Vertex slips but deal a hit; Barrier, Auxilium rise on PIPEs deals; ImClone, Encysive, Arena higher

By Ronda Fears

Memphis, Sept. 15 - Capital-raising deals highlighted activity in biotech names Friday with a slightly discounted Vertex Pharmaceuticals, Inc. follow-on stock offering from which it bagged about $300 million. There also were a couple of big PIPEs deals on the tape, with Auxilium Pharmaceuticals Inc. pocketing $46.75 million and Barrier Therapeutics Inc. planning a $25.3 million deal.

"Vertex obviously was a great success," said a syndicate source that watched the deal but did not share in the deal business. "I think the waters are getting warmer."

Elsewhere, traders said options expiration Friday drove a lot of the secondary action in biotechs Friday. ImClone Systems, Inc. was a top name in that group on a Merrill Lynch & Co. recommendation to buy one-year October puts to participate in any downside to the stock possible by Food and Drug Administration approval and lower-than-expected pricing of Amgen, Inc.'s third-line colorectal cancer drug Vectibix on Sept. 28.

ImClone's October $30 puts saw heavy activity, one sellside trader said, moving off by a quarter to $1.55. He also noted that the October $30 calls had heavy volume, too, moving up by 52 cents to $2.55 but the October $35 call saw the most activity of any ImClone options, adding a quarter to 65 cents. ImClone shares (Nasdaq: IMCL) added 71 cents on the day, or 2.36%, to close at $30.77.

"While approval is highly anticipated, we believe lower-than-expected Vectibix pricing could push the [ImClone] stock to $25. But, in the unlikely event that there is a significant delay in approval, ImClone could rise to $40 per share. Thus, buying puts for the upcoming event may be a better strategy than shorting the stock," said Merrill analyst Eric Ende in a report Friday.

"If the [ImClone] stock drops to $25, then the net return on the strategy (after deducting the costs of the put) would be 10.7% of the stock price (or 186% of invested capital of $1.75) to the expiration date."

Cheap pricing on Vectibix, which would compete with ImClone's colorectal cancer drug Erbitux, could cut into ImClone's earnings per share by as much as 50 cents, Ende said. Amgen said, if approved as expected, it anticipates launching Vectibix by year-end.

Amgen shares (Nasdaq: AMGN) edged up 20 cents on Friday, or 0.29%, to settle at $69.77.

Vertex deal a 'home run'

The pricing of Vertex's upsized stock deal seemed to speak for itself, confirming predictions by many players in stock that it would be well-received.

"In addition to being upsized, which is a strong indicator of demand, it was hardly discounted at all," said a buyside market source in Boston. "I am actually surprised it didn't price pat with yesterday's close. At any event, it was definitely a home run."

Cambridge, Mass.-based Vertex priced 9.1 million shares, boosted from 8 million, at $33 each, versus Thursday's close of $33.52. It should be noted that the greenshoe was reduced to 900,000 shares from 1.2 million shares, which means the base deal was upped by 800,000 shares.

There had been some pressure in the stock on the deal following its launch Monday, when the stock ended at $34.11, and on Friday, Vertex shares (Nasdaq: VRTX) were a tad weaker, ending off by 54 cents, or 1.61%, to $32.98.

Vertex is principally focused on viral diseases, inflammation, autoimmune diseases, cancer, pain and bacterial infection. Vertex co-discovered the HIV protease inhibitor, Lexiva, with GlaxoSmithKline plc. Proceeds are slated for development activities, manufacturing, acquisitions and general corporate purposes.

Auxilium adds 10% on PIPE

Auxilium Pharma plans to pocket $46.75 million from a direct placement of stock.

A group of institutional investors has agreed to buy 5.5 million shares at $8.50 each, an 8.6% discount to the company's $9.30 closing stock price on Thursday.

On the deal, Auxilium shares (Nasdaq: AUXL) shot up 93 cents, or 10%, to close at $10.23.

The deal is scheduled to close Sept. 20.

Thomas Weisel Partners LLC is the lead agent with Roth Capital Partners, LLC as co-agent.

Proceeds will be used for product development, capital expenditures, working capital and general corporate purposes.

Auxilium, based in Malvern, Pa., is focused on treatments for hypogonadism.

Barrier boosted by deal news

Barrier Therapeutics, Inc. intends to raise $25.3 million in a direct placement of its stock.

The offering includes up to 4.82 million shares at $5.25 each - a 3% discount to the company's $5.41 closing stock price on Thursday.

"This is a good deal for the long-term players," said a sellside trader.

Barrier shares (Nasdaq: BTRX) added 37 cents on the news, or 6.84%, to settle at $5.78.

Pacific Growth Equities, LLC is the underwriter for the deal, which is set to close Sept. 20.

Proceeds will be used for research and development, commercialization expenses and general corporate purposes.

Based in Princeton, N.J., Barrier develops treatments for psoriasis, acne and fungal infections.

Encysive up on options expiry

Otherwise, as mentioned earlier, secondary action was largely steered by options expiry, but there were some sellside research actions that sparked buying as well. One of the biggest gainers of the session related to options expiring was Encysive Pharmaceuticals, Inc., according to traders.

"With options expiration today, you got to expect a pop," a sellside trader said. "After the options market closes, they can price the $5.00 calls higher for Monday. It will be the opposite of last Friday, you see."

The September $5 call options that expired Friday saw heavy selling with no change at a nickel, he said, noting heavy volume and open interest. The October $5 call options, he said, got nice two-way action, also with heavy volume and open interest, gaining about a nickel on the day to 35 cents.

Encysive shares (Nasdaq: ENCY) closed Friday up by 45 cents, or 10.77%, at $4.63.

Houston-based Encysive is focused on vascular diseases.

Arena cheered, gains 8%

Arena Pharmaceuticals, Inc. was one biotech moving sharply higher on new coverage.

A.G Edwards initiated coverage of Arena Pharma on Friday with a buy rating and an $18 price target, saying Arena's first-in-class pipeline focused on obesity, cardiovascular diseases, insomnia and diabetes is validated by partnerships with Johnson & Johnson and Merck & Co. Inc.

"I am impressed folks are holding strong," said a sellside trader, adding he expected some profit taking late in the day. When only a slight easing occurred, at the close, he added, "There was nice volume and Arena is still holding gains from the morning. Very nice."

Arena shares (Nasdaq: ARNA) came slightly off the intraday high of $12.09 to settle with a gain of 85 cents, or 7.62%, to end at $12 as 1 million shares changed hands versus the norm of 542,705 shares.

Earlier in the week, San Diego-based Arena announced the start of a phase 3 trial of lorcaserin for obesity starting in late 2007. If things go well, the company said it anticipated filing a New Drug Application in the second half of 2010 and market launch in 2011.

Interpharm wraps up PIPE

Back to new deals, in a smaller PIPE transaction, Interpharm Holdings Inc. wrapped up a $10 million private placement of series C-1 convertible preferred stock.

The 8.25% preferreds were purchased by Aisling Capital II, LP and are convertible into 6,535,947 shares at $1.53 each. The investor also received five-year warrants for 2,281,914 shares, exercisable at $1.639 each.

Interpharm shares (Amex: IPA) gained a nickel on the day, or 3.42%, to close at $1.51.

The offering supplements the company's $41.5 million credit facility with Wells Fargo Business Credit.

Proceeds will be used by Hauppauge, N.Y.-based Interpharm, which develops generic prescription and over-the-counter drugs, for research and development as well as for the pursuit of certain target projects.

© 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.