Momenta gains at open, then goes south; Adams up against market; Durect convertibles up on buyback

By Ronda Fears

Nashville, July 22 - Momenta Pharmaceuticals Inc. tenuously raised the hopes of biotech issuers a notch Friday as it chalked up a success with its upsized follow-on stock sale without discounting it from Thursday's close.

There remains hesitancy to declare the doors wide open to biotechs with onlookers noting that Momenta turned south Friday, as did Adams Respiratory Therapeutics Inc. early on but managed to end with a slight gain. But reason for optimism is noted in the wake of a couple of other successful secondary offerings recently and Adams' initial public offering.

While Adams was off for much of Friday's session, the stock skyrocketed more than 50% in its debut on Thursday. Adams shares rebounded in afternoon trade to close up 66 cents, or 2.5%, at $26.41.

"It's OK, but I wouldn't say it's great," said Amit Bhatia, a health care IPO expert at the independent research firm Current Offerings.

"There's some activity in this space but first quarter was very slow with the markets down and oil up and then in second quarter there was almost no activity. We are hoping the market will continue to pick up. Meanwhile, those companies that can afford to wait will do so."

Momenta and Adams, along with recent follow-on pricings of Keryx Biopharmaceuticals Inc. and BioMarin Pharmaceutical Inc., offer some hope, but on the other side of the fence is the stalled IPO from Accentia BioPharmaceuticals Inc., which has been moved to a "to be determined" status after a couple of delays and price cuts.

Advanced Life Sciences Inc.'s IPO, proposed at $11 to $13 per share, has been expected to debut in July, but a banker working on the deal said Friday that he could not provide a definite status on it. A buyside market source said bankers are hoping to price it in this final week of July, if conditions are right.

In the PIPEs market it has been slow this week, but a deal announced Friday by Adventrx Pharmaceuticals Inc. led by two investment arms of billionaire Carl Icahn sent its stock soaring by about 25%.

Secondary off on profit-taking

In addition to the recent new equity deals, biotech stocks were lower Friday virtually across the board, along with the broader markets.

For the most part, traders said investors were taking profits in biotechs after a week of several upside earnings reports underscored by the likes of biotech giant Amgen Inc. Amgen especially saw heavy volume, losing 64 cents on the day, or 0.78%, to close at $81.31.

"No one wants to be long over the weekend, come in Monday long," one sellsider said. "A lot of the earnings are out and there could be some merger activity kick off next week, or some other surprise they don't want to have to deal with first thing Monday."

There were few exceptions, with one of the most noteworthy being Ciphergen Biosystems Inc. gaining on news of a strategic alliance with Quest Diagnostics to develop new proteomic-based diagnostic tests.

Even Durect Corp. shares declined in the face of improved financing results and news of debt reduction. In secondary action, the Durect 6.25% convertible was up on news of private bond buyback by the company, but the stock slumped with the broader markets.

Momenta opens up, turns south

Momenta raised $130.5 million in gross proceeds with an upsized follow-on offering of 4.83 million shares of common stock at $27.02 per share - even with Thursday's closing price. The stock was up 2% at the open Friday but turned south as the day wore on, ending underwater at a decline of $1.84, or 6.81%, to $25.18.

"The deal was oversubscribed by a pretty good multiple, you can see that from how much it was upsized," said an official working on the deal. "There was good participation from a broad group of investors, both new and existing."

Morgan Stanley was sole bookrunner of the off-the-shelf secondary offering, which was boosted from 4 million shares. Deutsche Bank Securities was joint lead manager and co-managers were Banc of America Securities and SG Cowen.

In trade Friday, 4.5 million shares of Momenta changed hands, versus the three-month running average of 659,936.

Cambridge, Mass.-based Momenta focuses on the sequencing and engineering of complex sugars used for the development of improved versions of existing drugs and for the development of novel drugs. The company plans to use proceeds for general corporate purposes, including research and development, potential acquisitions and manufacturing.

