Updated from 3:28 p.m. EDT

Health stocks nudged up slightly but then reversed in the second half of the day Wednesday, while analysts issued upgrades to some underpriced biotech and pharma stocks.

First, in potential biotech merger news, Genentech ( DNA), which has been presented with an $89-a-share proposal from Swiss pharma company Roche, dipped into the $75 range midday Wednesday. This suggests investors are still concerned that Roche won't be able to arrange financing for the deal, despite the company's confidence. Shares did find some relief Wednesday, rallying to $80.56 before the close.

For reference, Genentech closed at $81.82 a share the last trading day before Roche announced its buyout proposal.

Meanwhile, ImClone ( IMCL) shares were trading down 0.2% at $66.85 amid Eli Lilly's ( LLY) proposed takeover for $70 a share -- an offer that's reportedly not subject to financing.

Both ImClone and Genentech are components of the Amex biotechnology index, which was up 1.19% midday only to reverse to a loss of 0.67% by the market's close.

Fellow component Celgene ( CELG) added $2.07, or 3.7%, to $57.95 Wednesday. Cowen and Co. analyst Rachel McMinn upgraded Celgene to outperform from neutral. McMinn said the current price doesn't fully account for the company's expected growth over the next few years.

In other news, Merrill Lynch upgraded Pfizer ( PFE) and Bristol-Myers Squibb ( BMY) to underperform from buy. Pfizer was up 1.25% to $17.87 midday, only to settle into a loss of 2.9% later in the day. Bristol was up 3.13% to $19.43 in midday trading, but also settled back to a gain of just 0.5% at $18.94.

Also, Oppenhiemer initiated coverage on medical diagnostics company Myriad Genetics ( MYGN) with an outperform rating and a $92 price target. That stock added 4.7% at one point, but was trading up roughly 2.7% later in the day.

Elsewhere, Omrix Biopharmaceuticals ( OMRI) shares tacked on 5.5% to $18.25 by midday, hanging on to a 3% gain later in the day. The company said that according to interim results from a midstage trial, its Fibrin Pad product was superior to Johnson & Johnson's ( JNJ)Surgicel for stopping mild to moderate soft tissue bleeding during certain surgeries.

And, last, Dendreon ( DNDN) shares continued to drop in the morning on higher than average volume for a second day after the Monday release of interim data on the company's prostate cancer vaccine Provenge. Dendreon's infamously volatile shares were down as much as 5% early Wednesday, but settled back to the flat line. The stock lost 15% the day prior after it gained 33% on Monday.

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