Vanda, Targacept tank on debut; Omrix IPO in limbo; Novavax, KOS climb; Discovery soars after hours

By Ronda Fears

Memphis, April 12 - Biotechs overall were on the rebound Wednesday and many gains were extended into after-hours activity, such as with Discovery Laboratories, Inc. On the flipside, however, the initial public offerings of Targacept, Inc. and Vanda Pharmaceuticals, Inc. sank out of the chute even after pricing below their target ranges.

The dismal response to the deals also led to Omrix Pharmaceuticals, Inc.'s IPO getting shifted to a "to be determined" status as far as its timing goes. It had been slated for this week as well.

"We have been told it could price tonight [Wednesday] or Thursday but it also might get pushed to next week or indefinitely delayed," a fund manager focused on IPOs said of the Omrix deal.

New York-based Omrix plans to sell 3.4 million shares proposed at $15 to $17 each. Net proceeds, estimated at $49 million at the midpoint of price talk, are earmarked to expand manufacturing capabilities and fund a plan to penetrate the market for biosurgical products in Japan and elsewhere. The company develops and markets biosurgical and passive immunotherapy products.

But more positively among new offerings, a PIPE deal from Palatin Technologies, Inc. pushed its stock higher as players cheered the $27 million transaction.

Targacept shares drop 4%

Targacept, Inc. opened even with the pricing level of its IPO but quickly sank and closed out the day off by 4% from where it debuted.

The Winston-Salem, N.C.-based company sold its IPO of 5 million common shares at $9 each - below the indicative range of $11 to $13.

Targacept shares (Nasdaq: TRGT) traded as low as $8.25 but found support in the afternoon and ended the day at $8.66 with some 2.4 million shares traded.

Once the research unit of R.J. Reynolds Tobacco Co., Targacept is engaged in the design, discovery and development of a new class of drugs to treat multiple diseases and disorders of the central nervous system, such as Alzheimer's, by selectively targeting neuronal nicotinic receptors. It has backing from a partnership with pharmaceutical giant Astra Zeneca plc.

Net proceeds, at $41.85 million without the greenshoe, are earmarked to fund clinical trials, research and development and general corporate purposes. The company aborted plans to go public in early 2005 at the same price target but anticipated selling 6.25 million shares to raise up to $81.25 million.

Vanda shares slide 3%

Vanda Pharmaceuticals, Inc. shares opened underwater and saw a huge drop before coming back to end the day off by just 3%.

The company priced its IPO of 5.75 million common shares at $10 each - below the indicative range of $12 to $14. Vanda shares (Nasdaq: VNDA) opened at $9.55 and sank as low as $7.21. It never topped the IPO price of $10 during the session, but came off the day's low to settle at $9.68 with 2.24 million shares traded.

After-hours, however, Vanda shares were off another 12 cents, or 1.24%, at $9.56.

Rockville, Md.-based Vanda focuses on product candidates for central nervous system disorders with a portfolio of drugs including Iloperidone for schizophrenia, VEC-162 for insomnia and VSF-173 for excessive daytime sleepiness. Net proceeds, at $51.1 million without the greenshoe, will be used for research, preclinical development and clinical trials.

Pre-IPO, Care Capital Investments II was the leading shareholder with 9.17 million shares, or 22.8%, followed by Domain Partners with 8.13 million shares, or 20.2%.

Argeris "Jerry" Karabelas, former chief executive of Novartis Pharmaceuticals, founded Vanda in 2003. He is now the CEO of NitroMed, Inc. and is a partner of Care Capital. Vanda co-founder Chip Clark is chief business officer. The company's CFO, Steve Shallcross, took Advancis Pharmaceutical Corp. public two years ago.

Discovery Labs gains 7%

Discovery Laboratories, Inc. rose 7% in the regular session on hopes that a conference call announced by the company mid-morning as an update on its lead drug Surfaxin - to be held after the close - would bring good news. As the call got under way, and perceptions were positive, the stock was seen in after-hours activity up by another 11.5%.

Warrington, Pa.-based Discovery Labs called the conference to provide an update on the progress of the New Drug Application for its premature infant respiratory drug Surfaxin, for which the Food and Drug Administration has requested more data for the second time. The news last week sent the stock reeling.

"This is frigging crazy," said a market source in Connecticut involved in Discovery Labs, referring to the after-hours activity in the stock. "Bottom line is there will be a five to six month delay. So maybe their $51 million [cash position] will keep them out of the dilution closet [by a follow-on or other equity offering]."

Moreover, investors were obviously pleased and some saw the time line shorter than six months.

Discovery Labs shares (Nasdaq: DSCO) ended Wednesday higher by 28 cents, or 6.71%, at $4.45 with some 3.56 million shares traded compared with the norm of 911,352. Then, after the close, the stock added another 51 cents, or 11.46%, to $4.96.

