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MedImmune Comes Around

The vaccine outfit finally says it will pursue a sale to a big player.



has been a frequent source of takeover speculation, but the company indicated as recently as February that it felt the best course of action was to remain independent.

That's all changed now. On Thursday, MedImmune said it has hired Goldman Sachs to help it examine a potential sale, sending its shares jumping 14% to a 52-week high at $43.15. Volume was extremely heavy.

The Gaithersburg, Md., drug outfit said its decision was based on the fact that unnamed major pharmaceutical companies had expressed an interest in owning it. In addition, some investors have been unhappy with the stock price, namely Matrix Asset Advisors, which owns less than 1% of MedImmune's shares.

Corporate raider Carl Icahn recently purchased about 1.2% of the company's stock, but he hasn't issued public comments. Goldman Sachs Asset Management, who has an 11.3% stake, is the biggest holder.

With MedImmune vowing to keep silent until either a deal is made or it decides to remain on its own, Wall Street returned to guessing who might win the bidding contest.

"The logical suspects are companies that do vaccines or companies that do pediatrics," says Les Funtleyder, a health care analyst at the institutional trading firm Miller Tabak.

Using those guidelines, potential buyers could include





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Glaxo and Merck license MedImmune technology for use in their vaccines to prevent human papillomavirus, which can cause cervical cancer. Both make milestone and royalty payments.

Merck's Gardasil is sold in the U.S. and other large markets like the European Union. Glaxo hopes to start selling Cervarix in the EU during the second half of this year. Last month, it filed an application for approval with the Food and Drug Administration.

Hamed Khorsand, an analyst with BWS Financial, says the shares will likely suffer if MedImmune enters drawn-out negotiations or fails to reach a deal.

"With the news out this morning, MedImmune becomes a stock that is 'in play' compared to investing on the fundamentals," he wrote in a research report.

Khorsand cut his rating to hold from buy on April 2, saying he couldn't recommend the stock solely on takeover rumors. He kept his rating on April 9 when MedImmune raised its first-quarter earnings estimate, and he's still sticking with it.

Because MedImmune's drugs tend to be sold during the fall and winter months, it doesn't make a profit in the second and third quarters, thus reducing investor enthusiasm for holding on through a long series of talks, he says.

A MedImmune takeover would continue a consolidation trend involving midsized drug and biotech companies. "Any company with a market cap of $1 billion to $20 billion is being discussed as a takeover target," says Funtleyder, who doesn't normally follow MedImmune.

Recent examples include the acquisition by Germany's Merck KGaA of the Swiss biotech company Serono, Novartis' purchase of Chiron, and a bid by Belgium's UCB for Germany's Schwarz Pharma. MedImmune's market cap is currently around $10.3 billion.

Funtleyder warns that Big Pharma companies, faced with expiring patents and uncertain R&D prospects, must beware of overpaying.

"They are somewhat reluctant to do these types of deals, which is basically buying revenue," he says. Given a choice, big companies would rather acquire drug prospects at a cheaper price than take on mature products at a relatively steeper price.

MedImmune offers one big revenue source -- Synagis, a drug designed to prevent the dangerous lung disease respiratory syncytial virus in infants and young children. Last year, $1.1 billion of Synagis was sold, accounting for 86% of MedImmune's sales.

Although the product's sales were unchanged from 2005, MedImmune

recently predicted first-quarter revenue from Synagis would rise 9% to 10% compared with the same period a year earlier.

MedImmune also said first-quarter earnings would be 62 cents to 67 cents a share, excluding items. On average, analysts were looking for about 50 cents a share.

Joel Sendek of Lazard Capital Markets believes MedImmune offers a "mixed bag" to potential acquirers. "While the company has a blockbuster franchise in Synagis, the franchise is mature, and we project that MedImmune will generate average annual revenue growth of only 11% through 2009," he wrote in a research note.

Sendek, who has a hold rating, says MedImmune's flu vaccine FluMist remains unprofitable and that "the

R&D pipeline, though promising, is in early-stage development, at least three years from generating revenue."

FluMist, administered via a nasal spray, has failed to make a significant dent in the flu-vaccine market, which continues to be dominated by injections, since its introduction during the 2003-2004 flu season.

In January, the FDA

approved a new version, which MedImmune says will be easier for pharmacies to store. A high price, insurers' reluctance to cover the cost and storage problems contributed to FluMist's failure.

However, the new vaccine only remains approved for healthy people between the ages of 5 and 49, making it inaccessible for those most vulnerable to the flu.

MedImmune is asking the FDA to approve the vaccine for children as young as 1 year old,

citing recent research that shows the new vaccine outperformed traditional flu shots in young children.

The FDA is expected to act by late May, Sendek says. The company also is developing a follow-up to Synagis called Numax.