Mylan leveling off; ev3 seen in trouble, Micrus prices below range; Invitrogen up; ID Biomed eyed

By Ronda Fears

Nashville, June 15 - Mylan Laboratories Inc. shares leveled off Wednesday, marking a small gain for the session, and while many investors initially cheered the mega stock buyback plan it was drawing mixed reactions on reflection because the company will be issuing debt to do so. Plus, some onlookers were leery about its plan to become a hybrid drug company of sorts as the generic drugmaker moves aggressively into branded drugs.

On the whole, biotech stocks ended Wednesday somewhat weak and the lack of enthusiasm spilled into the initial public offerings on the calendar this week from a handful of would-be issuers. Namely, ev3 Inc. was finding stubborn resistance ahead of its IPO that was slated to price after the close, market sources said, and Micrus Endovascular Corp. priced below its target range.

Following a spate of private placements by biotech companies on Tuesday, nothing was seen from the group on Wednesday at all. Given the unfriendly reception biotechs have gotten from investors, players are looking for more and more acquisitions to hit the tape.

In trade, Indevus Pharmaceuticals Inc. rose sharply Wednesday after the company reported positive results of a phase II trial of Sanctura XR, its once-a-day treatment for an overactive bladder condition. The stock gained 18 cents on the day, or 6.41%, to end at $2.99.

A trader also remarked that there was huge 17% spike in Adeza Biomedical Corp. shares, as well as a lot of activity. There was no news in the name but the company, which develops women's healthcare products such as fertility tests and fetal testing procedures, is scheduled to make a presentation to the investment community at the William Blair & Co. growth stock conference in Chicago on Wednesday, June 22.

Mylan as 'hybrid' cools reactions

Mylan Labs continued to gain Wednesday but the reactions to its news were cooling off considerably. The stock, which also was upgraded by Lehman Brothers to overweight from equal weight, rose 27 cents, or 1.38% to close at $19.85 on heavy volume.

"They finally got their act together," said a buyside analyst, referring to the company's $1.25 billion stock buyback plan announced Tuesday.

But he expressed some concern about the company funding the move with debt - a strategy many considered specifically designed to fend off acquisition efforts by billionaire Carl Icahn. Also, he said Mylan's new approach to its business as a hybrid drugmaker with both generic and branded products raises some issues.

Competition in generic drugs has stepped up significantly in recent times, he noted, but the competition among branded drugmakers is brutal, too, and the Big Pharma companies have a strong foothold among physicians.

The notion of a hybrid business model has not been met with a great deal of success, he added.

"I can think of only three hybrids that have done it successfully- Forest Labs, Teva and Ivax," the analyst said.

IPO launches losing their legs

Cardiovascular device maker ev3 was at bat after the market close with its IPO but market sources said interest was a bit lower, at $15 a shares, than $16 to $18 the company is hoping to fetch. Micrus Endovascular Corp. found resistance, too, and had to discount its IPO at $11, versus guidance for $12 to $14, to get it off.

Two others on tap - Hemosense Inc. and Gentium SpA - also were seen having trouble.

Micrus Endovascular Corp. priced at $11 per share, an underwriter said on Wednesday, which was below its estimated pricing range. The company, which makes devices used to treat cerebral vascular diseases, had set its planned IPO at 3.25 million shares at an estimated price of $12 to $14 per share.

"Right now, all of these are not looking too good, a very lukewarm reaction. It's a buyer's market," said Sal Morreale, an IPO trader at Cantor Fitzgerald. "Unless you see a dramatic rebound in the psychology [of investors] these are going to continue to have a tough time."

After a notable absence of biotech or medical related names in the initial public offering market this year, there are a handful of names set to debut this week but nearly all are having severe trouble.

A buyside market source said investors were losing heart for ev3 and Micrus, so to speak, because of their cardiovascular angle and the lack of super intellectual property in that area, especially at the prices those companies were pitching stock at. Edwards Lifesciences Corp., the worldwide leader in stents, would probably have snapped up any technology worth buying, at the right price, he said.

Rescues from Big Pharma an answer

Without a welcoming IPO market, and receptions similarly tepid in other capital markets, onlookers expect the pace of big pharmaceutical companies picking off smaller companies - particularly those with which they have an established relationship with - to accelerate.

