NxStage soars on IPO debut; Durect launches equity deal; Cell Therapeutics deal abuzz; Amylin plunges

By Ronda Fears

Nashville, Oct. 27 - New deals, present and future, were a focus for biotech players in an otherwise depressing session with the biotech sector following the broader market southward in large fashion.

While the initial public offering of medtech concern NxStage Medical Inc. got off, and traded sharply higher, market sources said there was still no indication that pure biotech plays hoping to raise new money before year-end would be welcomed by buysiders. After all, as one banker put it, NxStage came below a sweetened price range.

Word of other primary market activity was somewhat exciting, though, and from a couple of pure biotech names.

Durect Corp. surprised onlookers with a follow-on and secondary equity sale, which was expected to price next week, and there was chatter on convertible desks that Cell Therapeutics, Inc. was readying a $50 million convertible deal, probably in the PIPEs market.

Outside of NxStage's debut shares, medtech and biotech names alike were swimming in red, virtually across the board.

In one particularly outstanding dive, Amylin Pharmaceuticals, Inc. issues plunged Thursday in reaction to a third-quarter net loss that was more than double a year ago and missed Wall Street's expectations. There was a capital markets angle in that name, as well, as Amylin is widely anticipated to be seeking new capital soon, too, but perhaps not until the reaction to its third-quarter results dies down.

NxStage pre-IPO holders buy in

Medtech NxStage's shares gained right out of the chute Thursday, after pricing below range, and sellside traders said venture capital funds involved in the company beforehand were buying more shares rather than exiting the story.

NxStage priced its IPO of 5.5 million shares at $10.00 - below the sweetened guidance range of $11 to $12, which had been reduced from original price talk of $13 to $15. Thus, gross proceeds dropped to $55 million from original plans to raise up to $82.5 million.

"Volume was pretty low and the stock traded in a pretty tight range," said one trader. "That tells me that there was not a lot of flipping [initial IPO players selling], but they were buying more. That's a good sign."

The NxStage shares opened at $10.20 and traded in a range of $10 to $12, with just 907,842 of the 5.5 million IPO shares traded.

The company said existing stockholders and affiliated entities had "indicated an interest" in buying up to a total of 825,000 shares in the offering at the public offering price. The biggest pre-IPO stockholder was the big venture capital fund Sprout Group - an affiliate of Credit Suisse First Boston - with a 36% stake. Other pre-IPO shareholders include Atlas Venture, Healthcare Investment Partners Holdings LLC, Lightspeed Venture Partners and Adams Street Partners.

Lawrence, Mass.-based NxStage, a medical device company that develops and makes dialysis systems, has earmarked proceeds for working capital, to expand manufacturing and for general corporate purposes.

Durect drops 11% on follow-on

Durect's surprise equity transaction sent its stock tumbling almost 11% on Thursday, although market sellside sources said the deal would be marketed in a full roadshow and wasn't expected to price until next week.

Cupertino, Calif.-based Durect, which specializes in proprietary drug delivery platform technologies, is planning a follow-on offering of 7.4 million shares and said there would be a secondary sale of 32,256 shares by selling stockholders.

Morgan Stanley & Co. Inc. and J.P. Morgan Securities Inc. are lead underwriters. Morgan Stanley is bookrunner. Co-managers are CIBC World Markets and WR Hambrecht & Co, LLC.

One sellsider said the deal was good news for the company and should make its convertible bonds go better. The Durect 6.25% convertible due 2008, a small issue, is trading deep in the money and a convert trader said it was quiet on the news Thursday.

Durect shares, however, dropped 78 cents on the day, or 10.85%, to $6.40 on volume twice the norm.

Cell Therapeutics deal abuzz

Cell Therapeutics, Inc. is another biotech familiar to the convertible market, and there was buzz across several sellside desks that the Seattle-based biotech was preparing a small new convertible deal, probably in the PIPEs market. The stock was lower, as is typically the case when a new convertible offering emerges, but traders noted that with the market down it was difficult to attribute the Cell Therapeutics decline to a new deal.

A call to the company was not returned by press time, and market sources had only sketchy information available.

One sellsider said there was chatter early Thursday that Cell Therapeutics was planning a $50 million convertible, with terms circulated at a 6.75% coupon and 10% initial conversion premium. However, it was unclear whether those terms were speculation among convertible traders or actual indicative terms from bookrunners.