"It was all laid out. No negative reports. And the time frame is something we can live with. The company also stated they will keep us up to date with what is going on. The stock will start to go to a reasonable level. I listened to the conference and was very satisfied," said a buyside source in New York.

"The new time line is about 75 days, June 19 or so, to set up a date for review of issues in the second approvable letter. Then Discovery Labs submits a response to that the discussion at that meeting. Then, depending on the criticality of issues that come out of that meeting it will be 60 days if in category one or up to six months if category two for the FDA to respond."

Palatin shares gain 6%

Palatin Technologies, Inc. has secured agreements from a group of institutional investors for a $26.84 million direct placement of 11 million units at $2.44 each, consisting of one share and one five-year warrant for 0.3 of a share with a full warrant exercisable at $2.88.

In response to the news, Palatin shares (AMEX: PTN) gained 15 cents on the day, or 6.38%, to $2.50.

Vivo Ventures was the lead investor. Others included Palo Alto Investors, ProMed Management, Efficacy Biotech, Greenway Capital, RA Capital Associates and Great Point Partners.

Cranbury, N.J.-based Palatin, focused on the development of melanocortin-based therapeutics used to treat male and female sexual dysfunction, said proceeds will be used for general corporate purposes.

Palatin players applaud deal

One buysider who participated in the Palatin PIPE said he feels the company's stock will likely do well in the coming years.

"Palatin is a solid company with an effective erectile dysfunction drug," said the buysider. "The past trials have been poorly run, but the current phase 2b is well-designed and we believe it will succeed. Data is out in [third-quarter 2006]. The cash infusion came from us, as well as some other respected names and thus we have faith that the stock should do well over the next few years."

Another Palatin player, who holds the stock but did not participate in the PIPE, said he was glad the company chose a private placement rather than a follow-on equity deal.

"What the take away from the financing is, is that there is increased capital but there will not be an increase in liquidity," the latter buysider said. "Vivo and the others are venture groups that aren't going to wreak the havoc that the hedge funds did that were all in the $1 financings and kept the stock down low. This gives the stock great growth opportunity."

In September 2005, the company sold 4.5 million shares in a private placement to King Pharmaceuticals, Inc. for $10 million as part of a collaboration agreement dating back to 2004. The company also issued to King Pharma three-year warrants to purchase 719,894 shares at a strike price of $2.22 each.

Novavax up on insider buying

Novavax, Inc. got a huge shot in the arm with a 13.5% gain amid heavy buying on market chatter about insider buying. The stock recently had been swatted down from a rise to over $8 a share on its involvement in the development of a new pandemic flu vaccine as analysts said the avian flu scare was diminishing.

"The word was that a Novavax director bought 25,000 shares at $4.95," said a sellside trader. "That, along with the general move of the sector today was a big boost."

Novavax shares (Nasdaq: NVAX) added 65 cents, or 13.51%, to settle at $5.46 with some 9.2 million shares changing hands versus the norm of 5.9 million.

The Nasdaq Biotechnology Index gained 1.15% on Wednesday.

Malvern, Pa.-based Novavax is involved in a pandemic flu vaccine but also has Estrasorb, an estrogen patch, and other drugs in development for infectious diseases such as hepatitis and HIV/AIDS as well as cancer.

On Friday, the trader said there was an RBC Capital Markets downgrade to the stock to underperform from sector perform, setting a price target of $3. The trader said the downgrade cited reduced concerns about a pandemic avian flu outbreak and criticized the share run-up in Novavax shares from the $2 area on the basis of its involvement in the flu vaccine area.

Novavax has collaborative agreements with the National Institutes of Health, National Cancer Institute, National Institute of Allergy and Infectious Disease, Walter Reed Army Institute for Research, GlaxoSmithKline plc, University of Pittsburgh School of Medicine and Wave Biotech LLC. It also has strategic alliances with Bharat Biotech International Ltd. and PacificGMP, LLC.

KOS climbs on Medicare

KOS Pharmaceuticals, Inc. and several other drug makers got a lift from the new Centers for Medicare and Medicaid Services payment plan. As for KOS Pharma, it gained over 3% on the continuance of Medicare and Medicaid payments for its drug Niaspan, which raises "good" cholesterol, or high-density lipoprotein.

Cranbury, N.J.-based Kos Pharma said the Centers for Medicare and Medicaid Services advised it that Niaspan will continue to be eligible for coverage under the Medicare prescription drug program. The new policy, issued Tuesday, allows plans to cover, or continue coverage of, Niaspan immediately. The payment plan was due to expire May 31.

KOS shares (Nasdaq: KOSP) gained $1.45 on the news, or 3.24%, to $46.25.

Niaspan is the only FDA-approved, once-daily extended-release prescription formulation of niacin for treating abnormal cholesterol levels.

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