Adams Respiratory sets IPO price; Accentia, Advanced Life Sciences seen on deck; Amgen issues higher

By Ronda Fears

Nashville, July 6 - Biotech players got back to business Wednesday, looking to squeeze in possibly a trio of initial public offerings in the holiday-shortened week, while a pair of PIPEs deals emerged. Adams Respiratory Inc. also set a price range for its IPO anticipated for next week's business. All were a backdrop to Mylan Laboratories Inc. as it kicked off a roadshow for its $500 million bond deal, also on tap next week.

A spate of data on clinical trials in various stages also brought on questions of funding for several biotechs, such as Rigel Pharmaceuticals Inc., BioSante Pharmaceutcials Inc. and EntreMed Inc. QLT Inc. also was impacted by the loss of a collaborative partner and OSI Pharmaceuticals Inc. gained on a milestone payment from Genentech Inc.

Amgen Inc. was the star in secondary action, though, after announcing that interim data suggests a major response to its Aranesp in anemic patients in a Phase II study. Extending recent strength, the stock shot up another $1.09, or 1.74%, to $63.60. Amgen bonds were active on the news as well, but traders noted a more muted reaction with the 0% convertible due 2032, which was up a half-point to 73 bid, 73.375 offered and the 4% notes due 2009 unchanged but active at 98.75 bid, 99.25 offered.

"New money is coming into biotech and they all have a bead on big cap names like Amgen," said a source at a biotech stock fund based in Dallas. "There's sort of a rush to get in now because everyone is expecting they will beat on second quarter numbers."

Onlookers are expecting Amgen to focus on its panitumumab, a colorectal cancer drug in development with Abgenix Inc. Panitumumab is in contention as a colorectal cancer treatment with other cancer drugs like Erbitux by ImClone Systems Inc. and Bristol-Myers Squibb Co., and panitumumab as a treatment in combination with Genentech's Avastin.

Genentech shares, by the way, lost 95 cents on the day, or 1.16%, to settle at $80.91, while ImClone soared $1.28, or 4.27%, to close at $31.97.

IPOs give it a whirl this week

Syndicate sources said that despite it being a short week, they were expecting Accentia Biopharmaceuticals Inc. and Advanced Life Sciences Inc. to try to get their IPOs done before Friday, and possibly Celldex Inc., which had previously been delayed because of adverse market conditions.

Accentia is hoping to sell 6.25 million shares, including 1 million being sold by Pharmaceutical Product Development Inc., at $11 to $13 per share. The Tampa, Fla.-based company plans to use proceeds to repay a $6.1 million loan from McKesson Corp., complete Phase III clinical trials for SinuNase and Biovaxid, prepare for manufacturing its drugs, make $6.7 million in milestone payments to partners and fund general corporate purposes.

Advanced Life Sciences plans to sell 4.5 million shares at $11 to $13 per share, with the Woodbridge, Ill.-based company earmarking proceeds, together with existing cash, to continue clinical development of cethromycin and make related milestone and license payments to Abbott Laboratories. The company also plans to use the funds to repay debt and general corporate purposes.

Celldex's offering is a spin-off from Medarex Inc., which on completion of the IPO will own approximately 70% of Celldex's outstanding shares. In the offering, 4 million shares are being sold at a proposed range of $8 to $10 per share. It has been delayed at least once before, market sources said. One IPO trader said market chatter has the Celldex IPO again "very tentatively on for this week's business."

Adams sets IPO at $14-$16

Adams Respiratory Therapeutics is waiting until next week to debut, syndicate sources said, but the price range has been set at $14 to $16 per share.

Of the net proceeds, estimated at $72.2 million or $87 million if the greenshoe is exercised, $25 million is earmarked for marketing Mucinex, $20 million is planned for the development of two other over-the-counter drugs and some $12.5 million for developing its recently in-licensed product candidate erdosteine. In addition, the Chester, N.J.-based company plans to use $14.7 million for potential acquisitions or drug licensing.

Adams is planning to sell 5.33 million common shares, include 1.34 million shares being sold by Perseus-Soros BioPharmaceutical Fund LP, which will cut its stake in Adams to 17% from 25.5%. Merrill Lynch Venture Partners LP is scheduled to sell 158,000 shares, cutting its investment to 2% from 3%.

