Cita defers IPO plans for merger talks; Kosan dives on trial delays; Incyte, Abgenix buyers emerge

By Ronda Fears

Nashville, Aug. 15 - Amid a rocky initial public offering market, which Monday prompted Ontario-based Cita NeuroPharmaceuticals Inc. to shelve an IPO north of the border to pursue a merger, there were a couple of sizable venture capital deals announced plus a spattering of small PIPEs deals.

Given the tough IPO market, coupled with big Pharma's ongoing need to replenish its drug pipelines, analysts and players alike are expecting an increase in acquisitions of and/or partnerships with smaller biotech concerns. Nektar Therapeutics got a shot in the arm Monday on its acquisition of rival respiratory drug developer Aerogen Inc. for $32 million, but the market is on the whole watching for bigger deals.

Alder Biopharmaceuticals Inc. closed on $11.1 million in venture capital funding, and Regado Biosciences Inc. completed a $20 million venture capital transaction.

Secondary activity was more positive, however, and chatter about a new biotech fund starting up with $2 billion in capital to invest helped boost bids in the sector, according to a sellside market source. Mentioned specifically moving to the upside were Incyte Corp. and Abgenix Inc.

Yet, there were some precipitous declines of note, as well, including Kosan Biosciences Inc., plunging 17% on the heels of its follow-on stock offering last week after the company said Monday that trials on two cancer drugs will be delayed.

Dendreon Corp. shares dropped more than 2% on Monday as the company filed a $150 million stock shelf. The Seattle-based company has a portfolio of cancer drug candidates. Its lead product, Provenge, in phase III clinical trials, is a treatment of androgen independent prostate cancer. The stock lost 12 cents to $5.45.

Cita now in merger talks

Anthony J. Giovinazzo, chief executive of Cita NeuroPharmaceuticals, announced Monday that the company has delayed the pricing of its initial public offering and has entered into advanced discussions with an international pharmaceutical company regarding the potential acquisition of Cita.

Cita expects to execute a definitive agreement related to this potential transaction as quickly as possible, but the identity of the possible acquirer was not revealed.

Cita, based in Mississauga, Ont., is focused on the development and commercialization of small molecule drug candidates for neurological diseases and disorders. Cita's strategy is to leverage its clinical expertise, business acumen and strategic partnerships to identify, acquire, develop and market novel drugs.

Its portfolio consists of drugs for Parkinson's - CNP1512, which is expected to enter phase III trials in 2006, neuropathic pain - CNP3381, which is expected to enter phase II trials in 2006, and Alzheimer's - CNP1061, which is in preclinical development.

Kosan delay sparks selling

Kosan Biosciences fell amid a big sell-off Monday after the company said that patient enrollment in two cancer clinical trials will be delayed until changes can be made to the study protocols.

On heavy volume, Kosan shares plunged Monday by $1.51, or 17.04%, to $7.35. Last Thursday, Kosan sold 4.5 million shares off the shelf at $8.75 each, discounted from the day's close of $9.00 per share.

The company said the protocol changes in the trials were required by the National Cancer Institute after five patients showed unspecified heart monitor changes after being given cancer drug candidate 17-AAG. The change requires that all patients undergo heart monitoring before being given that drug or Kosan's KOS-1022, and that patients with prior heart disease be excluded from the studies.

There are more than 400 patients already receiving the drug and those will continue treatment, Kosan said, but it does not expect to begin enrolling new patients for another one to three months. In November, the company halted a non-small cell lung cancer trial for KOS-862 after the mid-stage trial did not meet the primary objective of tumor response in patients.

Kosan fans double-up on dip

With the Kosan news right on the heels of a follow-on stock offering from the company, many holders had a knee-jerk reaction to quickly unwind and some grumbled of a suspect "pump and dump" scenario. But Kosan fans saw the decline on the sell-off as a buying opportunity.

Just last Wednesday, Kosan priced 4.5 million shares off the shelf at $8.75 each, discounted from the previous day's close of $9.00 per share. Gross proceeds were $39.375 million, excluding the greenshoe, and were earmarked for research and development as well as general corporate purposes.

"The [follow-on] offering wasn't any 'pump and dump' like has been splashed around. It was just about raising cash, which most biotechs do to fund research and clinical trials. I doubt that the company was aware of this glitch when pricing was done. Offerings usually occur when price strength is present," said one buyer on Wednesday, who also participated in the follow-on offering.

"Shorts will cover and make money; fearful investors will sell and day traders will work it like there's no tomorrow. It makes for lots of volatility but this is a long-term investment for most. You just have to ride out the ups/downs along the way."

Incyte convertibles better bid

Incyte Corp., which has a once-a-day experimental pill for treating HIV in mid-stage trials, was finding bidders for its convertible bonds with sellside traders saying buyback speculation as well as chatter about its takeover potential sparking interest.

The 3.5% convertibles due 2011 were well bid but no trades were seen, one sellsider said. The issue was last seen bid at 89 with an offer at 90. Meanwhile, the underlying stock moved up 11 cents, or 1.52%, to $7.35 in light trade Monday.

Another sellsider said the issue was finding buy interest on two fronts. One, he said, is a view that the company might make some strategic buybacks like it did with its 5.5% convertible issue. Another view, he said, is that the company would make a nice takeover target because of its promising HIV drug.

"They have a nice pipeline to merge with some sputtering Big Pharma," the trader said. "Face it, there's no point in working this independent corner any longer if they can tap into some deep pockets."

On the buyback front, earlier this month, Incyte said it spent $28.4 million in second quarter to repurchase some of its 5.5% convertible subordinated notes, leaving $99.1 million of the issue outstanding as of June 30. In addition, Incyte said it repurchased as further $7.5 million of convertibles in July, taking advantage of favorable bond market conditions.

Abgenix volatility looks cheap

Abgenix Inc. is another among a flock of biotechs viewed to be a prime takeover target, particularly since its is working with biotech giant Amgen Inc. on a colon cancer drug in competition with another biotech biggie, Genentech Inc., and ImClone Systems Inc.

Abgenix shares ended Monday up 22 cents, or 2.14%, at $10.52.

Having run up with the rest of the biotech pack this year, Abgenix shares are near the 52-week high of $11.30 but a spike in October call options makes the name look cheap, particularly as a volatility play, said a convertible market source on the sellside.

"Check out the October calls," the trader said. "It's cheap, a good vol name."

The $10 call options were showing a spike in open interest Monday, to a whopping 11,066, and were bid up a dime.

Earlier this month, Abgenix and Amgen jointly announced that the FDA granted fast track status for panitumumab for patients with metastatic colorectal cancer who have failed standard chemotherapy treatment. Fast track designation will expedite the review and potentially shorten the time frame to commercialization.

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