Cepheid follow-on on deck; Akorn bags $19.4 million; Novavax results priced in; Exubera buoys Nektar

By Ronda Fears

Memphis, March 1 - Biotechs bounced back Wednesday and amid the ebullience, albeit brief as some players predict, market sources said the follow-on deal from Cepheid, Inc. was on deck.

Not only was the market higher, but Cepheid also had news on the tape early Wednesday that onlookers said would bode well for the deal.

Cepheid shares (Nasdaq: CPHD) gained 43 cents Wednesday, or 4.69%, to $9.59, back to about where the stock was when the deal was announced Friday, having taken a dive with the market earlier this week.

On Wednesday, Cepheid submitted its Xpert GBS test for Group B Streptococcus for use on the GeneXpert System to the Food and Drug Administration for regulatory clearance. Cepheid is seeking clearance of this test as a laboratory and point-of-care test for use in labor and delivery to help protect newborns from strep-related pneumonia, meningitis, and/or sepsis.

Sunnyvale, Calif.-based Cepheid is selling 10 million shares off the shelf with proceeds, estimated originally at $85 million at a price of $9.08 per share excluding the greenshoe, slated to fund future acquisitions of molecular markers and/or complementary products in the fields of oncology, infectious diseases and other fields appropriate for molecular diagnostics.

"I'm actually starting to think that we could well be looking at $11 a share, not $10 or $9.08 for the secondary. That really sounds crazy, but I guess I'm just saying this deal feels very positive ahead of the pricing tonight," said a buyside market source. "A price over $10 actually makes sense since it opens it up to more mutual funds."

Akorn taps PIPEs market

Akorn, Inc. on Wednesday announced it had raised $19.4 million in the PIPEs market at a slight discount to the current share price, and that was encouraging for existing players.

"The fact that Akorn is now trading above $4.50 on above average volume is a very bullish sign of strength," said a sellside trader. "Keep an eye on $4.50 because a weekly close below this price will be a short term negative."

Akorn shares (Amex: AKN) on Wednesday slipped 13 cents, or 2.8%, to settle at $4.52 with 141,800 shares changing hands, compared with the three-month running average of 101,398 shares.

Early Wednesday, the biotech announced a PIPE for 3.36 million shares at $4.50 each, and investors also will receive five-year warrants for another 1.17 million shares with a strike price of $5.40. The stock closed Tuesday at $4.65.

Later in the day, Akorn said it will raise another $4.3 million in the PIPE deal, bringing total proceeds to $19.4 million, by selling another 955,556 shares plus warrants for another 334,446 shares at the same terms.

Buffalo Grove, Ill.-based Akorn, which develops sterile ophthalmic pharmaceuticals, has earmarked proceeds for clinical product development and general corporate purposes.

Biotech run seen running out

Biotech stocks bounced back from Tuesday's sharp declines with a strong showing Wednesday, but many players and onlookers think that a correction is inevitable. Yet, one of the factors the optimists point to in saying that the uptrend could hold is news in mid-February that Kleiner Perkins Caufield & Byers would be plugging $200 million to work in biodefense stocks.

Kleiner Perkins announced Feb. 16 that it had formed a new fund, the KPCB Pandemic and Bio Defense Fund, with a goal of $200 million, with a focus on surveillance and detection, diagnostics, vaccines and drugs.

The news, a sellside biotech analyst said, was immediately "perceived as a big deal. They are putting $200 million to work in biodefense, which means they will probably be holding a LOT of small caps." Buysiders agree it is big news in biotech circles but still feel the sector will likely follow the broader markets lower near term.

"Indeed - [Kleiner Perkins' new fund] should be good for the sector as a whole," said a buyside market source in Boston. But, he added, "Everything has run so much that we feel that a correction should be occurring soon."

Novavax results priced in

Novavax, Inc. posted a narrower net loss for 2005 and a profit for fourth-quarter, pressuring the stock lower by about 2% as traders said a lot of the positive news was already priced into the stock after Kleiner Perkins (mentioned above) made a big investment in the company, which is working on an influenza vaccine.

For fourth quarter, the company posted a net profit of $6.2 million, or 13 cents a share, compared with a net loss of $10.3 million, or 26 cents a share, for fourth-quarter 2004 on revenues of $2.2 million, up from $2 million. For all of 2005, Novavax's net loss was trimmed to $11.2 million, or 26 cents a share, compared with a net loss of $25.9 million, or 70 cents a share, in 2004 on revenues of $7.4 million, up from $8.3 million.

"Hedge funds that recently covered massive short positions have accounted for much of the distribution as they closed out," a sellside biotech stock trader said. "The price may edge back as the day goes on as sellers taking profits become scarce.