Endologix, MDX tap PIPEs

There were a couple of PIPEs deals announced Wednesday, too, including Endologix Inc. with a $16.6 million private placement of 4.15 million shares at $4 each.

Irvine, Calif.-based Endologix, which develops minimally invasive treatments for vascular diseases, said it plans to use proceeds to launch its Powerlink System, a technology used to treat abdominal aortic aneurysms.

Endologix shares on Wednesday dropped a nickel, or 1.09%, to close at $4.55.

MDX Medical Inc., a Vancouver-based biotechnology company focused on medical devices used in diagnosing and treating cancer and other disorders, was nosing around the PIPEs market, saying it plans to raise up to C$1 million in a private placement of units.

The MDX deal includes up to 13,333,333 units at C$0.075 each. The units include one share and one warrant. The warrants allow for the purchase of an additional share at C$0.125 each for the first year and C$0.20 each for the second year.

Rigel foresees tapping markets

Rigel Pharmaceuticals Inc. said Wednesday that it plans to launch a mid-stage clinical trial in the third quarter to test its lead allergy medication and make a trip to the capital markets over the next year or so. The company said it plans to begin the trial to coincide with the summer and fall pollen season.

Rigel chief financial officer James Welch told Prospect News on Wednesday that the company has no specific plans to tap the markets at this time, but filed a $150 million shelf registration last fall in anticipation of doing so.

"It's not a matter of if, but when," Welch said, but noted that strong backing from collaborators will make it easier for the company to wait for a friendlier market tone.

The company has agreements with Janssen Pharmaceutica NV; Pfizer Inc.; Novartis Pharma AG; Merck & Co. Inc. and Daiichi Pharmaceuticals Co. Ltd. In the first quarter, the company received $1.5 million from Merck, $662,000 from Daiichi and $491,000 from Novartis for a total of $2.62 million versus $1.5 million in first quarter 2004.

Pfizer is new to Rigel's list of outside funding sources, getting a partnership arranged in first quarter. In its quarterly report, the company stated, "We were able to offset the majority of our operating spending for the three months ended March 31, 2005, by the receipt of $15.0 million from Pfizer per our recently signed collaboration agreement."

As of March 31, the company posted $70.5 million in cash and equivalents and available-for-sale securities, saying, "We believe that our existing capital resources and anticipated proceeds from current collaborations will be sufficient to support our current operating plan through at least the next 12 months."

The news on the pre-clinical trial plans was not necessarily new, as the company had been promising the investment community an update to its plans for its hepatitis C, allergic rhinitis, and rheumatoid arthritis treatments. James M. Gower, chief executive officer, said the company is committed to initiating clinical trials with at least one new product candidate each year.

Rigel shares on Wednesday lost 5 cents, or 0.25%, to end at $19.90.

BioSante open to partnering

BioSante Pharmaceutcials Inc. chief executive Stephen Simes said Wednesday it is not ruling out partners in commercializing its menopause gel but isn't necessarily leaning that direction. Moreover, with $15 million cash in the bank and a cash burn rate of $850,000 a month, he said the company doesn't have to look at licensing partners.

"We are in a strong cash position. We've always believed that by maintaining ownership ... we will have a commensurate increase in value," Simes said on a conference call with investors and analysts.

"There are partners interested but at this time that's not our preference. We will be evaluating potential partners' offers, though, over the next few months."

By not licensing out too early, BioSante increased the value of its product, he said. At some point, he acknowledged, the company will be considering financing plans as it moves forward.

The time line puts a commercial launch of the product in about one year. The new drug application is expected to be filed "very shortly" and a routine 10-month review is expected.

BioSante announced positive Phase III results for its Bio-E-Gel, a topical estrogen application used to treat moderate to severe hot flashes in menopausal women, on Wednesday. Simes said the gel will compete with oral estrogen treatments, which have been linked to increased heart disease, and estrogen patches, which have both a physical presence and can fall off wearers.

