BioVex IPO pulled; Ariad dives; Encysive off; Vical spikes 10%; Amgen higher ahead of results

By Ronda Fears

Memphis, Oct. 20 - In a disappointment to many players, BioVex Group, Inc. pulled its initial public offering Friday as it poses the possibility that the climate for going public in the biotech sector remains too tough to tackle. To boot, virtually the entire slate of IPOs for the week was pushed into the coming week.

In a spot equity sale, Ariad Pharmaceuticals, Inc. raised a little more than $14 million, but onlookers noted that it was one of just three follow-on deals in six weeks, and the second bought deal of those three.

"The only route available, at least to the issuers' way of thinking, it seems is private capital - either going to venture funds or the PIPEs market," said a biotech market source in Boston.

"We are OK with a lot of these biotechs, but I must admit that most of them seem mispriced. We get kicked for putting in low-ball bids. What about the bankers who tell these companies that they can get $13 or $15 a share when the market for early stage biotechs is running more like $5, or less?"

The fund manager said that there was chatter in the market that BioVex scrapped its IPO because it was approached by a venture capital fund. Calls to the company and bankers involved in the IPO were not returned Friday.

Cambridge, Mass., clinical-stage BioVex withdrew its IPO Friday, denouncing "unfavorable market conditions," but said in its Securities and Exchange Commission filing that it "may undertake a subsequent private offering." The company, which is focused on cancer and infectious diseases, had planned to issue 3.4 million shares at $11 to $13 each.

The IPO, which at the midpoint of price talk would have generated about $40.8 million, had been in the works since June. Proceeds were earmarked for the development of OncoVEX for solid tumors and ImmunoVEX, which is in phase 1 trials for genital herpes.

A syndicate source away from the BioVex deal said it would not be surprising if BioVex went the way of venture capital. Other primary market sources have remarked recently that such was perhaps a sign of times to come, pointing to Amicus Therapeutics, Inc., which dropped plans for an IPO in August and shortly thereafter inked $60 million in venture capital funding.

Ariad off 10% on bought deal

Meanwhile, in a spot transaction, Ariad raised $14.5 million from a follow-on offering of 3.1 million shares priced at $4.65 each, discounted from Thursday's close of $5.18, via a bought deal through Credit Suisse.

Ariad shares (Nasdaq: ARIA) fell 56 cents, or 10.81%, to $4.62 in the regular session Friday and then was seen recovering some ground in after-hours action. At 4:44 p.m. ET, the stock was seen up from the close by 6 cents, or 1.3%, at $4.68.

Net proceeds of $14.3 million, or $16.5 million if the greenshoe is exercised, are earmarked for research and development, clinical trials, product manufacturing, intellectual property protection and enforcement and working capital.

Cambridge, Mass.-based Ariad develops breakthrough medicines to treat cancer by regulating cell signaling with small molecules. Its lead product candidate, AP23573, is an mTOR inhibitor for the treatment of solid tumors, including sarcomas, hormone refractory prostate cancer and endometrial cancer.

Ariad's is the first follow-on deal in a month, since Vertex Pharmaceuticals, Inc.'s deal in mid September, exemplifying further the difficulty of the market. Before the Vertex deal, the last follow-on was another bought deal by Credit Suisse - the Cell Genesys, Inc. follow-on in early September.

Encysive hit by options expiry

Encysive Pharmaceuticals Inc. revealed terms on its previously announced $75 million equity line with Azimuth Opportunity Ltd., but the stock was off "like clockwork," as one trader put it, because of options expiry on Friday.

"It will be taking off as soon as the options settle," the trader added.

Encysive shares (Nasdaq: ENCY) dropped 15 cents on the day, or 2.89%, to settle at $5.04.

Under the equity line, over the next 18 months, Azimuth may buy shares of Encysive at a discount ranging from 2.875% to 5.875%, based on the then-current stock price. Each draw is limited in size to the lesser of 2.5% of the company's market capitalization or a fixed amount ranging from $6 million to $29.5 million, based on the stock price at that time.

Encysive may also, from time to time, issue options for additional shares during each draw down period, at its discretion. Proceeds will be used for general corporate purposes, including the development and commercialization of the company's products.

Houston-based Encysive has Thelin for pulmonary arterial hypertension approved in Europe in August but has met with resistance in the United States with a second approvable letter from the FDA in July requesting further data. The company also develops Argatroban for thrombocytopenia and has collaborations with Mitsubishi Pharma Corp., GlaxoSmithKline plc and Schering-Plough Corp.

Earlier this month, Gilead Sciences, Inc.'s $2.5 billion buyout of Myogen, Inc., which has Ambrisentan for pulmonary arterial hypertension, was fodder for takeover buzz, but traders said that noise has subsided in recent days.

Taro off 4% on delayed report

Elsewhere, anxiety about third-quarter results and delisting jitters sent many biotechs lower, traders said. One on the downswing was Israel-based Taro Pharmaceutical Industries Ltd. as it reported that the report from independent counsel, related to continued Nasdaq listing for its stock, which had been expected Friday will be delayed for a week.