Novavax shares (Nasdaq: NVAX) ended the day with a loss of 11 cents, or 1.9%, to $5.69.

But the trader said the Kleiner Perkins news coupled with Novavax's results already has lured lots of new players to the story.

"The big boys are on board, and they have deep pockets and plenty of time, and will in course draw their like to this stock," the trader said. "Today would have been a good day to reload, if necessary, for the long run."

Nektar players hold fast

Nektar Therapeutics shares lost nearly 2% on Wednesday, but traders said it could have been much worse, given the numbers in its fourth-quarter and 2005 results that were reported after the close Tuesday. But, with an outlook from the company for a narrower net loss in 2006 and high hopes for its inhaled insulin Exubera, the losses were kept in check.

"It could have been worse, given the numbers - for 2006 as well as 2005 - except for Exubera. There's still a lot of excitement about that," said a sellside biotech stock trader, referring to Nektar's inhaled insulin that will be marketed by Pfizer, Inc. that is widely expected to get FDA approval and launch by mid-year.

Nektar posted a fourth-quarter net loss of $108.2 million, or $1.23 per share, compared with a loss of $19.3 million, or 23 cents per share, for fourth-quarter 2004 while revenue gained 5%, to $32.9 million. For 2005, the company posted a loss of $185.1 million, or $2.15 per share, widening from a loss of $101.9 million, or $1.30 per share, in 2004 as revenue rose to $126.3 million from $114.3 million.

Nektar's partner on Exubera, Pfizer, said Wednesday it closed its acquisition of worldwide rights for Exubera inhalable insulin from French drug maker sanofi-aventis SA for $1.3 billion. Nektar will continue to receive its 15% royalty on Exubera sales.

"We will most likely have a down day because of lower-than-expected earnings. But let's get real. No one that I know is buying this stock for current earnings; it's future expectations," said a buyside source holding Nektar shares early on Wednesday. "Whether the stock goes down or not today, we are closing in on a super payoff. If the stock sells off today, my guess is that you will see buyers come in either late in the day or Thursday."

Nektar credit eases

Nektar's convertible bonds drifted lower with the stock, too, but onlookers expect the credit to improve.

The 3.25% convertibles due 2012 were described early afternoon as lower with the stock because the company missed earnings targets, and were seen trading at 116.75 with the stock at $20.55. Nektar shares (Nasdaq: NKTR) ended the day at $20.53, off 38 cents, or 1.82%.

But a convertible analyst on the sellside was optimistic about the upside potential for Nektar's bonds.

"EPS is a non-issue for these guys. The stock is down [a] little bit because they guided a little higher for loss for the year, but they're investing in more and more products in the line for trials," the convertible analyst said.

"The outlook is very good for Nektar. The whole thing depends on Exubera. I think Exubera is going to be a very strong drug for Pfizer and therefore for Nektar. I think the credit is going to get better over the next year, there's a 100-basis-point improvement potential this year. I think so far, [there was] nothing in yesterday's [Tuesday] call will make me doubt the prospects of the company."

Nektar in improving trend

Although Nektar's 2006 outlook is not yet in the green, some players thought it was OK in the sense that it portrays a narrowing trend.

"The losses are diminishing," said a buyside market source. "Losses will decrease by 40% in '06. That's worth noting."

Nektar expects revenue for 2006 in the range of $160 million to $190 million, of which some $60 million to $80 million will be related to Exubera. The company projects a net loss in the range of $115 million to $130 million, including some $15 million for stock option expensing charges.

Included in the net loss are estimated expenditures of $80 million to $90 million for the development of products and technology platforms outside of Exubera, including clinical trials for amphotericin B inhalation powder, a product recently granted orphan drug designation by the FDA. Amphotericin B inhalation powder is expected to enter pivotal trials in the first half of 2007. Other proprietary product investments include phase 2 clinical trials for inhaled antibiotics; and the start of clinical trials for a third proprietary product.

The company anticipates ending the year with cash and equivalents of around $415 million to $440 million.

Nektar buyout buzz renewed

Market chatter that Nektar was the target of a takeover - nothing new to the name, or the sector - was rekindled on the company's results.

There was "widespread news that talks are in progress and, in addition to Pfizer, which owns 50%, there are other bidders as well," said another buyside source. "The price will far exceed current value," which he attributed to the "limited" downturn in Nektar shares Wednesday in the face of the 2005 results.

A sellside trader said the talk about Pfizer buying Nektar "certainly seems to make sense."

"I think Pfizer will buy out Nektar," the sellsider said. "It's just a matter of time."

The trader also noted that with the mild decline in Nektar shares, "If [the] price holds above $20, the shorts are going to have a problem."

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