"Like I have said before, Large Pharma needs to buy," said another sellside source. "Their pipelines are smaller and there are patent expirations to contend with. It's easier for people to get bought [for both the smaller and bigger company involved]. Most wait for a drug to get approved so there is less risk."

For some of the smaller companies finding trouble pitching an IPO it might be more of a rescue.

"Some of these companies get to the point where they have to do something," Morreale said. "A lot of these smaller biotechs will just get bought out by Big Pharma."

Peninsula Pharmaceuticals Inc. is a prime example, he said.

In mid-April when Peninsula was having trouble with its planned IPO, Johnson & Johnson through its Ortho-McNeil Pharmaceutical just bought the antibiotic developer for $245 million in cash. They already had a partnership established.

Meanwhile, companies insisting on trudging on in the IPO market can probably expect a tough go of it, Morreale said. "Whatever comes will be priced low or forced to sell at a deep discount."

ID Biomed preps to enter U.S.

Market sources were keeping a watch on Canadian flu vaccine maker ID Biomedical Corp., with one trader pointing to a report that put the company on the doorstep to filing an application to market its Fluviral in the U.S.

ID Biomedical shares shot up 96 cents, or 6.15%, to close at $16.57 in the U.S. on Wednesday.

The trader said the report out of Toronto said ID Biomedical was anticipating making an application to sell its flu vaccine at the U.S. Food and Drug Administration before year-end and hopes to be in position to make and ship the vaccine to the United States in 2006.

Last year, he said ID Biomedical hit biotech players' radar when a London flu vaccine manufacturing plant owned by Chiron Corp. was shut because of contamination problems, removing almost half the U.S. government's supply.

At that time, the small Vancouver, B.C.-based company was not approved to market in the U.S. and now that Chiron again, or still, seems to be having production problems, ID Biomedical is moving to take advantage of the situation. Chiron has said it expects to produce between 18 million and 26 million doses of its Fluvirin for the 2005-2006 flu season, down from its previous outlook of between 25 million and 30 million doses.

Invitrogen convert priced to sell

Invitrogen Inc.'s return to the convertible market was called a big success with the upsized issue described by buyside sources as priced to sell. The deal, bumped to $325 million from $300 million, priced at the wide end of guidance and broke out of the gate on the rise.

The now four-time convertible issuer printed the 20-year bond with a 3.25% coupon and 27.5% initial conversion premium - at the cheap end of price talk for a 2.75% to 3.25% handle, up 27.5% to 32.5%.

Invitrogen, based in Carlsbad, Calif., provides products to other research firms as well as its own R&D in genomics, proteomics, bioinformatics and cell biology. The company said it will use proceeds from the new issue to repay a $124 million revolving line of credit with Bank of America, leaving remaining proceeds to pay down other debt or other general corporate purposes.

Buyers not only liked the deal terms, but the fundamental story on Invitrogen.

"The story I've liked because it's like the picks and shovels for biotech, products that are needed for biotech research," said one buyside analyst. Growth for Invitrogen has come through acquisitions, he added, and as the company's new chief executive is seen as "an operator," he thinks Invitrogen may well have another acquisition targeted.

New issue ahead of older issues

Invitrogen's new convertible structure is pretty standard and models up close to the existing issues, onlookers said, but it was particularly appealing because its first put is ahead of all the others by a year. So that feature was enough to boost interest as potential buyers were rather complacent about the terms.

Sellside analysts had pegged the issue around 1 to 2% cheap.

Interest in the issue was primarily driven by outright accounts, versus the hedge funds, however. A source in the convertible arbitrage community had said the issue looked cheap but not cheap enough given prevailing market conditions.

Invitrogen shares added back 69 cents on Wednesday, or 0.9%, to close at $77.67.

The new issue traded out of the box at 101 and quickly moved up to 102 bid, 102.5 offered. The strong pricing caused at least one analyst to question whether the underwriters had been aggressive enough.

"It was priced at the cheap end; and when it trades higher than the open and expands out, you wonder if it could have been priced differently," the analyst said.

Given current market conditions, however, no one was willing to argue that point too strongly.

Rebecca Melvin contributed to this article

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