Salix Pharma (SLXP) is focused on drugs used in the treatment of a variety of gastrointestinal diseases. The company is facing difficult times thanks to the FDA's approval to three generic versions of lead product, Colazal. As such, we expect 2008 to be an extremely challenging year for the company, with a significant decline in top-line growth. Moreover, we expect the company to post a loss in 2008 and 2009.We believe that the main potential for the company lies with the approval of additional indications for Xifaxan, particularly the irritable bowel syndrome [IBS] indication. However, we were disappointed to hear that Salix expects to file the NDA [new drug application] for the IBS indication in mid-2010, a significant delay from the previously announced timeline of late 2008 / early 2009.While new product approvals should help restore investor confidence, the possibility of a patent challenge ...

Oscient Pharmaceuticals Corp. (OSCI) focuses on cardiovascular /metabolic and respiratory diseases.  The Waltham, Massachusetts-based biopharmaceutical company currently has two marketed products in its portfolio - Antara and Factive. While the sales force has done a commendable job driving growth for both products in 2007, first half 2008 results have been disappointing.

The company recently reduced its revenue guidance for the year by 4%. OscientÂ’s dependence on Antara for top-line growth is a matter of major concern - Antara is competing in a highly crowded cholesterol market and a slowdown in its growth rate would have a major impact on the companyÂ’s growth prospects.

Moreover, Oscient HAs yet to bring a third product on board and sign an agreement for pipeline candidate Ramoplanin. The signing of an out-licensing/ co-development agreement for Ramoplanin would be a major positive for the company. Given the disappointing performance in the first half of the

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Nuvelo, Inc. (NUVO) is a biopharmaceutical company that makes drugs for acute cardiovascular and cancer therapy. On September 25, the San Carlos, California-based company announced that it has entered into a definitive merger agreement with privately held ARCA Biopharma, Inc. Under the terms of the agreement, ARCA will become a wholly owned subsidiary of Nuvelo.

The deal will result in the creation of a late-stage biotechnology company which will focus on the treatment of cardiovascular diseases. This deal makes sense for both companies in our view. While Nuvelo will get the chance to transform itself into a late-stage biotech company, ARCA should be able to put NuveloÂ’s significant cash balance to good use towards the commercialization of its lead pipeline candidate, Gencaro, which is currently under FDA review for the treatment of chronic heart failure.

The transaction is expected to close later this year/early next year, subject to customary

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Pain Therapeutics Inc.’s (PTIE) lead pipeline candidate, Remoxy, is currently under FDA review. Remoxy is an abuse-deterrent version of pain drug, oxycodone. The product should have significant commercial opportunity upon approval due to its ability to reduce the potential of drug abuse or misuse.

While we believe that Remoxy will see significant demand once launched, our main concern right now is the possibility of the company facing a patent infringement lawsuit for the drug. We fear that Purdue Pharma, the manufacturer of branded oxycodone, may initiate a lawsuit in order to delay the entry of Remoxy.

Moreover, the rest of the company's pipeline is too early stage to get excited about. We would get more bullish on the name once we get more clarity on Remoxy’s intellectual property position. We await more clarity on the situation and believe that concerns regarding Remoxy’s IP position will remain an overhang on

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On September 1, Sciele Pharma, Inc. (SCRX) entered into a definitive agreement with Japanese company Shionogi for $1.4 billion, or $31 per share. The offer price represents a huge 61% premium over Sciele’s closing price on August 29. Sciele s shares shot up 59% following the takeover announcement. We previously had a Buy rating on Sciele but are now moving back to a Hold rating.

We believe that Sciele has done a good job saving the Sular franchise from generic erosion. In our opinion, Sciele’s strong sales and marketing experience and solid late-stage pipeline should help Shionogi strengthen its presence in the U.S. market once the acquisition goes through in the fourth quarter of 2008.

