Cephalon seesaws; Nabi zooms; Endo drops; Insmed off; Elan, Biogen drop; King launches deal

By Ronda Fears

Memphis, March 22 - Cephalon Corp. shares were on a wild ride Wednesday amid a swirl of confusion over a Food and Drug Administration meeting Thursday on its attention deficit hyperactivity disorder drug Sparlon, and its convertible bonds joined the ride. After swinging to great lows, Cephalon securities ended the day higher, however.

A briefing document on the agency's web site concerning Sparlon, an experimental treatment for ADHD in children ages 6 to 17, raised questions and concerns from staff reviewers, and one member of the FDA panel recommended rejection. But, two other panel members advocated conditional approval, subject to further research.

"If you bought in early trading, you made a fortune," commented a buyside market source involved in the stock. "Cephalon was down $9 bucks pre-market."

Cephalon shares (Nasdaq: CEPH) closed the day higher by $1.45, or 2.02%, at $73.31 but traded in a wide range of $65.04 to $73.97 on huge volume of 22.5 million shares compared to the three-month running average of 3 million shares.

"Momentum players got flushed out," remarked a sellside trader.

Merrill analyst Gregg Gilbert said in a report early Wednesday, "It is difficult to predict the outcome of tomorrow's meeting based on information in the briefing materials (which typically include 'new' side effect information). Despite the stock's pullback, we are maintaining our neutral rating, in part based on the risk/reward profile of this event."

Frazer, Pa.-based Cephalon, which suffered a setback on the FDA review in late January, hopes to launch Sparlon in second quarter.

Cephalon's B tranche 0% convertibles due 2033 traded Wednesday at 127 on a stock price of $67.75 amid the uncertainty, according to a sellside source. That would be just a half-point drop from 127.5, where another sellside shop closed the issue Tuesday.

A market source said the Cephalon convertibles traded as low as 120 on Wednesday before bouncing back with the stock.

Nabi adds 16% on trial news

Nabi Biopharmaceuticals rocketed upward Wednesday after the Boca Raton, Fla.-based biotech said it will resume trials for two drugs targeting gram-positive bacterial infections, such as staph, after an outside advisory panel assessed the prospects for the products. But the rally sparked some selling.

Nabi shares (Nasdaq: NABI) added 76 cents on the day, or 15.83%, to settle Wednesday at $5.56.

Nabi develops and markets vaccines and antibody-based therapies to treat and prevent infectious, autoimmune and addictive diseases. The company said it will continue making StaphVAX, a staph infection vaccine, and Altastaph, a human antibody-based product that treats persistent staph aureus bacteremia bloodstream infections, after the outside panel looked at results from a confirmatory phase 3 clinical study.

"Those who had faith and bought when it was way low are sitting very pretty right now," said a biotech fund manager in Atlanta.

There were onlookers, though, who thought there still was a significant uphill battle for Nabi, and traders were selling into the rally.

"I thought it was a non-event. They are going to resume trials. Why did they stop? Because they were told it was a dead deal," said one sellside trader. "This news means nothing, and The Street knows it. They have no guarantees."

Kelso group exits Endo story

With a spot secondary offering of 10.5 million shares of Endo Pharmaceuticals Holdings Inc., Endo Pharma LLC, an affiliate of the private equity investment firm Kelso & Co., has practically completed its exit strategy in the painkiller story, and traders said the resultant decline in the stock lured buyers.

The shares priced at $32.20 each, discounted from the closing level of $33.28 on Tuesday, and the news sent the stock reeling. Endo shares (Nasdaq: ENDP) lost $1.49 on the day, or 4.48%, to settle at $31.79 on Wednesday. Some 3 million shares changed hands, compared with the norm of 1.6 million shares.

"We were seeing a lot of buying on the downdraft," said a sellside trader.

Nearly all of the shares in the transaction were sold by Endo Pharma LLC, an affiliate of the private equity investment firm Kelso & Co., with a very small portion - some 26,000 shares - sold by management and directors. Following the deal, Endo Pharma LLC will own less than 1.0% of Endo's outstanding common stock.

Endo, which has about 133 million shares outstanding, gets none of the proceeds from the sale.

Chadds Ford, Pa.-based Endo focuses on painkillers, both branded and generic. Its products include Lidoderm, Percocet, Percodan, OxyContin, Frova and Synera as well as the generic oxycodone hydrochloride Endocet, and a pipeline portfolio including Oxymorphone, Rapinyl and Transdermal Sufentanil Patch in various stages of clinical development, along with several other pain drugs.

Insmed dives 3% on audit item

Insmed, Inc. said Wednesday that, although it is now in compliance with Nasdaq rules after its $43 million equity offering earlier this month, its auditor has inserted language in its 2005 annual report regarding concern about it as an ongoing concern. The stock took a hit, but some believers in the story were buying into the weakness.

"I got back in today," said one buysider. "I've seen stocks get bigger haircuts on less news than what happened here today. Actually it wasn't much in the way of news. Everyone already knew it that owns this stock."

