Genentech active; CryoCor IPO trades up, sinks; Mylan prices tight, center; BioMarin off on follow-on

By Ronda Fears

Nashville, July 14 - On the heels of biotech giant Genentech Inc.'s jumbo debt offering, there were two stock issues priced from the biotechnology sector and in general players remarked that the overall sentiment toward biotechs is improving both in terms of secondary action as well as capital-raising efforts.

Cardiovascular surgical device maker CryoCor Inc. priced its initial public offering at $11 a share - the low end of the indicated range but upsized in terms of the number of shares sold, and the price range had been ticked up since it was originally filed. And, genetic biotech BioMarin Pharmaceutical Inc. sold a follow-on discounted to $7.05 per share from its close Wednesday of $7.65.

Both stocks were off in trade Thursday but the equity deals were heartening for bankers.

"It's always good when a deal gets done," said Benjamin Davey, head of the equity syndicate at ThinkEquity Partners, of the CryoCor IPO. As for the overall IPO market and particularly biotech and medtech names, he said the signals seem positive, but added, "It's very company specific."

Genzyme Inc.'s blow-out earnings and its boost to full-year earnings estimates helped secondary activity and sector sentiment Thursday, too, as did positive earnings from European drugmaker Novartis AG.

Genzyme's stock rose $3.97 or 6.46% to $65.30 it reported GAAP net income of $123.6 million or 46 cents per diluted share for the second quarter, up from $78.2 million or 33 cents per share a year earlier. Revenue rose 22% to $668.1 million from $549.6 million in the same period of 2004, the Cambridge, Mass., biotechnology company said.

Genzyme's 1.25% convertible due 2003 gained about three points to 107.50.

Novartis' ADS gained $1.08 or 2.29% to $48.28 in trading Thursday. It reported net sales up 12% in the second quarter to $7.799 billion from $6.973 billion in the same period of 2004 and operating income up 8% to $1.849 billion from $1.715 billion a year earlier.

Besides Genentech for fixed-income investors, Mylan Laboratories Inc. was on deck with a high-yield bond.

Genentech spreads unchanged

Genentech's home run in the bond market wasn't to be outdone on the equity side of the story, as the stock surged $2.92, or 3.37%, to close Thursday at $89.60.

In the immediate aftermarket, activity in the bonds (A1/A+) was extremely brisk, but trading unchanged on the yield spread, traders said.

"It didn't slow down at all. Overall the deal was a huge home run. People were still wanting to get hold of these," said a high-grade bond trader, referring to buyers' scrambling to secure a position in the Genentech bonds. "It was madness."

The 4.4% five-year notes held at their pricing spread of 45 basis points over Treasuries but edged down to 99.863 from an issue price of 99.992; the 4.75% 10-year notes also held at a 60 bps spread but slipped to 99.756 from an issue price of 99.937; and the 5.25% 30-year bonds maintained their 87 bps spread but dropped to 99.42 from an issue price of 99.85, the trader said.

All the positive news in the sector, and particularly the jumbo bond offering from Genentech, has brought biotech issues to the forefront of investors' radar screens, market sources said.

Mylan prices tight, pat to talk

Mylan Labs sold $500 million of senior notes (Ba1/BB+) in two par-pricing tranches on Thursday, tight of price talk or smack at indicated levels, a market source told Prospect News..

The Canonsburg, Pa., pharmaceutical company priced a $150 million five-year bullet tranche to yield 5.75%, on the tight end of the 5.875% area price talk.

The company also priced a $350 million tranche of 10-year notes to yield 6.375%, on top of the 6.375% area price talk. The 10-year notes come with five years of call protection.

Merrill Lynch & Co. ran the books for the Rule 144A/Regulation S with registration rights issue.

Proceeds, along with on hand cash, will be used to fund a $1.25 billion share repurchase program.

CryoCor underwater after debut

CryoCor priced an upsized 3.7 million shares of common stock at $11 per share in an open Dutch auction IPO - at the low end of the indicative range of $11 to $13, which had been bumped up from $10 to $14. The deal was increased from 3 million shares.

The stock spent most of the session slightly higher, then in the final minutes of trade several transactions were recorded pushing the stock underwater by 13 cents to settle at $10.97, a trader said. There were 1.79 million shares traded.

San Diego-based CryoCor plans to use $11 million of proceeds to continue product development and complete ongoing clinical trials, $5 million to build sales and marketing capabilities, working capital and other general corporate purposes. In Securities and Exchange Commission filings, the company said investors William Blair Capital Partners, Healthcare Equity Partners LP, MPM Capital LP and OrbiMed Associates LLC were interested in buying $12 million worth of shares in the IPO.