"They are up over 6% today but, look, every stock under $5 is speculative and risky. Somehow I like what I read about BPA and I am wiling to take the risk. And believe me, if somebody will have an alternative to this nonsense, women will gladly switch to it," said one BioSanta holder in Florida, adding that if BioSante licensed out the product there is an estimated potential of some $25 million in annual royalties.

On the news, BioSante shares skyrocketed as much as 15% in early trade Wednesday but retraced much of that gain to end Wednesday up by 13 cents, or 3.39%, at $3.96.

EntreMed has two years of cash

EntreMed Inc. said it has about two years worth of cash, and sees no need to tap the capital markets anytime soon following positive early stage trial data on its lung cancer drug announced Wednesday.

On the news, EntreMed shares skyrocketed as much as 15% in early trade Wednesday but retraced much of that gain to end Wednesday up by 7 cents, or 2.92%, at $2.33.

"We have about two years of cash, enough to last us to 2007," company spokesperson Ginny Dunn told Prospect News.

At March 31, the company reported cash and equivalents totaling $21 million. Cash used in activities for first quarter came to $923,444 and for the quarter the company posted a net loss of $5.5 million. In addition, the company has a strategic alliance with biotech major, Allergan Inc.

From the buyside, players said there was heavy selling in the afternoon because of the risk involved with an early stage biotech.

"It's obvious to me," said the manager of a small biotech fund based in southern California. "In about two years there is going to be a biotech stock trash heap big enough to light Las Vegas for a month."

EntreMed presented results in non-small cell lung cancer and small cell lung cancer preclinical models for its lead compound, Panzem, during the 11th World Conference on Lung Cancer held in Barcelona, Spain, over the weekend. Dr. Daniel Chan, principal investigator on the study, said the data was "encouraging."

Carolyn F. Sidor, EntreMed's chief medical officer, said Panzem NCD as a liquid version as well as the 2-methoxyestradiol treatment to inhibit growth in solid tumors are key components of the company's drug candidate pipeline. EntreMed is currently in Phase 1b studies with Panzem NCD in patients with advanced cancers and anticipates Phase II studies to begin later this year.

OSI Pharma issues up on news

OSI Pharmaceuticals Inc. said Wednesday the FDA accepted its supplemental new drug application for Tarceva plus gemcitabine chemotherapy to treat advanced pancreatic cancer and has granted a priority review classification. Too, as a result of the achievement, OSI Pharma was entitled to a $7 million milestone payment from partner Genentech.

OSI Pharma was all over the map on the news, traders said.

A buyside analyst at a hedge fund in Connecticut noted that OSI Pharma "is a pure hedge/trading name and we're just playing the volatility."

The stock was in negative territory for a good portion of the day, but ended up by 71 cents, or 1.76%, at $41.11. Similarly, the OSI Pharma 3.25% convertible was quoted by a sellsider early on, when the stock was lower by about a quarter, at around 108 bid, 109 offered. The $150 million issue, though, closed out the day up about 1 point at 110.25 bid, 110.75 offered, another sellsider said.

The FDA has until Nov. 2 to take action on OSI Pharma's supplemental filing on Tarceva.

"It would be good timing since the E.U. approval for Tarceva will probably be in that timeframe," a sellside convertible trader said, speculating that in advance of the FDA action, "August could be an eventful month."

QLT fades on losing partner

QLT Inc. lost its partner, closely held Astellas, US LLC, in the development, licensing and supply agreement for Aczone, a dapsone gel intended for the treatment of inflammatory and non-inflammatory acne. QLT issues slid on the news, but fans of the company were pinning hope on its eyecare treatment, Visudyne.

From QLT's perspective, chief executive Paul Hastings said that during ongoing labeling discussions with the FDA it became clear that Aczone has more potential for QLT than Astellas. Following an evaluation of the new market, QLT will take the product forward. The FDA action date for Aczone is July 7.

"The opportunity to acquire Aczone enables QLT to take another important step toward our strategy to market our own products and manage our business for continuous growth by establishing our own commercial organization," Hastings said in a press release.

Despite the question about Aczone, many QLT fans were undaunted by the news.

"We don't view Aczone as a critical part of QLTI's future," said Merrill analyst Hari Sambasivam in a report Wednesday, saying the event was neutral to his buy rating on QLT stock.