A sellside trader agreed it was a buying opportunity, and he anticipates the company will make another fund-raising drive at some point in the next year or so.

"It was good for them to take the chance to update the market on its finances. They have enough financing to mid 2007, a new FDA product to launch in June, and are in phase 2 for diabetes and muscular dystrophy. They have applied for Iplex marketing in Europe," the sellsider said. "And my feeling is they have 50 million shares to sell but will wait and price at $5.00 to $7.00 a share."

Insmed said that the recent stock offering plus its cash on hand should allow it to continue operations through second-quarter 2007. The company noted that its auditor's remarks in its 10-K report should also be alleviated by the stock offering. Earlier this month, the company sold 20 million shares off the shelf at $2.00 each, discounted from the previous day's closing level of $2.19.

Glen Allen, Va.-based Insmed is focused on drug candidates for the treatment of metabolic diseases and endocrine disorders. Its lead product, Iplex, is the only Food and Drug Administration approved, once-daily IGF-1 (Insulin-like Growth Factor-1) replacement therapy for children with seven growth hormone deficiency syndrome.

King dives 4% on new convertible

King Pharmaceuticals, Inc. launched a $400 million offering of 20-year senior unsecured convertible bonds after Wednesday's close. The issue was talked to yield 0.75% to 1.25% with an initial conversion premium of 20% to 25%.

King shares (NYSE: KG) closed Wednesday off by 26 cents, or 1.35%, at $19.03 and were seen at 4:50 p.m. ET in after-hours trade lower by 78 cents, or 4.1%, to $18.25.

Citigroup Global Markets Inc. is bookrunner of the Rule 144A deal, which is scheduled to price after Thursday's close.

The bonds will be non-callable for seven years, with puts in years seven, 10 and 15. There is a contingent conversion threshold of 110% and contingent payment threshold of 120%.

A greenshoe of $60 million is available.

Proceeds will be used to repurchase its 2.75% convertible debentures due 2021, of which $345 million currently remains outstanding, and for general corporate purposes.

King is a Bristol, Tenn.-based pharmaceutical company.

King's 2.75% convertibles were quoted at Wednesday's close off a half point at 97.5.

Elan loses 4%, Biogen off a tad

Elan Corp. plc and Biogen Idec, Inc. were both lower on their announcement that the FDA has decided to extend its review of their multiple sclerosis drug Tysabri by up to 90 days. While the setback was not entirely unexpected, both took a dive on the news early and saw some rebound during the day.

Elan shares (NYSE: ELN) closed down 55 cents, or 3.83%, to $13.80 but were off by 5% at one point of the session. Biogen shares (Nasdaq: BIIB) ended off by 21 cents, or 0.43%, to $48.10 after losing more than 3% earlier in the day.

The FDA wants more time to assess Tysabri's risk-management plan, according to Dublin, Ireland-based Elan and Cambridge, Mass.-based Biogen. The drug was pulled from the market in February 2005 after three patients contracted a deadly brain disease, from which two later died.

A subsequent review of about 3,000 MS and Crohn's patients who took Tysabri revealed no new cases.

"It was nothing really other than a volatility trade on Elan," said one sellside trader. "I wasn't paying a whole lot of attention to Biogen but it didn't seem the news was that drastic for them at all. Tysabri is not a deal breaker for Biogen."

With the extra review time, the FDA is looking at making a decision on or before June 28. The companies had been hoping to re-launch Tysabri in the United States in June.

Bristol-Myers, Sanofi higher

Bristol-Myers Squibb Co. and partner Sanofi-Aventis SA spiked Wednesday after the two drugmakers agreed to settle one of four patent challenges to their blood thinner Plavix that would open the door to generic competitors.

It is the top seller in Bristol-Myers' lineup, and some analysts said the company may now be a takeover target and, beyond that, analysts expect the development to reverberate through the sector. Plavix is Sanofi's second-best selling drug.

"The takeover chatter was the bigger event" for Bristol-Myers, a sellside trader remarked. "That has been noise in the background for quite a while now, but settling these generic issues could really be a launch pad for some merger talks."

Bristol-Myers shares (NYSE: BMY) shot up $2.41, or 10.56%, to $25.24.

Sanofio-Aventis shares (NYSE: SNY) gained $4.20, or 9.62%, to $47.88.

The two companies said they have reached a provisional settlement with Apotex, Inc. whereby Apotex will be granted a license to sell generic Plavix eight months before the patent expires. The exact date of the Apotex launch will depend on whether Sanofi receives a patent extension to test the drug on children. The patent is set to expire Sept. 17, 2011 but could be extended to May 2012.

Three additional drug makers - India-based Dr Reddy's Laboratories Ltd., Israel-based Teva Pharmaceutical Industries Ltd. and Canada-based Cobalt Pharmaceuticals, Inc. - have filed to sell generic forms of Plavix. Bristol-Myers has expressed a desire to settle all the suits.

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