Adventrx fetches $20 mln PIPE

Adventrx Pharmaceuticals announced Friday a $20 million private placement of common stock and warrants to institutional investors led by Icahn Partners and Icahn Partners Master Fund, and the shares zoomed nearly 25% in trade.

San Diego-based Adventrx, focused on cancer and viruses, issued 10.8 million common shares at $1.85 each, and investors also received warrants for 10.8 million shares exercisable at $2.26 each. Viking Global Investors was another investor in the PIPEs transaction, which was lead by CIBC World Markets.

Adventrx shares on Friday rose 56 cents, or 24.89%, to close at $2.81. About 1.9 million shares traded Friday, compared with the three-month running average of 349,897.

Proceeds are earmarked for clinical development of the company's CoFactor product, and the remainder will be used for working capital.

In mid-April, Adventrx received clearance from British regulators to start an international mid-stage clinical trial testing CoFactor with 5-fluorouracil in patients with spreading colorectal cancer. CoFactor is a folate-based biomodulator developed to improve the efficacy of 5-FU, a widely used cancer chemotherapy treatment, by inhibiting a key tumor growth enzyme.

Ciphergen rises on Quest pact

Ciphergen Biosystems gained sharply on news of a strategic alliance with Quest Diagnostics to develop new proteomic-based diagnostic tests. The news sent Ciphergen shares up 12 cents, or 6.19%, to $2.06.

Under terms of the deal, Quest purchased 6.2 million shares of Ciphergen stock for $15 million, giving it roughly a 17% stake in the company. Quest also will have a five-year warrant to purchase an additional 2.2 million shares at $3.50 each and will be lending Ciphergen up to $10 million for development purposes.

Quest will use Chiphergen's proprietary technology to develop tests that use protein biomarkers to help diagnoses and treatments. Fremont, Calif.-based Ciphergen makes a family of ProteinChip Systems for clinical, research and process proteomics applications for life science researchers. Lyndhurst, N.J.-based Quest provides diagnostic testing and other services to the healthcare industry.

"We believe that proteomics will play an important role in patient care, and we look forward to pursuing our strategic alliance with Ciphergen," said Surya N. Mohapatra, chief executive of Quest, in a statement. "We are building intellectual capital to create a strong pipeline of new tests and technologies that help deliver better patient care."

Quest shares were off on the news for much of the session, however, but managed to end the day better by 4 cents, or 0.08%, at $51.55.

Durect 6.25s up 4 pts on swap

Durect Corp.'s 6.25% convertible jumped 4 points on swap early Friday on news of a small private buyback of the bonds by the company. The news translated into hopes of more of the same, with the bonds gaining favor among investors because of an extra incentive paid by the company.

Durect shares, meanwhile, were off 27 cents, or 4.38%, to close Friday at $5.90.

In a privately negotiated transaction with a convertible holder, Durect will exchange up to $5 million in principal of the notes for 317.4603 shares of common stock per note, as originally defined in the indenture, plus issue additional shares as a bonus for the early exchange.

"We continue to look for ways to proactively manage our capital structure and to increase the value of Durect," said James E. Brown, chief executive of Durect, in a statement. "We have taken this opportunity to retire a portion of our outstanding convertible notes and believe that this transaction strengthens our financial position by reducing our debt and interest liability, as well as further reducing our corporate cash burn."

Also Friday, Durect posted a narrower second-quarter net loss of $3.6 million, or 7 cents per share, compared with a net loss of $7.4 million, or 14 cents per share, a year before. Revenues climbed to $8.8 million for the quarter from $3.1 million a year ago, attributed to collaborative agreements with Endo Pharmaceuticals Inc., Voyager Pharmaceutical Corp. and Pain Therapeutics Inc. plus higher product revenues from Durect's drug delivery product Alzet and polymer product lines.

At June 30, Durect reported cash and investments of $60.5 million.

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