Endo, Panacos mixed after deals; Invitrogen off; Oscient plunges; Human Genome continues spiral

By Ronda Fears

Nashville, Oct. 6 - A couple of biotech equity deals got priced at terms very supportive of the optimism prevailing among bankers, and players were hopeful of a couple of more pricings before the week's end.

Panacos Pharmaceuticals Inc. raised $86.25 million in an upsized follow-on stock sale, and the secondary offering of Endo Pharmaceuticals Holdings Inc. was also upsized, but players were focused on the fact that Endo priced pat with Wednesday's closing level and Panacos was only discounted by a little more than 1%.

"This is good," said one fund manager. "Every case stands alone, but it does seem the general trend in pricings is improving."

PIPEs transactions picked up, as well, with a handful of small deals on the tape Thursday. In one of the bigger deals, Australia nanotechnology firm pSivida Ltd. announced a $15 million private placement of three-year 8% convertibles to a New York-based institutional investor, convertible at $7.10 each, plus six-year warrants for 633,000 additional shares with a strike price of $7.20.

In the secondary rounds, traders noted continued pressure on the broader biotech indexes but said there was a lot of buying interest in Endo and Panacos following their stock deals.

Human Genome Sciences Inc. continued to spiral in the wake of its lupus drug showing disappointing trial results, with the stock losing another 6% after a 30% plunge on Wednesday. Some convertible players in the name had hoped short covering would provide a lift to the stock, but that was not the case. The stock lost 62 cents to close Thursday at $9.25.

Endo ends flat after secondary

Volume in Endo shares was off the charts after it announced an upsized secondary offering of 29 million shares of Endo Pharmaceuticals Holdings Inc., bumped up from 26 million shares. The secondary sale priced at $26.04 per share - pat with Wednesday's close.

A sellside market source said there were more buyers for Endo shares, but the stock settled the day flatly. The stock opened higher, he said, then flagged for most of the session but saw a surge in the last hour and managed to close unchanged at $26.04.

Some 13.3 million shares changed hands, versus the three-month running average of 781,918.

Most of the stock involved in the secondary was sold by the company's largest shareholder, Endo Pharma LLC - an affiliate of Kelso & Co. Certain insiders, executives and directors also sold shares. Prior to the deal, Endo Pharma LLC owned approximately 48% of outstanding Endo shares. Following the sale, Endo Pharma LLC will have an approximate 19% equity stake in the company, or 17% if the available greenshoe is exercised in full.

Chadds Ford, Pa.-based Endo has about 133 million shares outstanding and will not receive any of the proceeds from the offering. The company markets generic and branded drugs, including several pain medications such as Percocet and Percodan, as well as a treatment for Parkinson's disease.

Panacos off 2% after follow-on

Panacos Pharmaceuticals Inc.'s follow-on offering was upsized, as well, and priced at only a slim 1.12% discount. Traders were cheering the deal terms, but the stock sank on the news, which traders attributed to dilution from the offering.

The company sold an upsized follow-on offering of 8.25 million shares, boosted from 8 million, at $10.50 each - discounted from Wednesday's close of $10.62.

Volume in Panacos was high, too, with 9.26 million shares traded Thursday, compared with the three-month average of 1.65 million. The stock was off as much as 4% during the session but also came back to close lower by just 22 cents, or 2.07%, at $10.40.

Watertown, Mass.-based Panacos plans to use proceeds to fund clinical trials, research and development, for general corporate purposes, capital expenditures, acquisitions and working capital. Its lead drug candidate, HIV treatment PA-457, has passed a phase IIa study.

Oscient deal in the offing

Oscient Pharmaceuticals Corp.'s announcement that its has completed its sales force expansion from 250 representatives to 300 but that it will probably not be signing a co-promotion partnership in 2005 as originally expected stirred speculation Thursday that the company will likely be tapping the capital markets in the next six months or so.

The stock lost 8 cents on the day, or 4.08%, to settle at $1.88.

JMP Securities analyst Adam Cutler said in a report Thursday that while he still sees the stock as undervalued, the company's news was a disappointment as it likely will push out profitability. The development also increases its long-term reliance on the capital markets and raises the risk profile of the stock.

He had been looking for the company to identify a co-promotion partnership for its antibiotic Factive as early as fourth quarter. While the lack of a co-promotion partnership has forced a view of lower Factive sales, Cutler said there is still opportunity for significant returns in a 24-month time frame.

Potential catalysts that could drive long-term upside to the stock, he said, include the addition of a third product to sell, a European out-license deal and the possibility that Oscient will get acquired.

Oscient's current cash position should be sufficient to fund operations through at least second-quarter 2006, he said, and the company's $100 million shelf filed last Friday "is a direct result of the clock ticking on the company's cash position." Cutler expects an equity offering is likely in first-quarter 2006.

Invitrogen dips, comes back

Invitrogen Corp. announced the acquisitions of Quantum Dot Corp. and the BioPixels business unit of BioCrystal Ltd., plus the early closing of its Biosource International Inc. acquisition. Terms of the acquisitions were not disclosed, however, and investors took mostly a negative view on the news.

A sellside trader said the stock languished for most of the day, chiefly because no financial terms were revealed. The stock came back with the broader markets late in the day, though, and closed up 32 cents, or 0.44%, at $72.42. He said there was some activity in the Invitrogen convertibles, as well, with the 2% issue moving up 1 point to 115 and the 1.5% issue adding 3.5 points to 89.

While Invitrogen did not disclose the financial terms of the transactions, the company said it would discuss those matters on its third-quarter earnings call Oct. 27.

The acquisition of Quantum Dots and BioPixels bolster Invitrogen's molecular probes business as the leader in advanced labeling and detection technologies. Invitrogen also announced an agreement with Georgia Tech Research Corp. to exclusively license novel nanocluster technology.

"Molecular labeling and detection technologies are a cornerstone of Invitrogen's business and represent one of the fastest growing segments in life sciences. The ability to illuminate biological processes taking place, such as whether a defect in the function of a heart cell is causing a patient's heart disease, is becoming a preferred method for molecular research and diagnostic applications," said Gregory Lucier, chief executive of Invitrogen.

"By adding advanced nanotechnology capabilities to our existing labeling and detection franchise, Invitrogen has positioned itself at the cutting edge of this exciting field, providing innovative solutions for use by our customers and in our own research and development of novel technologies in proteomics, genomics, gene expression, and imaging."

Carlsbad, Calif.-based Invitrogen provides products and services that support research by biotech companies.

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