"Oh, my, what a surprise!" said a sellside trader, tongue-in-cheek.

"Not!" He added, however, "To be honest, at this point, one more week doesn't mean a thing. It stands to reason that the company is worth much more than it is selling at today."

The Israeli maker of prescription and over-the-counter pharmaceutical products said that a report from independent counsel relating to previously announced restatements for 2003 and 2004 financials is now expected by Oct. 27, a week later than the previously expected Oct. 20 time line. Upon receiving the independent counsel report, the company will report on the investigation to the Nasdaq Listing Qualifications Panel in connection with its request for continued listing of its shares.

Amgen up ahead of earnings

Giant biotech Amgen, Inc. was higher ahead of its third-quarter results, which are due after Monday's close, but traders said there was some heavy selling into the gain.

Amgen shares (Nasdaq: AMGN) gained 90 cents on the day, or 1.23%, to settle Friday at $73.95, but the stock was weaker in after-hours activity.

"The sellside analysts are all pumping Amgen, saying they expect really good numbers. So? That doesn't justify a big jump in the stock. The reality is that the Dow is over a record 12,000 and Amgen is still trading in the middle of its 52-week range [$63.52 to $84.50]," said a biotech fund manager in Florida.

"One of the problems Amgen is facing is the same as the Big Pharmas, patents expiring, and probably too fast for the company to make up the lost revenue with new inventions. Next is a string of lawsuits. The third problem has to do with costly drugs and Medicare reimbursements."

Thousand Oaks, Calif.-based Amgen announced Friday that a federal court denied a motion by Roche Holding AG to dismiss Amgen's lawsuit over Roche's anemia drug Cera saying it violates patents on Amgen's anemia drugs Epogen and Aranesp.

Amgen also said that the court denied a motion by Johnson & Johnson unit Ortho Biotech to intervene as a co-plaintiff in the case.

Vical bulls run wild, up 10%

With trial news as well as funding news, Vical, Inc. shot up Friday on its announcement that a single injection of its avian flu DNA vaccine provided 100% protection in ferrets. The news came on the heels of a couple of PIPEs transactions earlier in the week from which the company bagged $37.65 million.

On the news, Vical shares (Nasdaq: VICL) lost 17 cents, or 3.08%, to close at $5.35.

"The bulls run wild. It's a no-brainer," said a trader.

"Many expect substantial news over the next few months on other Vical products. They have 15 or more different products in the pipeline, each one of which is a potential revenue stream. This isn't a one-trick pony."

San Diego-based Vical said that a single injection of its lead avian influenza DNA vaccine provided 100% protection in ferrets against lethal challenge with a highly virulent H5N1 virus. The company said conventional vaccines under development for avian flu typically have required two or more doses in humans, even with novel adjuvants, to produce sufficient immunogenicity levels.

Vical had previously demonstrated that two doses of the vaccine candidate provided 100% protection in mice and ferrets against lethal challenges with H5N1 virus. They say a single-dose vaccine regimen could prove beneficial during a pandemic, both in extending vaccine supply to protect a greater number of people, and in achieving protective immune responses as quickly as possible.

Vivus swings wide, ends flat

Elsewhere, Vivus, Inc. traded in a wide range before settling the session unchanged amid moderate trading activity.

The company announced early Friday that that Kishore Gadde will give an oral presentation on positive results from a phase 2 clinical trial of Qnexa, its obesity drug, at the North American Association for the Study of Obesity that began in Boston on Friday.

Gadde is scheduled to make his presentation Sunday, and Mountain View, Calif.-based Vivus said that in addition to the top-line data previously disclosed for this trial, he will present additional data on weight-loss and the observed benefit of Qnexa with respect to multiple factors contributing to metabolic syndrome.

"There was news about two competing obesity drugs, one was Acomplia, very encouraging, from Sanofi-Aventis. That put some pressure on Vivus early but there was buying late in the afternoon," said a trader.

"It might be a good one to hold into the weekend."

Vivus shares (Nasdaq: VVUS) traded in a band of $3.53 to $3.65 but ended the day unchanged at $3.57 with 196,699 shares traded versus the norm of 196,080 shares.

Osiris rises over 13% on trial

Also of note, Osiris Therapeutics, Inc. shares climbed after the Baltimore-based biotech announced positive results from a phase 2 trial of its Prochymal for Crohn's disease.

Osiris shares (Nasdaq: OSIR) gained $2 on the day, or 13.32%, to close at $17.02.

Osiris said the study included patients with moderate to severe Crohn's who had failed to respond to standard treatments such as steroids and infliximab, or Remicade. In the study, every patient evaluated reported a reduction in Crohn's disease activity after receiving two infusions of Prochymal.

"To understand the significance of this trial, it is important to appreciate just how sick these patients were," said Jane Onken, lead investigator in the Prochymal trial, in a prepared statement.

"On average, they had suffered with Crohn's disease for 14 years and were unable to find relief with currently available therapy. It was in this difficult-to-treat population that we observed clinical improvement upon administration of the stem cell therapy."

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