. (NASDAQ: GILD): Its focus is small-molecule science rather than strictly biotech.
• Celgene Corp. (NASDAQ: CELG): Just purchased Abraxis Biosciences (NASDAQ: ABII), so is likely not on the market itself.
• Amgen Inc. (NASDAQ:AMGN): “Too big,” he says.

Feuerstein’s bet for a possible Sanofi acquisition? Botox maker Allergan. The company announced this week that British regulators are the first to approve its wrinkle treatment Botox as a way to prevent migraines. Its shares were trading at $64.81 in early trading Friday.

Meanwhile, shares of GlaxoSmithKline PLC (NYSE: GLX) slid Friday after a U.S. Food and Drug Administration medical reviewer said in a statement that the drug giant misinterpreted details of a study that found its diabetes drug Avandia was safe. Instead, the study actually supports critics’ contentions that Avandia may cause heart attacks, Dr. Thomas Marciniak said in a report on the FDA’s website. A 2007 article in the New England Journal of Medicine showed that using Avandia boosted the risk of heart attacks by more than 40%. GlaxoSmithKline shares were at $34.62.

On the other end of the biotech sector, tiny Dynavax Technologies Corp. (NASDAQ: DVAX) announced it initiated the first human trial for its universal flu vaccine program. The company also said it received a $600,000 federal grant for research on a new universal vaccine for human papillomavirus (HPV), the sexually transmitted infection that can cause cervical cancer. Its shares were at $2.01.

And Vivus Inc. (NASDAQ: VVUS) shares surged after Wedbush Securities initiated coverage with an investment rating of “outperform,” saying the company is "one of the most attractive product-driven stories in the mid-cap biotech space." Vivus’s combination weight loss/obesity drug Qnexa is scheduled for an FDA advisory panel review on July 15, and a decision is expected by Oct. 28. Its shares were at $11.69 early Friday. Expect some profit-taking heading into next week’s FDA review, where any concerns about the drug will be presented.

In other market moving news:

Alkermes Inc. (NYSE: ALKS) was downgraded by Zach’s Investment Research to “underperform” from “neutral” with a price target of $11, after the drug maker posted a fiscal fourth-quarter net loss of 12 a share, compared with a loss of 13 cents a share a year earlier. Revenues fell 12.3%, primarily due to weaker sales of its schizophrenia treatment Risperdal Consta. Alkermes’s diabetes drug Bydureon is scheduled for approval review by the FDA Oct. 22, but Zach’s analysts believe the approval will require a warning label regarding the risk of pancreatitis and thyroid cancer. Analysts also cited the already fierce competition in the sector. Its shares were at $12.02.