BioMarin shares, new bonds gain; Cephalon loses 13%; Idenix falls 28%; King slips; Encysive declines

By Ronda Fears

Memphis, March 24 - Cephalon Corp. shares indeed fell Friday as expected on the heels of the rejection from a Food and Drug Administration panel for its attention deficit hyperactivity disorder drug Sparlon to be used for children and adolescents. But also as expected, traders said there was heavy buying in the last hour of trade.

"There is a chance the FDA may accept Sparlon with black box," said an analyst at a big biotech fund in Connecticut. Otherwise, he said a rebound might be a while off if more trials are required. "If they must do a 3,000-patient trial for a month, then the drug won't be approved until 2007. I think it would take a year to enroll 3,000 kids."

In any event, the buyside analyst along with traders thought the reaction was overdone Friday.

Cephalon shares (Nasdaq: CEPH) closed out the day with a loss of $9.51, or 12.97%, at $63.80 after trading as low as $62.45. A whopping 22.7 million shares changed hands, versus the three-month running average of 3.2 million shares.

Cephalon credit seen wider

Cephalon's convertible bonds fared well against the stock's slide, sources said, because they are well hedged, but analysts were widening the credit spreads on the debt because of the development and stock market reaction.

The A and B tranches of the 0% convertibles due 2033 were both better by almost a full point on a hedged basis. Too, Cephalon's 2% convertible bonds were better by about one-third point on a hedged basis.

However, a source at a sellside convertible shop said he was widening the credit spread on the convertibles by 25 basis points apiece. He was using Libor plus 125 bps for the As, Libor plus 250 bps for the Bs, and Libor plus 325 bps for the 2s. Now, he is using Libor plus 150 bps, 275 bps and plus 350 bps, respectively.

BioMarin overhang evaporates

BioMarin Pharmaceutical, Inc. concerns among equity players that there would be a lengthy overhang from the follow-on offering in concert with a convertible bond deal quickly dissolved Friday as the stock traded up and the new bonds rocketed right out of the gate.

The company raised $117 million in proceeds from a follow-on offering of 9 million shares of common stock off the shelf price at $13 each, discounted slightly from Thursday's closing level of $13.13.

BioMarin shares (Nasdaq: BMRN) added 19 cents on the day, or 1.45%, to settle at $13.32 with 8.8 million shares traded - more than 10 times the norm of 833,472 shares.

"The dust has settled," said a sellside trader during the noon hour. "Now we are back up, the stock valuation grows and the company is even more fiscally powerful."

Novato, Calif.-based BioMarin plans to use proceeds, estimated at $111.15 million on a net basis, along with those from the sale of $150 million of convertible bonds due 2013, to fund commercialization and additional clinical trials of Phenoptin, and potential acquisitions in addition to possible debt buybacks. Phenoptin is an oral therapy to treat phenylketonuria, or PKU, an inherited metabolic disease caused by a deficiency of the enzyme phenylalanine hydroxylase.

"[The] secondary overhang is gone already," said a buyside player in BioMarin early Friday afternoon. "It [the follow-on offering, and greenshoe] was filled rather quickly from what I understand."

BioMarin bonds hit home run

BioMarin's seven-year convertible bond issue was upsized and priced aggressively and still zoomed in the immediate aftermarket.

The company boosted the deal to $150 million from $125 million and priced it with a coupon of 2.5% and with a 27.5% initial conversion premium - at the aggressive end of price talk for a yield of 2.5% to 3.0% and initial conversion premium of 22.5% to 27.5%.

The new bonds were seen trading at 105 with the stock at $13.125, around midday.

The company said it will net $145.5 million from the bond sale. In addition to operations, the company said it may use some proceeds from the transactions to buy back of some or all of its $125 million convertible bonds due 2008, which become callable on June 20 this year.

Idenix plummets to new low

Idenix shares plunged Friday to a new 52-week low after the company said it had lowered dosages of its hepatitis C treatment after discovering that higher dosages cause gastrointestinal side effects.

Cambridge, Mass.-based Idenix said late Thursday it will modify the ongoing phase 2b clinical trials to reduce valopicitabine dosing levels from 800 mg/day to 200 mg/day or 400 mg/day as it moves forward to design a phase 3 program.

Idenix stressed that the program is not dead and also pointed out that it is working with partner Novartis AG and the FDA to address the dosage safety issues.

Even after a conference call early Friday, Idenix shares (Nasdaq: IDIX) fell throughout the session, settling lower by $5.68, or 28.05%, to close at $14.57 with a staggering 8.5 million shares traded versus the norm of 350,087 shares.

Some onlookers, however, thought the dramatic drop in the stock was an over-reaction.

