KV Pharma up; Clinical Data, OccuLogix off; Advanced Magnetics spikes; Vasogen soars

By Ronda Fears

Memphis, June 14 - With the market routing affecting biotech stocks severely and hampering new deals, although there was a slight uptick Wednesday, observers noted a rise in private deals, which they were loath to say was a positive sign.

"I suppose it is good they are getting some capital," said a biotech fund manager in Boston.

"We would rather it be under more conventional methods, but such is the case with small cap biotechs. It is just a sign of the times. I don't know that it's positive, or negative."

A source at one of the top syndicate desks for biotech deals said his firm, as well as his contemporaries elsewhere, seem to believe that there will be an upswing in biotech deals in the last half of the year. That is not much of a deviation from their expectations, either.

"We were projecting that deal flow would pick up in second quarter," the syndicate source said.

"We didn't make that, but I think there is hope that the market will look better, and be more conducive to raising capital, in the second half."

Amid the tough go of it, there were a couple of decent sized PIPEs on the tape Wednesday, from Canada's Occulogix, Inc. and Clinical Data, Inc.

KV Pharma rises 2%

In addition, there were a couple of big banking deals, such as KV Pharmaceutical Co.'s new $320 million revolver. KV Pharma also reported that it swung into profits for its fiscal fourth quarter. And the company's shares gained ground on the news.

The St. Louis-based firm reported net income of $11.8 million, or 21 cents a share, versus a loss of $520,000, or 1 cent a share, a year ago with revenue gaining to $87.4 million from $71.2 million.

"For me KV is a buy below $17, otherwise forget it," said a buyside source.

"They list generic Toprol [a heart medication] as a drug they anticipate will get FDA [Food and Drug Administration] approval in fiscal 2007. They can't guide to a date as they don't know. That being said, the slow pace of approvals is really pissing me off. I don't know if it's an FDA thing or KV's inability to submit properly or whatever. It's aggravating."

KV Pharma shares (NYSE: KV-A) added 30 cents on the day, or 1.66%, to $18.41.

Clinical Data $17 million stock deal

In relation to the PIPEs deals on the wires, one trader said the small caps are finding selective buyers although there is a strong bent toward big caps in the current market.

"Big caps are looking attractive right now, but we are seeing some nibbling in the small caps, and some of these doing PIPEs right now are not even that small," said a biotech stock trader.

"They are bargain hunting, looking for those that would move on news, rumors, the like. A lot of folks are sitting on some cash right now, money they took off the table waiting for the storm to pass."

Clinical Data was a small one seeing some action on a stock PIPE worth $17 million to the Newton, Mass.-based company, which provides molecular and pharmacogenomics services as well as genetic testing.

A group of institutional investors agreed to buy 1,039,783 shares at $16.35 each, plus warrants for another 519,889 shares. Clinical Data shares (Nasdaq: CLDA) traded in a band of $15.51 to $17.08 on Wednesday before settling off 16 cents, or 0.98%, at $16.14. Volume in the stock was three times the norm with 30,142 shares traded.

Proceeds will be used for commercializing the company's molecular diagnostics and continuing phase 3 clinical development on the company's Vilazodone product for depression.

"It makes sense now," under these market conditions, said another trader who traffics Clinical Data.

"We'll see what happens here. Let's just hope it's the market, anyway, and the bottom is not falling out of Clinical Data here."

OccuLogix inks $30 million deal

OccuLogix pocketed $30 million in a private placement of zero-coupon convertible notes, and the stock dropped more than 3.5% amid light volume.

"It will not take much of a pop to be in the money," said a sellside trader.

"But, to be honest, I don't think this got much attention. This story is on the shelf, so to speak. It has had a lot of starts and stops, a lot of sputters. The picture is too unclear right now for a lot of people to get excited about it."

Toronto-based OccuLogix issued the notes to Sowood Capital Management LP and affiliates. The notes have a conversion price of $3.30 per share - a 45.4% initial conversion premium over the $2.27 closing price Tuesday on Nasdaq.

OccuLogix shares (Nasdaq: RHEO) lost 8 cents, or 3.52%, to $2.19. In Canada, the stock essentially was unchanged for almost the entire session until one or two sales moved it, the trader said. That moved the stock in Canada (Toronto: RHE) lower by C$0.21, or 7.98%, to C$2.42.

In connection with the transaction, Sowood has the right to nominate one member of the company's board of directors.

OccuLogix said proceeds would be used for potential acquisitions or investments in businesses, products or technologies consistent with its previous announced strategy of diversification within age-related eye diseases.

In April, OccuLogix said that due to a possible delay of the U.S. commercial launch of its RHEO System, it was accelerating diversification plans, focusing on age-related eye diseases, such as age-related macular degeneration and glaucoma.

In February, the company reported a preliminary phase 3 trial data for the RHEO System to treat the dry form of age-related macular degeneration failed to meet the primary efficacy endpoint.

Advanced Magnetics lifted 7%

After a string of trial disappointments from biotechs that have roiled the sector, Advanced Magnetics, Inc. shares took off Wednesday after the company said it would continue ferumoxytol phase 3 trials with no modifications after a data monitoring committee had identified no safety concerns.

"We believe this third positive Data Monitoring Committee review should provide the Street with the necessary validation to dismiss the persistent safety rumors that have capped upside movement for Advanced Magnetics shares," said Jefferies & Co. analyst Adam Walsh in a report Wednesday.

Advanced Magnetics shares (Nasdaq: AVM) indeed spiked on the news, gaining $1.80, or 7.13%, to $27.05.

Vasogen vaulted nearly 18%

In advance of Vasogen's phase 3 results for Celacade in chronic heart failure to be released later this month, the stock was one of the strongest rallying biotechs in the sector.

"It's still cheap," said a sellside trader. "I'd say there's no harm in adding more if you haven't reached your desired position."

A buysider in Florida said he was adding Vasogen shares, thinking that if the trial data was positive it would push the stock much higher.

"I think if they were not expecting good news they would have already announced a financing deal," the buysider said. "So, in other words, I think now is the time to get in."

Vasogen shares (Nasdaq: VSGN) shot up 30 cents on the day, or 17.65%, to $2.

Mississauga, Ont.-based Vasogen said it plans to release top line trial results on Celacade later this month. Also, the company has been accepted to make a presentation at a late breaking clinical trial session of the World Congress of Cardiology 2006 being held in early September in Barcelona.

Sheri Kasprzak contributed to this article.

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