Cell Genesys rises then ends off; Critical Therapeutics loses 2%; Siga up 10%; Corautus rebounds

By Ronda Fears

Memphis, March 15 - Cell Genesys, Inc. announced Wednesday it has entered into a $75 million equity line with Kingsbridge Capital Ltd.. and players in the story cheered the development although the stock experienced a slight dip.

"Seems like this deal's similar to past ones. I see they [Kingsbridge] did similar ones and on a couple, it looked like the stock reacted favorably (short-term, at least) to the announcement," said a trader in Cell Genesys.

Thus, he said, the situation was "Ouch, only if you're short. [It's] very flexible financing. By the time the first tranche is accessed, (if trial results continue positive) dilution will be minimal."

The equity line allows Kingsbridge to buy shares of Cell Genesys over the next three years at prices ranging from a 6% to a 10% discount to the average market price over an eight-day pricing period. The minimum price will be the higher of $3.00 or 85% of the company's closing stock price the day before a draw.

Cell Genesys shares (Nasdaq: CEGE) traded up to $7.22 on Wednesday before dropping back to settle lower by a nickel, or 0.7%, at $7.05.

The San Francisco-based biotech, focused on cancer therapies, may access the equity line in tranches of the lesser of $15 million or 2.5% of the company's market capitalization at the time of a draw.

Kingsbridge also received five-year warrants for 375,000 shares, exercisable at $9.1208, a 30% premium to the average closing bid prices of the company's stock for the five trading days before the agreement was signed.

Critical Therapeutics drops

Critical Therapeutics, Inc. dropped Wednesday after the Lexington, Mass.-based company announced it has decided to drop the phase 2 clinical trial of CTI-01, an anti-inflammatory compound, but will be evaluating data from the partial study group for possible future advancement of the product.

In early trade, the stock was up 2.5%, but Critical Therapeutic shares (Nasdaq: CRTX) closed the day off by a dime, or 1.81%, at $5.43.

The company said the decision to discontinue the trial was based on stability issues that potentially could affect the integrity of clinical drug supplies currently at sites. The company is undertaking an evaluation of those issues. No significant safety concerns have been identified in the trial to date.

Of the 150 planned patients, 102 patients have received study medication. The company said it will analyze the safety and efficacy data from these patients and expects to report results later this year. Once the company completes its analyses of the safety and efficacy data, as well as its evaluation of the stability issues, it will determine what steps will be taken with regard to future clinical trials of CTI-01.

"We believe that with 102 patients enrolled, we can still gain valuable information about the activity of the compound in a high risk patient population that will enable us to determine appropriate next development steps," said Walter Newman, senior vice president of research and development, in a statement.

The company has other drugs, including the asthma drug Zyflo, which is already on the market.

Corautus recoups some losses

Corautus Genetics, Inc.'s continued to slide early Wednesday on news the day before of a temporary suspension of a phase 2b trial for its Vascular Endothelial Growth Factor-2 (VEGF-2) gene to treat angina by trial partner Boston Scientific Corp., which also resulted in the cancellation of the company's follow-on stock sale from last week.

Some players who thought there was an over-reaction to the news, however, emerged, and the stock rebounded somewhat on Wednesday. Corautus shares (Nasdaq: VEGF) added back 7 cents, or 2.06%, or 15.42%, to close Tuesday at $3.40.

"The key to starting this trial back up will likely be blaming this problem on something which can be changed. The most desirable situation would have been to pin the blame on a single doctor or clinic. Failing that, they will look for a violation of the protocol, a type of patient, a failure of the catheter, or some other parameter which can be tweaked for the future to lower the risk. If that fails, a decision will have to be made as to whether the level of pericardial effusions seen, 3 of 295, represents an acceptable safety profile," said a buyside analyst.

"In this regard it is a very good thing that, unlike the cases of progressive multifocal leukoencephalopathy from Tysabri, nobody has died in the Corautus trial (to date). And even with the PML deaths, Tysabri is headed back to the market. So I think we've got a good chance to see this trial resumed, but no guarantee."

Atlanta-based Corautus is focused on gene therapy products for the treatment of cardiovascular and peripheral vascular disease with its VEGF-2 gene, and had planned to use proceeds for working capital, and to fund clinical trials and manufacturing costs.

Cardium lifted by Corautus

San Diego-based Cardium Therapeutics, Inc., which also is working on an angina treatment, was getting a look on the Corautus news, according to another buyside market source. The company went public in October 2005 via a merger with publicly traded Aries Ventures Inc.

Cardium shares (OTCBB: CDTP) traded up to $2.70 on Wednesday before pulling back to end the day off by 20 cents, or 7.41%, at $2.50.

"Corautus' way of delivering their gene therapy drug is the problem. Puncturing the walls of the heart the way Corautus does is no good and damaging. Cardium won a case over the summer for the way it delivers its gene therapy drug," said the buysider, who said he invested in Cardium's private placement last fall.

"Cardium is the sole owner of all the patents for delivering their drug to the heart via a catheter through the carotid [artery]. These patents that Cardium owns are tremendous. All of the gene therapy companies will be paying them royalties in the future, besides the fact that Cardium's gene therapy drug has been tested in more patients then any other gene therapy drug, and they are likely going to be running a phase 3 trial very soon for the subgroup population of patients with severe angina."