Potential options for QLT for Aczone, he said, include re-partnering with a third party, contracting sales and/or specialty distribution manpower or investing in its own sales force.

The company has a strategic alliance with Novartis Ophthalmics.

QLT shares on Wednesday lost 19.5 cents, or 1.8%, to close at 10.625. The company's 3% convertible due 2023 was quoted off about 0.625 point to 92.875 bid, 93.875 offered.

"On QLT, I like the company, but am very cognizant of the new Genentech drug, Lucentis, coming out next year for wet-AMD [age-related macular degeneration], and of Macugen (made by Pfizer & Eyetech) that just launched," said an analyst at a convertible hedge fund. "Thus, Visudyne - QLT's main drug - will be affected, but I think Macugen will feel more pressure than QLT since Macugen is closer in action to the Genentech drug.

"However, because of dosing issues with the Lucentis (need more injections), Macugen will still sell. I just don't think the market will be as big as they hoped. Remember, Genentech's drug actually reverses AMD-related loss, while Macugen and QLT just stop any more damage. So, despite more frequent, and painful, dosing, a lot of folks may opt for Genentech's drug."

Eyetech Pharmaceuticals Inc. announced last month that its Macugen, used for treating AMD, the leading cause of adult blindness, might only need to be injected every three months, cutting the frequency of injections in half, which might make it more competitive to the monthly eye injections required for Genentech's Lucentis. Earlier pre-clinical trials offer hope it might actually last as long as six months, Guyer added in an interview with Reuters.

Merrill notes FDA risks rising

Merrill Lynch head of global biotech research Eric Ende said higher regulatory risk coupled with rising interest rates has hampered biotech stock valuations but there could be opportunities in big cap names and the cyclical upturn in fourth quarter that has traditionally occurred.

"Bottom line, the sector has issues, which are likely to only get more challenging, but the companies are turning out innovative new products and valuations may reflect many of the challenges," Ende said.

In addition to the Food and Drug Administration being increasingly vigilant about safety issues, he said generic biologics will become a reality by 2007 and competition is increasing. Cost of capital vis-à-vis interest rates translates to a reduction of 8% in a drug's value for every 1% hike in interest rates, he said. But there could be opportunity in large cap names and in the cyclical trade, he said.

"Large caps start doing better as the yield curve flattens, as the stocks become less defense plays on a slowing economy. Right now valuations are reasonable, large caps at trading at a 10 to 20% discount to historical averages," Ende said.

Moreover, he added, "Biotech stocks trade cyclically even though they are not economically sensitive, [there is] two years of feast and 12 to 24 months of famine. First quarter is the worst, fourth quarter is the best."

Banker: IPO window is narrow

While there is regulatory risk involved with biotechs, one banker sees the lack of a broad-based investor pool as a major barrier to biotech financing, particularly with regard to IPOs.

"The financing environment is abysmal right now for all but the most seasoned life science companies," said Doug Swirsky, head of life sciences investment banking at Legg Mason Wood Walker.

"The fourth quarter is expected by many to be much more amenable to biotech IPOs. Although we may see an increase in activity later this year, there is no reason to believe that investors won't continue to be extremely price sensitive and that sub $50 million raises on sub $150 million valuations will be likely outcomes for many issuers."

The average IPO from the narrow window that opened in October 2003 has provided proceeds of, on average, roughly $50 million on pre-money valuations of approximately $150 million. Many industry participants consider raising $75 million on pre-money valuations of at least $225 million to be the hallmark of a successful IPO, he said.

Lack of broad interest in biotechnology offerings has concentrated buying power in the hands of a relatively narrow group of investors. Many of the biotech companies that have gone public in the past 21 months have had to revise their filing range at least once and most IPOs have priced below their initial target.

"The window is still open, but the footprint, or how wide a net you can cast is very narrow," Swirsky said. "The broader markets will need to perform better before we see a wider group of investors interested in biotech offerings."

Thus, he added, "Life science companies at all stages should conserve cash at all (reasonable) costs. Planning for success is a luxury that most companies cannot afford in this financing market."

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