Healthcare Sector Sees Big Rise, Major Fall

Two of the biggest movers on the market today came from the healthcare sector, with Synovis Life Technologies, Inc. (SYNO) jumping over 50 percent on news that the company was being bought by Baxter International Inc. (BAX) while Endocyte, Inc. (ECYT) plunging over 60 percent on dreary news from a clinical trial.

Synovis to be Purchased

Baxter International, a global, diversified healthcare company, announced its intention to acquire Synovis, a maker of devices used in surgical procedure for soft tissue repair, at a price of $28 a share for a $325 million deal. The premium of over 50 percent led to shares of Synovis gapping up on market open this morning. “Baxter is continuing to broaden its offerings with these tuck-in acquisitions,” said Michael Matson, an analyst with Mizuho Securities USA Inc. “It seems to fit well with their regenerative medicine business, extending into the soft tissue area. It’s a small company, kind of a niche player, and it does makes sense.”

Synovis’ newest business is an expansion into orthopedic and wound management products with applications in tendon repair among other areas. The company had sales of $70 million in 2010. Baxter stated that 2012 earnings would be down by $0.04 per share, hold steady in 2013, and improve thereafter. “It’s not going to move the needle in the near term, but these are big markets and could add meaningful revenue years down the road,” Matson said in a telephone interview with Bloomberg. “It’s a trade off: short-term dilution for longer-term growth.”

Endocyte Collapses on Trial Failure

Major acquisitions with big premiums appear to be increasingly common place in the healthcare sector, with the purchase of Pharmasset, Inc. (VRUS) by Gilead Sciences, Inc. (GILD) earlier this year giving shareholders of Pharmasset an 89 percent premium. Unfortunately for Endocyte, a small cap biopharmaceutical company, another hallmark of the industry looks to be wild swings in fortune surrounding the results of clinical trials. Endocyte ended up on the wrong end of one such swing after the results from their Phase II clinical trial for its cancer therapy EC145 showed no extension of life for subjects. The drug is intended to work in addition to other cancer-fighting agents and aid women with platinum-resistant ovarian cancer. In a conference call before market open this morning, Endocyte stated that “The PRECEDENT trial was not statistically powered to show a survival advantage and the results of the trial did not indicate a trend toward benefit in either arm…”

The news was met in predictable fashion as Endocyte’s shares gapped down over 65 percent when the markets opened. It’s a major blow for the company that, prior to today, had gained nearly 60 percent in share price since its February 6th IPO.