CryoCar, based in San Diego, makes a minimally invasive, disposable catheter system based on its proprietary cryoablation technology for the treatment of cardiac arrhythmias. Its system uses cryoenergy, or extreme cold, to destroy targeted cardiac cells. It has been approved in Europe and the company is conducting two trials to get approval in the United States, which the company has said is crucial.

ev3, HemoSense, Micrus mixed

The CryoCor pricing follows a trio of recent medical device IPOs that priced weak but then shot up with the broader markets. Those were ev3 Inc., HemoSense Inc. and Micrus Endovascular Corp., and they were mixed Thursday as CryoCor debuted.

ev3, another cardiovascular device maker, particularly took heart on the CryoCor pricing, which to some degree was a surprising response. The shares shot up $1.05, or 7.81%, to close Thursday at $14.50.

"ev3 commanded a better price than CryoCor but I think the fact that CryoCor got done, and within range, was a positive sign for ev3," said a market maker in ev3.

In mid-June, ev3 Inc. priced its IPO at $14 - discounted from the proposed price range of $16 to $18. Since then, the stock hit $14.82 before retreating to current levels. The Plymouth, Minn.-based company makes stents and other neurovascular surgical products.

HemoSense, which makes handheld blood coagulation monitoring systems, was lower but it too had made a sharp rise from its debut price. The stock priced in the last week of June at $5.50 - also below the final range of $6 to $8, which had been revised downward four previous times. The IPO had been delayed twice from plans to price in the June 13 week following a series of price revisions amid tough market conditions. Since pricing, the stock has risen to $8 but on Thursday it lost 78 cents, or 11.17%, to end at $6.20.

Micrus priced its IPO in mid-June at $11 - off from the estimated price range of $12 to $14. Sunnyvale, Calif.-based Micrus makes devices used in the treatment of cerebral vascular diseases. The stock, which has reached $12.80 since debuting, was unchanged Thursday at $12.03.

BioMarin choked by generics

BioMarin Pharmaceutical Inc., recently rocked by generic competition for its lead asthma drug, priced 8.5 million shares off the shelf at $7.05 per share, discounted from Wednesday's closing price of $7.56, in an offering managed by Merrill Lynch & Co.

Shares were hit in trade on the dilution, dropping 6 cents, or 0.79%, to close Thursday at $7.50.

In the convertibles market, BioMarin also saw action Thursday, a sellside trader said, but in the way of big selling. He pegged the BioMarin 3.5% bond due 2008 off by 0.875 point at 88.75 bid, 90.75 offered.

"They are a casualty in the generic competition story," the convertible trader said. "All their revenues were tied to this asthma drug and the generics moved in last fall and it has been devastating to BioMarin. It was a huge setback."

Novato, Calif.-based BioMarin did not specify the use of proceeds from the secondary stock offering but last week said that due to disappointing sales of its asthma drug Orapred - specifically blamed on generic competition - it was lowering its sales guidance on the drug to $8 million to $10 million from the previously forecast of $15 million to $20 million.

The company also virtually wiped out most of the 60 employees dedicated to marketing Orapred. Of 58 jobs eliminated, BioMarin said 52 were sales positions dedicated to Orapred which were inherited when it acquired Orapred from Medicis Pharmaceutical Corp. in May 2004.

Orapred sales of $18.6 million in 2004 accounted for practically all of BioMarin's revenues.

BioMarin, however, said headway on other drugs in development should more than make up for the loss of revenues associated with Orapred. The company raised its 2005 revenue outlook for an enzyme-replacement therapy called Aldurazyme that treats a rare genetic disease called mucopolysaccharidosis I to $70 million to $75 million from $60 million to $66 million.

Durect, DOV converts bid up

Most of the news lately in biotech, however, has been on the upside of expectations. In particular, this week's developments may be responsible for luring new participants, or crossover investors, to convertibles as an asset class, and particularly several small biotech issues that have been downtrodden of late, one trader remarked.

"Biotech is moving on up to the east side," said the sellsider. "Smart non-traditional convert players are buying up some beaten up biotech converts."

People missed out on special situations that pushed ViroPharma Inc. and Impax Laboratories Inc.'s convertible bonds higher, but he said there has been a surge in interest for several other start-up biotech names.

Durect Corp. may still be a fresh trade, the trader said. The 6.25% bonds due 2008 have gained 15 or more points this week alongside the stock, which moved up on several positive equity reports. The trader said the issue was last seen Wednesday at 187 bid, 189 offered with the stock closing at $5.75. The convert is non-callable for life, he noted. Durect shares rose again Thursday, up 11 cents, or 1.91%, to $5.88.

DOV Pharmaceutical Inc. was another one with a convertible well bid Thursday, he said. The 2.5% bond due 2025 was quoted at 102.5 bid with the stock at $19.60.

Isis Pharmaceuticals Inc., Indevus Pharmaceuticals Inc. and Oscient Pharmaceuticals Corp. were more that he was pitching as worth a look. He said the Isis 5.5% convert due 2009 are up about 2 points in as many days, trading now at 83.75. The Indevus 6.25% convert due 2008 is a cheap bond, he said, trading around 82.5 for a current yield of 7.53%. Oscient's 3.5% convert due 2011 was quoted at 75.875 bid, 76.875 offered, which the trader said made them "a buy."

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