Electro-Optical seen pricing Tuesday; Coley, China Medical mixed; Alexion slips; Isis convertible bid up

By Ronda Fears

Nashville, Aug. 12 - Amid still murky signals in the initial public offering market, Electro-Optical Sciences Inc. made a second price cut Friday and the deal has been scheduled to price next Tuesday, according to sellside sources working on the deal.

Electro-Optical Sciences' price cut - this time to $5.50 per share from $8 to $10 earlier in the week - was reminiscent of last week's Advanced Life Sciences Inc. IPO that finally got off, but at $5 each - far below the sweetened range of $8 to $9 a share, which was cheapened from original plans at $11 to $13.

Advanced Life Sciences stock, by the way, has hovered at the issue price, ending Friday up by 3 cents at $5.04.

There have been recent IPO successes, however, namely this week's debuts from Coley Pharmaceutical Group Inc. and China Medical Technologies Inc. They were mixed Friday but both were little changed. Coley shares closed Friday up 20 cents at $18.45, after pricing Wednesday night at $16 - the aggressive end of guidance for $14 to $16 a share. China Medical shares Friday ended off by a penny at $15.05, after pricing midweek at $15 - smack at the middle of price talk for $14 to $16 a share. Although the stock has snapped back to near issue price, it was up more than 25% on Thursday right after pricing.

Elsewhere in equities, Alexion Pharmaceuticals Inc. priced a follow-on fetching $66.9 million in gross proceeds amid a fairly active week in terms of capital raising efforts, with a couple of other follow-ons earlier in the week from Kosan Biosciences Inc. and CuraGen Corp.

Additionally, there were several PIPEs deals this week for $88.5 million plus a handful of PIPEs deals for $8.3 million in proceeds in Canada and Australia dollars. Too, there was a trio of venture capital transactions totaling $62 million.

Electro-Optical cuts price again

Electro-Optical Sciences on Friday made a second downward revision to the proposed price on initial public offering, to $5.50 per share. That's down from a cut earlier in the week to $8 to $10, which was a reduction from original plans to ask for $10 to $12.

But the maker of a medical device used in the early diagnosis of melanoma and dental imaging tools boosted the number of shares to be sold to 4 million from 3 million.

A sellside source working on the deal said it was scheduled to price after Tuesday's market close. Underwriters are Ladenburg Thalmann & Co. Inc. and Stanford Group Co.

Based in Irvington, N.Y., Electro-Optical plans to use proceeds to fund research and development, including clinical studies, build a sales and marketing force and for general corporate purposes, including working capital, facilities expansion and potential acquisitions.

Electro-Optical risks weigh

Electro-Optical Sciences' story is "interesting in concept," said an independent life sciences IPO analyst. The problem, as always, is whether it has a profitable business or at least a promising pipeline.

"The problem is that they will not commercialize their product until at least 2007. As a result, they will continue to have lackluster revenues," said Amit Bhatia, analyst with Current Offerings. "Their current product has not resulted in good revenues for the company. If the product receives FDA approval - and there is potential risk that it may not be approved - the company again may not have a successful launch."

The risk, he added, stems from Electro-Optical Sciences' existing product, Difoti - a non-invasive imaging device for the detection of dental cavities. It is very similar to Electro-Optical Sciences' MelaFind, but geared toward a different customer. Difoti is for dentistry, MelaFind for dermatologists.

"However, these areas will require an extensive amount of education (cost $$) and marketing (cost $$), and the value-added proposition needs to be communicated to doctors," Bhatia said. "As a result of their unsuccessful launch with their dentistry product, the market may be weary that they will experience only a small, incremental increase in revenues with the melanoma medical device."

Alexion slips after follow-on

Alexion Pharmaceuticals slid slightly after its follow-on stock sale but not as badly as might have been expected, one onlooker observed.

"I think a 1% dip is pretty reasonable. You can see pretty big sell-offs because of the dilution" from a follow-on, said a sellside analyst. "With Alexion, they have good partners and the pipeline looks good, so I guess you could say everyone was willing to just swallow the deal. The pricing actually looked really good."

Alexion sold 2.5 million shares at $26.75 each, discounted from Thursday's close of $27.32, for gross proceeds of $66.875 million, via bookrunner Morgan Stanley & Co.

On Friday, Alexion shares were off more than 2% in pre-market activity but clawed back during the session to end off by 32 cents, or 1.17%, at $27. Volume was heavy, with 962,350 shares trading versus the three-month running average of 298,694.

Cheshire, Conn.-based Alexion said proceeds would be used for general corporate purposes.

Earlier in the week, Alexion and partner Procter & Gamble Co. said enrollment came in ahead of schedule in the pivotal phase III trial for pexelizumab, a drug being investigated for reducing mortality and heart attack following coronary artery bypass surgery.

Isis convertible buyers emerge

Bidders for the Isis Pharmaceuticals Inc. convertible bond emerged Friday, according to a sellside market source. The company, a biodefense play, was seeing profit taking and/or short selling in the underlying stock, which has been on a tear recently, another sellside market source said.

At least two big market-makers in Isis were bidding for the 5.5% bonds due 2009, which the convertible sellsider said were seen around midday at a bid of 88.5. A sellside convertible trader said the issue traded up 1 point at 88.25 while the stock slid sharply on Friday.

Isis shares fell 21 cents on the day, or 3.63%, to $5.58.

"I haven't heard much lately other than that there was some buy interest out there," said a sellside convertible desk analyst.

A buysider said the interest hinges on expectations that there will be some news soon, possibly about a potential acquirer of Isis or more contracts for its Tiger (Triangulation Identification for Genetic Evaluation of Risks) biosensor system.

"The buzz is that there could be something hit the tape in a couple of days," the hedge fund manager said. "This will be either something to do with Tiger, trials or something like a merger or licensing partner. It could come at any moment. Besides, the 2006 revenue estimate is up about $20 million and loss estimate is down significantly because of the Tiger contracts already."

Isis announced last week another government grant for up to $4.9 million for its Tiger biosensor system, to be used for the continued development of applications to diagnose infectious diseases and to identify and control hospital-associated infections. The grant was received from the National Institute of Allergy and Infectious Diseases, a part of the National Institutes of Health.

Analysts say the potential revenue from Tiger is not yet in the stock price.

Other biodefense plays off, too

Other biodefense names were lower Friday, as well, also after a recent run in the stocks.

In particular, one sellsider noted that Medarex Inc. was off Friday after rising on news earlier in the week that it and closely held PharmAthene Inc. had received approval from federal regulators to begin human testing on a drug for treating anthrax. PharmAthene and Medarex, which has collaborations with others such as MedImmune, will enroll up to 46 healthy volunteers to collect safety data for their anthrax drug.

Medarex shares plunged 44 cents on the day, or 4.19%, to close Friday at $10.05. MedImmune shares lost 24 cents, or 0.86%, to end at $27.80.

Princeton, N.J.-based Medarex and Annapolis, Md.-based PharmAthene are partnering to begin a phase I clinical trial for Valortim, a monoclonal antibody targeting the anthrax antigen.

Funding for this clinical trial, which represents the beginning of human testing, is supported by a grant from the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health in Bethesda. Previously the drug has been tested only in monkeys and rabbits.

As an aside, the sellsider added that there is some market chatter that PharmAthene is planning to file an IPO in early 2006. PharmAthene executives were out Thursday and Friday, however, so that could not be confirmed with the company.

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