Our new target price on Sciele is $31, which is based on Shionogi’s offer price. The transaction has been approved by the Board of Directors of both companies and is expected to close in the fourth

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Durect Corp. (DRRX) currently has three products in phase II development. We are optimistic about the developing pipeline, and are pleased to see that the company filed a new drug application (NDA) for its first candidate, pain drug Remoxy, on schedule. The Food and Drug Administration (FDA) granted priority review which means a response should be out by December 10.

We also expect the company to enter into a partnership deal for Eladur shortly. This year should be catalyst-filled for Durect. In our opinion, the current share price represents an attractive entry point. We thus rate the shares a Buy with a price target of $7 and revenue forecast of $26 million.

Durect’s phase II products are all addressing large market opportunities primarily in the pain management field. Potential milestones in 2008 include the initiation of phase III trials for pain relief anesthetic Posidur. The company already has agreements in

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We had a Sell rating on King Pharmaceuticals, Inc. (KG) for a significant period of time based on concerns regarding top-and bottom-line growth prospects. Thanks to increased competition, generic threats, and declining prescription trends for key products, the shares declined almost 45% during this period.

King is now looking to acquire Alpharma (ALO); this acquisition would help King expand its presence in the pain management market and could help it achieve significant cost synergies. Although ALO has rejected the offer, King intends to enter into further negotiations with ALO and still hopes to close the deal by year-end.

In the meantime, we remain concerned about the long-term fundamentals of King. Although our current rating is Hold, the approval of experimental pain drug Remoxy, potentially later this year, would be a major positive for the company.  Meanwhile, King is set to file two NDAs for pain drugs Acurox and CorVue

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On August 22, Alpharma, Inc. (ALO) disclosed that it had received a buyout offer from King Pharmaceuticals, Inc. (KG), which was rejected by Alpharma’s Board of Directors. King had made an all-cash offer of $33 per share to Alpharma, which represents a 37% premium over the closing price of Alpharma common stock on August 21.

The shares shot up 43% on the news, and are now trading well above the $33 offer.  We previously had a Sell rating on the stock based on concerns regarding prospects for key product, Kadian’s growth, as well as for the newly launched Flector Patch.  However, we are moving Alpharma back to a Hold rating with a $37.50 price target following the announcement of King’s takeover bid.  We expect the deal to close at a higher price than the current $33 offer. Our best guess is a deal closing between $35 and $40

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While we expect Mylan Inc.’s (MYL) acquisition of Merck Generics to contribute to long-term growth, near-term execution risks remain. Mylan announced certain strategic initiatives which should help drive long-term growth. We view these initiatives as steps in the right direction. But the management also stated that they expect 2008-2010 EPS to be negatively impacted by a slower-than-expected new product launch.

The company adjusted EPS guidance for 2008-2010 based on higher expenses, reduced opportunities from patent challenges and the potential sale of its specialty business. We believe that the new guidance should be achievable and we have updated our model based on the guidance. The company expects to conclude the sale of its specialty business later this year - we have removed contributions from this segment from the fourth quarter onwards. We maintain a Hold rating on the stock.

The Merck Generics acquisition will allow Mylan to expand its footprints in

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Bellus Health, Inc.’s (BLUS) late-stage pipeline setbacks have sent the company’s shares plunging. In July 2007, the Food and Drug Administration issued a second approvable letter for Kiacta amyloidosis treatment, requesting an additional trial and additional pharmacokinetic data. This was followed by negative results from the North American phase III trial of the company’s biggest potential product, Alzheimer drug Alzhemed.

To add to Bellus' woes, the cash position is a matter of grave concern. With such late-stage pipeline setbacks, the company intends to fund operations for the remainder of 2008 with $29.1 million in cash. We believe that Bellus will need to raise funds again later this year or early next year and expect difficult times for the company going forward.

Bellus’ credibility is extremely low at this point of time and its ability to raise money from the market, to fund its operations, has been severely crippled. Raising additional

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