Myogen, NPS float follow-ons; Nektar halted during FDA panel; Sepracor up in face of generic filing

By Ronda Fears

Nashville, Sept. 8 - True to indications from investment bankers, deal flow among biotechs showed signs of life Thursday with a couple of follow-on deals from Myogen Inc. and NPS Pharmaceuticals Inc. Reactions were generally good from potential buyers, too, which will aid plans of a healthy fourth-quarter calendar.

"You're seeing some guys test the waters, so to speak," said a sellside analyst who works with origination officials at one of the bulge bracket firms.

"Right now it's looking fairly good for fourth quarter, at least better than it has looked all summer, in terms of market reaction."

Outside of the equity arena, there were a couple of PIPEs from foreign-based biotechs but otherwise it was quiet.

Secondary action was marked by the major biotech indexes moving into negative territory, but there were some sharp spikes of note mentioned by market sources.

Nektar Therapeutics shares, however, were halted all day awaiting the Food and Drug Administration panel discussion on its inhaled insulin drug Exubera following a surge of more than 10% on Wednesday.

Myogen up 4% on trial advance

Myogen holders reacted positively to its plans for a follow-on sale of 4 million shares off the shelf next week, suffering the dilution because the company plans to use the funds to accelerate trials for its two top drug candidates and thus speed up commercialization.

On average volume Thursday, Myogen shares gained 86 cents, or 4.01%,

"It goes up today basically because their business plan just switched into the fast lane," said one buyside market source. "Their revenue in two years could be more than their market cap."

Myogen's market capitalization at Thursday's close was just shy of $800 million.

Denver-based Myogen has earmarked proceeds in part to accelerate and expand its Darusentan clinical trials and prepare for the commercial launch of Ambrisentan and Darusentan. Ambrisentan in phase 3 clinical development for the treatment of pulmonary arterial hypertension and Darusentan recently completed a phase 2b clinical trial for the treatment of patients with resistant hypertension.

"I thought after the conference call on the [August] 18th they were going to do a secondary," the buysider added. "This is not a surprise."

Myogen also has a drug discovery research program in collaboration with a Novartis AG unit focused on drugs for chronic heart failure and related disorders that dates back to October 2003.

Goldman Sachs & Co. is sole bookrunner of the deal. Co-managers are CIBC World Markets, First Albany Capital and Lazard Capital Markets.

NPS Pharma off on spot sale

NPS Pharmaceuticals Inc. declined, however, in reaction to the spot sale of 7 million shares after Wednesday's close. The company priced the follow-on offering at $11.35 per share - discounted from Wednesday's closing level of $12.15, via sole bookrunner Lehman Brothers Inc.

"The new shares were an unpleasant shock to the market," said a market source.

NPS Pharma shares had been gaining this week from upgrades by Jefferies & Co. and Lehman analysts, but on the spot sale the stock fell more than 6% on Thursday in heavy volume. More than 1.5 million shares changed hands, versus the three-month running average of 495,698.

The stock opened at $11.50 but traded during Thursday's session in a range between $11.20 and $11.61 before ending the day off by 76 cents, or 6.26%, at $11.39.

Use of gross proceeds, which amounted to $79.45 million, was not designated.

Sepracor shrugs off generics

Sepracor Inc. issues gained Thursday in the face of news after Wednesday's closing bell that Breath Ltd. has filed an application with the FDA for a generic version of its asthma drug Xonepex, or levalbuterol hydrochloride. Breath is challenging six of Sepracor's patents, and Sepracor said it plans to vigorously fight it.

A long-debated biotech with potential takeover suitors, Sepracor shares on Thursday rose $0.71, or 1.35%, to $53.11. A convertible trader said the Sepracor bonds were up 0.5 to 1 point, too, with the 0% issue seen at 96.25 and the 5% due 2007 at par.

Basically, though, the sellsider said analysts think Breath's application could face a tough hurdle, so "this early in the game, it's a non-event." It was not particularly a surprise, either, he said.

According to one sellside analyst, should Breath's filing prevail, it would jeopardize 25% of Sepracor's 2008 revenue stream and increases the risk for Sepracor holders.

Isis climbs on Novartis move

Novartis AG's $700 million partnership with Alnylam Pharmaceuticals Inc., which also includes the acquisition of a 20% equity stake in the Cambridge, Mass.-based biotech, provided a huge shot in the arm for other biotechs focused on antisense technology, such as Isis Pharmaceuticals Inc.

Isis shares rose 35 cents on Thursday, or 6.93%, to $5.40. Meanwhile, Alnylam shares added 8 cents, or 0.58%, to $13.83, following a 44% spike on Wednesday in reaction to the Novartis equity injection.

Sirna Therapeutics Inc., another biotech focused on drugs based on RNA interference technology, retreated by 22 cents, or 4.8%, to $4.36 after rising 13% on the back of the Alnylam news on Wednesday.

"It seems the lemmings have just realized the value to Isis," remarked one market source.

Novartis described the deal with Alnylam was one to boost its presence in the development of drugs based on manipulating natural genetic mechanisms. The move to RNA medicine highlights Isis' potential as a leader in antisense technology, one analyst said, and moreover signals Big Parma's recognition of the therapeutic potential of RNAi technology platforms and drugs.

In addition to biodefense application, the technology is being used in studies for cancer, diabetes and other conditions.

"Isis is undervalued for its potentials," said a buyside market source. "Pending so much good news down the line, it is a no brainer. Isis makes sense."

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