Cell Therapeutics has a couple of convertible issues in play - a 5.75% due 2008 and 4% due 2010, both of which are busted and trading in the 60s. The stock closed Thursday off by 11 cents, or 4.42%, at $2.38.

A European-based fund manager said early Thursday there was an item on the wires abroad about a €10 million deal afloat. Around noon ET, he said the figure he was hearing had been bumped to $30 million, and noted that Cell Therapeutics chief financial officer Louis Bianco had talked about a deal being "done soon" on a company conference call in September.

The sellsider said a reconciliation of the deal size figures might be that of the $50 million deal size he heard, there was supposedly one buyer set up for a $20 million chunk, so perhaps only $30 million would be marketed. He wasn't interested in the deal, though, and commented, "I don't like this company nor the management. They have never delivered anything."

The buysider said, though, that he was expecting third quarter will be better as they have restructured operations with a workforce reduction in the United States.

"However, the company needs millions of dollars to commercialize just one product. They will probably decide for an offering before the end of the year," he said. Cell Therapeutics "has three important products in the pipeline, Xyotax (considered a blockbuster), Pixantrone and Ct2106. Now, they are thinking about a partner for all the three products, for Xyotax they have contacts with some Big Pharma."

Cell Therapeutics is expected to report earnings in early to mid-November.

Last Friday, the company said in an SEC filing that it was continuing negotiations with Chugai Pharmaceuticals Co., Ltd. to terminate a licensing agreement for its lung and ovarian cancer chemotherapy drug Xyotax that dates back to October 2001, noting other third parties have expressed an interest in it.

Amylin stock, convertibles dive

Yet another biotech with convertibles in circulation, Amylin Pharmaceuticals, Inc., was sharply lower Thursday on its third-quarter results.

The San Diego-based company posted a much wider-than-expected loss for third quarter after Wednesday's close, sending the stock down 8% in after-hours trading. The plunge resumed Thursday, with Amylin shares plunging by $4.12, or 10.84%, to $33.87 on heavy volume. Its convertibles lost big as well, with the 2.25% due 2008 quoted at day's end at 116.875, off 11 points outright, and the 2.5% due 2011 pegged at 113, down 9 to 10 points on the day. Traders said there was decent flow in both bond issues.

Amylin reported a net loss of $69.5 million, or 65 cents per share, compared with a loss of $34.1 million, or 36 cents a share, a year earlier, while revenue nearly doubled to $25.9 million from $13.4 million. But analysts on average had expected the company to post sales of $28.7 million.

Lower-than-expected sales of the company's Type 2 diabetes drug Byetta was the culprit. The company has a collaborative profit-sharing arrangement for the marketing of Byetta with Eli Lilly & Co. Going forward, the company said it expects some inventory build in the retail, institutional and retail channels, but gave no sales guidance.

Amylin has amended its collaborative agreement with Alkermes for the development of Exenatide LAR, the once-weekly version of Byetta in phase II development, so that Amylin will now be responsible for the commercial manufacturing of Exenatide LAR. Its expanded role in Exenatide LAR has caused onlookers to expect Amylin will likely require additional financing. But that may be a few months in the offing, as the market is not looking for an update on the Exenatide LAR program until early 2006.

Par Pharma convertibles lower

The convertibles of Par Pharma were lower on a dollar neutral basis by about 0.25 point as its shares jumped nearly 17% after the generic drug maker reported earning that were expected, though "not great," a sellside trader said.

The jump in its shares was sort of a relief rally, the trader explained, because last quarter the stock was higher, but revenue came in light and the stock fell hard.

The opposite happened this time. The stock has been driven down during the last week, but with the earnings coming in close to expectations they bounced higher.

In addition the company was upgraded by CIBC World Markets to "sector perform" from "sector underperform."

The Woodcliff Lake, N.J.-based company said that its decision to sell branded drugs of its own helped boost its results in the third quarter.

The company reported net income of $25.3 million, or 74 cents per share, compared with a loss of $35 million, or $1.03 per share, a year ago. Excluding tax gains and asset impairment charges, the company posted net income of $10 million, or 29 cents per share, down from $16.2 million, or 48 cents per share, a year ago. Revenue fell 22% to $118.7 million.

Par Pharma's 2.875% convertibles due 2010 were seen at 80.5 bid, 81.5 offered. Its shares surged $3.64, or 16.72%, to $25.41.

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