"The firm has good support from Novartis and the FDA," said a sellside trader, who said he saw some big block buyers on the weakness. "Mr. Market was obviously in a foul mood today."

Valeant rebounds after slide

Valeant Pharmaceuticals International has been punished this week due to poor results in a phase 3 trial for its hepatitis C drug, also at least partly related to dosing. The stock was rebounding in Friday's session, but traders also noted that volume was thin.

On Friday, Valeant shares (NYSE: VRX) gained 39 cents, or 2.38%, to $16.75 after opening the week just under $19.

On Thursday, Moody's Investors Service affirmed the ratings of Valeant, a B1 rating for its senior notes due 2011, but revised the credit outlook to negative from stable because of the trial data. Moody's said the rating affirmation reflects its $235 million cash position at Dec. 31, which helps offset relative weak ratios of cash flow from operations to debt.

Valeant's 3% convertible due 2010 traded up about a half point to 88.625 bid, 89.125 offered, and the 4% convertible due 2013 added 0.625 point to 88 bid, 88.25 offered.

Earlier in the week, Valeant shares fell after the company announced a phase 3 trial for its hepatitis C drug Viramidine met the primary endpoint for safety, showing lower rates of anemia compared to ribavirin, but did not meet the primary efficacy endpoint. But the company said it continues to target a commercial launch for Viramidine by the end of 2007.

Many onlookers saw continuing invest in the drug as throwing good money after bad, a sellside trader said. But after Idenix's news, he said there were some players returning to pick up Valeant after its slide earlier in the week.

King slides, new issue steady

Unlike BioMarin, King Pharmaceuticals, Inc.'s new issue landed rather flatly on the market early Fridaym and the stock took a hit, seeing heavy short selling from convertible players.

"The new debt news was taken badly," said a sellside equity trader at a bulge bracket firm. "Many don't realize that much of it is just replacing old debt."

Bristol, Tenn.-based King sold the $400 million of 20-year convertibles at par to yield 1.25% with a 20% initial conversion premium - at the cheap end of talk - and the issue was seen trading at par versus $17.15 for the underlying stock.

King shares (NYSE: KG) ended the day off by 16 cents, or 0.92%, at $17.20 and were seen lower still in after-hours action. At 4:20 p.m. ET, the stock was seen down by 18 cents, or 1.05%, at $17.02. During the regular session some 9 million shares changed hands, versus the norm of 2 million shares.

The company plans to use proceeds to repurchase its 2.75% convertible debentures due 2021, of which $345 million currently remains outstanding, and for general corporate purposes.

Encysive lung drug on hold

Encysive Pharmaceuticals, Inc. shares fell 4% on Friday in reaction to trials going into limbo for its TBC3711 - a next-generation, more potent form of its drug Thelin for pulmonary arterial hypertension.

Houston-based Encysive said that in agreement with the FDA it has placed clinical studies on hold after a rat displayed abnormalities upon being given an intravenous dosage of the drug.

Encysive says it will work with the FDA to resolve this issue as quickly as possible.

Meanwhile, the biotech company was expecting word Friday from the FDA on whether Thelin will be approved. There are two other PAH drugs on the market - Tracleer by Swiss-based Actelion, Ltd. and Revatio from Pfizer Inc.

With no word from the company by the close, it was perceived to be a negative, one trader said.

"The fact they did not release any news seems negative," the trader said. "Perhaps they are having a meeting to decide what kind of spin to put on bad news. If they had good news they surely would have released it. I'd say at this point it looks negative 60%, positive 40%."

Myogen, Actelion also sink

Encysive has been in a race to some extent with Myogen Inc. to get another drug to treat pulmonary arterial hypertension to market, and they also were lower in trade Friday. Actelion was lower as well on pressure from what traders said was a negative overhang because of the Encysive news.

Pfizer, Inc. also slipped in Friday's session, but traders said it could be from the Encysive news, or the $19.6 billion merger between Bayer AG and Schering AG, which trumped Merck & Co.'s $17.9 billion bid earlier this month.

Myogen shares (Nasdaq; MYOG) lost 26 cents Friday, or 0.74%, to close at $34.98.

Actelion shares in Switzerland (EBS: ATLN) lost €0.50, or 0.4%, to €123.00.

Pfizer shares (NYSE:PFE) slipped by 14 cents, or 0.54%, to end at $26.02.

Actelon relies heavily on Tracleer in its operations, one trader said, but analysts are concerned about increasing competition. As for Pfizer, he said, the PAH drug is a very small item in its operations, but "the Bayer/Schering news was big for Pfizer," largely because Pfizer has put its over-the-counter pharmaceuticals unit on the sale block.

Kenneth Lim contributed to this story.

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