Human Genome stock falls 29%, convertibles lose outright, up on swap; Vertex slides on profit taking

By Ronda Fears

Nashville, Oct. 5 - While many biotech bankers remain optimistic for deal flow in fourth quarter even with a quiet start in the primary side of the market, particularly for initial public offerings, some were cringing as negative trial news like that from Human Genome Sciences Inc. drove much of the secondary market lower Wednesday.

"There still seems to be a good appetite for riskier IPOs in the life sciences," said a syndicate source. "I don't think I'd go so far as to say there are eager buyers but it is better than its been this year so far, and most of last year."

Acorda Therapeutics Inc. filed an $86.25 million initial public offering on Wednesday. Based in Hawthorne, N.Y., the company's lead product candidate, Fampridine-SR, is in a phase III clinical trial to improve walking ability in people with multiple sclerosis.

Otherwise, it was quiet on the primary side of the market except for a couple of large venture capital transactions.

TVM GmbH said it closed on $290.8 million for TVM Life Science Ventures VI, a new fund focused on biotech and biopharmaceutical investment opportunities. Investors included European Investment Fund, AlpInvest, KfWBankengruppe, Skandia Liv Asset Management, Temasek Holdings Pte Ltd., the Taiwan government's Development Fund, Quintiles Transnational Corp., Genzyme Corp. and Biogen Idec Inc.

In related news, Newron Pharmaceuticals SpA said it completed €30 million in series B financing led by HBM Partners AG. Investors included TVM GmbH, 3i Group, Apax Partners and Atlas Venture. Newron obtained €7 million from TVM in the second closing, having raised €23 million earlier in 2005.

Human Genome drags market

Human Genome's news of a mid-stage trial failure for its lupus drug was the "nail in the coffin" for virtually the entire biotech sector as one trader put it. The news followed a couple of other clinical trial disappointments, but the trader said it was a blow across the group.

In pre-market action, Human Genome shares plunged on news from the company that its lupus drug LymphoStat-B showed disappointing phase II clinical data. The company said results showed the drug was largely ineffective in reducing lupus symptoms when tested against a placebo. Despite that, the company said the drug showed promise in combating the disease on a cellular level, so it plans to proceed with phase III trials.

Human Genome shares saw a massive sell-off with 49 million shares changing hands, compared with the three-month running average of 2.4 million shares. After trading as low as $8.60, the stock settled the day with a loss of $4.1001, or 29.35%, at $9.8699.

Convertibles drop 20 points outright

Convertible players in Human Genome were hoping that short covering would kick in at some point in the day and retrace some of the loss, but that did not transpire. Thus, traders said that on an outright basis, holders of the 2.25% convertibles - both the 2011 and 2012 issues - lost a whopping 20 points or so.

Conversely, convertible arbitrageurs in those issues early on at least were seeing some gains. One sellside trader noted the 2.25% convertibles had been trading on about an 82% hedge, but that was coming in to around 80% on the stock plunge. Another sellsider said that at 91 bid, 92 offered the 2011 issue was up about 1.25 points on swap and at 83.625 bid, 84.125 offered the 2012 issue was up about 1 point on swap.

The 2011 issue settled at 87.75, and the 2012 issue at 80.625 bid, according to one sellside shop. Another sellsider put the 2011 issue ending at 88.125 and the 2012 issue at 82.

Human Genome "raised $1 billion in public equity and $1.36 billion in public debt. Total public money they raised is just a tad under $2.4 billion," a sellside trader said. "They burned $240 million last year and will burn about $250 million more this year. It's butt ugly."

A buyside market source said a big strike against the company now, given the disappointing lupus drug trial, is that it had invested in large-scale product manufacturing facilities before a product was delivered.

"That was a big risk and now you see why most biotechs don't do that," the buysider said. "Now, they have to look as some way of outsourcing that capacity or writing it off."

ZymoGenetics tracks market

ZymoGenetics Inc. said the Food and Drug Administration has designated Orphan Drug status for its aggressive melanoma treatment IL-21, which will give it seven years of exclusivity, but players noted high risk as the drug is still in early phase Ib trials. Moreover, the stock just followed the market lower, traders said.

ZymoGenetics also has a lupus drug, and analysts at Merrill Lynch were saying that the Human Genome event could be a positive development.

While the news' impact on TACI-Ig was unclear in the bigger picture, Merrill analyst Hari Sambasivam said that the failure of Human Genome's Lymphostat-B in phase II could delay a competitive product to ZymoGenetics' TACI-Ig. The risk, however, is that a product - Lymphostat-B - with a very similar mechanism of action to TACI-Ig did not show clear efficacy in the same indication, which includes the potential for mixed outcome for TACI-Ig, the analyst added.

ZymoGenetics shares ended the session off 70 cents, or 3.92%, at $17.16. The stock came off the day's lows, however, after trading down to $16.61, one trader pointed out.

Vertex spirals on profit taking

Vertex Pharmaceuticals Inc. announced a more focused development effort for 2006 after the close Tuesday. As analysts took a very positive spin on the news, the stock also dove more than 8% on the day. One sellsider said it was a matter of profit taking after a nice run in Vertex shares this year.

"You'd be hard pressed to find anything moving up today," in the biotech sector, one trader remarked.

When asked about the direction of the move, another sellsider commented that the stock "had a nice move already."

A buysider who is a fan of the Vertex story, however, said he was taking it as a buying opportunity.

"It's amazing how quickly these biotechs move on hope or should I say hype, aspirations and dreams and how quickly they fall when reality hits. Human Genome this morning is an example. Remember this stock [Vertex] is mainly held by institutions, and they trade 24 hours a day. You can wake up one morning to find a haircut down to the lower teens or below."

"If you like this company, this is a buying opportunity. I hope it retracts more."

Vertex narrowing its focus

Vertex shares opened higher on the news but quickly drifted lower and sank throughout the session. The stock ended Wednesday off by $2.03, or 8.33%, at $22.35. The stock had hit a new 52-week high of $25.67 on Tuesday.

Cambridge, Mass.-based Vertex said that in the coming year it would concentrate on its drug candidates for Hepatitis C (VX-950) and rheumatoid arthritis (VX-702), plus bring forward its work on a cystic fibrosis drug. In addition, Vertex said it would continue to participate in collaborations focused on small molecule drugs for cancer and HIV treatments.

This means, Vertex said, that the company will curtail its investment in merimepodib, an oral compound designed to enhance the antiviral efficacy of interferon-based combination therapy for Hepatitis C, and VX-765, an interleukin-1 beta converting enzyme inhibitor for the treatment of psoriasis.

Analysts said the news was very positive, given the need to concentrate management and cash resources, manage a smaller number of products with high potential and reduce risk of the dilution of management focus and resources.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.