Dynavax on for next week's slate; Celgene buying on weakness aids a positive close; Endo lower again

By Ronda Fears

Nashville, Oct. 3 - Dynavax Technologies Corp. tossed its hat into the ring along with several other deals on the biotech calendar, but for next week's business. Ahead of it, a handful of follow-ons are on deck this week, and those stocks were higher in tandem with the broader biotech indexes on Monday.

Panacos Pharmaceuticals Inc., Threshold Pharmaceuticals Inc., CoTherix Inc. and GTx Inc. were all higher in trade Monday, and a sellside trader said the deals "looked good to price."

Initial public offering stocks, however, continued to be mixed. Avalon Pharmaceuticals Inc., Genomic Health Inc. and Sunesis Pharmaceuticals Inc. priced IPOs last week, albeit below range or at the low end of range. All the IPO stocks are still underwater, too, but biotech bankers remain optimistic about getting some deals done before the end of the year.

In the PIPEs arena, Metabasis Therapeutics Inc. completed a $41.3 million deal, selling 7 million shares at $5.86 each to new and existing institutional investors plus warrants for 2.45 million shares at a strike price of $6.74. San Diego-based Metabasis said proceeds will be used for working capital and development of treatments for liver cancer, Type 2 diabetes and high cholesterol.

In another PIPEs deal, Diomed Holdings Inc. closed a $10 million placement of 4 million convertible preferreds at $2.50 each. The 6% preferreds convert on a one-for-one basis into common shares, and investors also received five-year warrants for 1.6 million shares, exercisable at $2.50 each. The dividend on the preferreds bumps up to 10% after the first 18 months and again to 15% from 19 to 24 months after issue. Based in Andover, Mass., Diomed develops minimally invasive procedures to treat varicose veins.

Dynavax off on deal launch

Dynavax Technologies Corp. launched a follow-on offering of 4 million shares via bookrunner Bear Stearns & Co. Inc., with the deal expected to price early next week, and initial reactions from buysiders was fairly positive.

"Well, at least we know where the financing will come from. I hope the share price gains before the offering so there will not be a big dilution. An extra 10-million-share float will be hard to absorb with the low volume this stock trades," said a buyside market source.

"Of course, one piece of good news out of a late stage trial and there will be plenty of buyers."

Berkeley, Calif.-based Dynavax focuses on products to treat and prevent allergies, infectious diseases and chronic inflammatory diseases using approaches that alter immune system responses. The company said proceeds would be used for general corporate purposes, including clinical trials, research and development and general and administrative expenses.

Dynavax's pipeline includes Tolamba, a ragweed allergy immunotherapeutic currently in a large-scale phase II/III clinical trial and in a supportive clinical trial in ragweed allergic children. It also has Heplisav, a hepatitis B vaccine that is in a pivotal phase III clinical trial and a cancer therapy in a phase II clinical trial. Another is an asthma immunotherapeutic that has shown preliminary safety and pharmacology in a phase IIa clinical trial.

Celgene caves, climbs back

Celgene Corp. on Monday said the Food and Drug Administration had delayed approval of its drug Revlimid for use in a blood cancer by three months to allow for more time to review its plan for distributing the drug safely.

Initially, the stock fell 4.6% in pre-market trading but recovered almost all the losses by noontime and turned into positive territory in early afternoon. After trading as low as $51.81, Celgene stock settled the day higher by 26 cents, or 0.48%, at $54.58.

Buyers for the stock on the weakness included lots of players in the biotech's 1.75% convertible due 2008, market sources said. The issue was described as steady on swap, or for convertible arbitrage players, and by the end of the day it was ahead by around 8 points for outright holders. A sellside market source pegged the issue easier by about a half-point at around 5 points over parity, but that was with the stock at $53.75.

The general reaction, the sellsider said, was "that the [application] set back is not that big a deal."

Thus, "buy on weakness" became the theme of the session for Celgene holders, he said.

Moreover, convertible players in Celgene liked the volatility spike, which as one buysider put it, "could boost option premiums, if it keeps up."

Celgene had been hoping for FDA approval this week for Revlimid to treat the blood condition called myelodysplastic syndromes, or MDS. Revlimid is a derivative of thalidomide, a drug associated with birth defects, and the delay is designed to satisfy the FDA that a fetus would not be exposed to the drug.

On a conference call to discuss the event with analysts, Celgene said it expects to submit its application for Revlimid in relapsed multiple myeloma in November.

"Based on our ongoing conversations with the FDA, we do not believe that our overall timelines are significantly affected," chief financial officer Robert Hugin said on the call.

Last week, Celgene said it expected a suspended trial of the drug for multiple myeloma to resume within weeks.

Endo battered ahead of deal

Endo Pharmaceuticals Holdings Inc. was batted down again Monday. Traders said a secondary sale of 26 million shares overshadowed positive late-stage trial data from the company on its Oxymorphone drug for acute post-operative pain.

"With the secondary, a lot of people are starting to feel like this story has played out and they are moving on," said one sellside trader. "How does the market absorb 26 million shares?"

However, an Endo holder, who was not selling ahead of the deal and had not decided if he would participate in the secondary, remarked: "The shares could be absorbed by institutions and funds without any problem. They would look for a discount and assuming Endo meets or beats its estimates going forward, would certainly prove a good investment."

Endo shares closed Monday off 29 cents, or 1.09%, to $26.38.

Last week Endo was pounded by a series of negative items on the tape, initially with news last Monday of the plans by its biggest institutional backers and insiders to sell 26 million shares. More pressure came midweek when a pain patch in development with partner Noven Pharmaceuticals Inc. was rejected by the FDA.

By Friday traders said Endo shares had largely recovered from the plunge but the secondary was still an overhang. The FDA news had been shrugged off after the company pointed out that its financial guidance for 2005 did not include any sales or earnings for the transdermal fentanyl patch.

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