In October 2005, privately held Cardium merged into Aries Ventures Inc. and completed a private placement that raised proceeds of $28.5 million. Under the private placement, the combined company received more than $28.5 million from the sale of stock at $1.50 per share. Following the merger and private placement, the company has 29.2 million shares outstanding.

With the proceeds, Cardium said it acquired a portfolio of cardiovascular growth factor therapeutics from Schering AG to advance its lead product candidate, Generx, a DNA-based cardiovascular biologic designed for the treatment of patients with recurrent angina due to coronary artery disease.

But, the buyside analyst involved in Corautus said regarding Cardium, "It is true that the FGF vector they [Cardium] are using is injected into the coronaries, so they avoid some of the risks of intramuscular injection. But the problem is that there is precious little data that it works via that route. Schering paid over a hundred million dollars for the technology and sold it to Cardium for less than 10 cents on the dollar because their clinical trial failed.

"I reviewed the offering circular in detail and needless to say, I declined to invest. These companies are all high risk, but the Cardium story is too much for me."

Siga gains 10% on merger

Like Cardium PharmAthene, Inc. also is going public via a merger with a smaller public company - Siga Technologies, Inc., and the combo with the Annapolis, Md.-based biotech continued to get applause Wednesday for Siga. After a 4% rise in Siga shares (Nasdaq: SIGA) Tuesday when the deal was announced, the stock ran up 10 cents, or 9.71%, on Wednesday, to close at $1.13.

Combined, the company, which will be known as PharmAthene, features a substantial portfolio of procurement-stage biodefense products targeting anthrax, smallpox and chemical nerve agents, as well as a pipeline of drug candidates targeting bio-warfare agents and emerging infectious diseases.

"The reaction was positive but probably will be better once we have a clearer picture of the company going forward," said the New Jersey buysider. "Right now, no one knows exactly where to peg the combined company. Watch what happens tomorrow."

Shareholders of SIGA will have a 32% stake. The merger is expected to close during the second or third quarter of 2006.

Management team key for Siga

One of the biggest factors in Siga's rise to the PharmAthene merger, one buysider said is that now the company will be headed by a group of former MedImmune executives and scientists.

David Wright, chief executive of PharmAthene who will head the new combined company, was executive vice president for MedImmune, Inc. from 1990 to 2000 and has served as president of Guilford Pharmaceuticals, Inc. as well as GenVec, Inc. Three other PharmAthene executives were formerly at MedImmune.

An association with deep pockets also was an issue.

"Not only do they [PharmAthene] have money, they have two drugs both with blockbuster potential," said a buyside source in Boston. "Up until this time, there has been no good way for the public to invest in these agents. Now there will be, and the pipeline will become stronger than each can do alone."

GenVec nabs $30 million

Coincidentally, GenVec, Inc. - one of the biotechs PharmAthene CEO Wright has been associated with in the past - announced Wednesday it has received $30 million from a committed equity financing facility with Kingsbridge Capital Ltd.

On the news, GenVec shares (Nasdaq: GNVC) added 9 cents, or 4.29%, to $2.19.

Under the terms of the equity line, Kingsbridge will buy shares of GenVec over three years at discounts ranging from 8% to 12% depending upon the average market price during an eight-day pricing period. There is a minimum pricing equal to the higher of $1.25 or 75% of the company's stock price the day before a draw.

The equity line may be accessed in tranches of the lesser of $5 million or 1.75% of GenVec's market capitalization at the time of a draw.

Kingsbridge received warrants for 520,000 shares, exercisable at $2.67 each, a 25% premium to the company's average closing stock price for the five trading days before the agreement date. The warrants expire in five years.

Gaithersburg, Md.-based GenVec plans to use proceeds to fund the company's phase 2/3 trial of TNFerade for pancreatic cancer.

Elan credit concerns ease

All along, most onlookers believed the controversial multiple sclerosis drug Tysabri was a good drug, and would eventually get on the market. Co-developer of the drug, Elan Corp. plc, has been a big credit risk mostly, as the drug is at the top of its thin list of candidates, versus partner Biogen Idec, Inc., having a big slate of drug products.

Now Elan credit is clawing back, alongside the common stock, and an independent credit analyst said in a report Wednesday that there could still be some juice in some of the Elan paper.

"I have not been in ELN for sometime," said a fixed-income manager in New York. "What incredible irony that, after all the volatility and trouble, Tysabri turns out to actually be very helpful for people!"

Since last summer, Elan's bonds have both tightened about 250 basis points. The stock similarly has climbed back, with Elan shares (NYSE: ELN) settling Wednesday up 5 cents, or 0.34%, at $14.95.

"As Tysabri moves closer to returning to market, concerns regarding the company's ability to refinance or retire the $613 million of notes maturing in 2008 should diminish," said GimmeCredit bond analyst Evan Mann in a report. "At a yield of 7.5%, we continue to view the Athena notes due 2008 as attractive yield to maturity paper. But at a yield of 8.5% for the 7.75% senior note due 2011, the biggest part of the anticipated spread tightening is likely past."

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