MGI Pharma Hits New High on Eisai Buyout

Shares of MGI Pharma Inc. hit a new 10-year high Monday, after Japanese drug maker Eisai Co. said it will buy the U.S. biopharmaceutical company for $3.9 billion in cash.

The board of Bloomington, Minn.-based MGI Pharma unanimously approved the deal after evaluating a number of strategic options. Eisai expects to complete the deal in the first quarter of 2008.

MGI Pharma's stock soared $6.55, or 19.6 percent, to close at $40 Monday on very heavy trading volume. The stock earlier peaked at $40.23.

In a note to investors, Brean Murray, Carret & Co. analyst Jonathan Aschoff upgraded MGI to "Hold" from "Sell," saying the deal is likely to be consummated.

In a note to clients, Thomas Weisel Partners analyst M. Ian Somaiya said the offer's premium is at the low end of takeover premiums for other biotechnology companies.

He said the offer could reflect a competitive dynamic against Celgene Corp. and Pharmion Corp., which announced a merger in November.

Pharmion offers the blood cancer treatment Vidaza, which is similar to MGI's Dacogen. Both drugs are used for the treatment of myelodysplastic syndrome, or MDS, a bone marrow disease.

MGI says it is conducting additional trials of Dacogen in patients with MDS, and trials in patients with acute myelogenous leukemia _ a rapidly progressing leukemia affecting adults.

Somaiya said based on feedback from physicians attending the American Society of Hematology conference, he expects the Dacogen late-stage trial in MDS patients will show a survival benefit, but fail to replicate the benefit shown by Vidaza in a more severe patient population. In August, Pharmion reported Phase III data on Vidaza in MDS patients.

"This dynamic will at best enable Eisai/MGI to split the U.S. MDS market with Celgene/Pharmion," said Somaiya.

On the downside, the analyst predicts that in Europe, Vidaza will gain orphan drug protection _ a special status granted by European regulators _ and keep Dacogen off the European market for 10 years.

Somaiya's price target range on MGI is between $30 and $33 per share. He said risks to that price target include clinical and regulatory risks as well as the potential that MGI's key medicines, anti-nausea drug Aloxi and Dacogen, fail to meet expectations.