OSI Pharma on deck; Oxigene off on steep discount; BioCryst slips on PIPE; Somaxon sinks on debut

By Ronda Fears

Nashville, Dec. 15 - Deal flow and takeover buzz competed neck-and-neck for attention from biotech players Thursday. In addition to a nice pick up in financing activity as the clock ticks to the close of 2005, signaling the traditional rush for capital, there was massive new and ongoing buyout speculation in the wake of the $2.2 billion Amgen, Inc. buyout of cancer drug partner Abgenix, Inc.

"The stench is so overpowering we need gas masks," said one equity trader on the sellside, referring the volume of chatter and inquiries related to speculation of small biotechs being bought by Big Pharmas.

"There is nothing new, but boy all of a sudden everyone is afraid they are going to miss the trade. A month ago, I couldn't pawn some of these [stocks] off and now you can't get your head into the trough. Oh, well, you can't argue with the business, I don't guess."

While a handful of equity deals moved into the aftermarket, including the initial public offering of Somaxon Pharmaceuticals, Inc., there was still a bond offering from OSI Pharmaceuticals, Inc. on deck and a follow-on stock deal from Biopure, Inc. Meanwhile, AlgoRx Pharmaceuticals, Inc. canceled its IPO.

"AlgoRx? That one has been collecting dust for so long I had written it off a long time ago," said a buyside source who manages an IPO fund, pointing out that the AlgoRx IPO was filed in November 2004.

AlgoRx was pitching 6.8 million shares at $10 to $12 a share, upped from $7 to $8 per share, but scrapped the deal in a Securities and Exchange Commission filing late Thursday. The Secaucus, N.J.-based company is focused on pain medications, with three product candidates in various stages of clinical programs.

Somaxon cut, still nods off

Somaxon Pharmaceuticals, Inc. got its IPO off, at a reduced price, however, and the stock still sank in the immediate aftermarket. It was the first biotech IPO since CombinatoRx, Inc. went public on Nov. 8.

San Diego-based Somaxon, with its lead product candidate, the insomnia drug Silenor, in phase 3 clinical trials, priced 5 million shares at $11 per share - at the middle of revised price talk of $10 to $12 per share, which had been cheapened ahead of pricing from original talk in a range of $13 to $15 per share.

Intraday the stock traded as low as $10.25, or nearly 7% off the IPO price, but a buyside source said it appeared the underwriters lent some support and the shares ended the day at $10.71, off 29 cents, or 2.64%, from the debut price.

On Thursday, 1.4 million of the Somaxon shares changed hands.

OSI Pharma convertible on deck

OSI Pharmaceuticals, Inc. was at bat after Thursday's close with $100 million of 20-year convertible senior subordinated notes talked to yield 1.75% to 2.25% with an initial conversion premium of 20% to 25% via bookrunner UBS Investment Bank.

A buyside source in the convertible market said the issue appeared to be "priced to sell," but traders said some players still had a bad taste in their mouths from OSI Pharma's acquisition of Eyetech Pharmaceuticals, Inc., which was sealed about a month ago.

The issue was being sold on swap with Melville, N.Y.-based OSI Pharma earmarking up to $25 million of proceeds to purchase stock concurrently with pricing the notes and for call spread transactions - both designed to reduce dilution from conversion of the notes.

OSI Pharma shares closed Thursday off 58 cents, or 2.81%, at $23.54 on light volume with 1.82 million shares traded compared with the three-month running average of 2.07 million shares. In after-hours trade the stock was seen higher by 6 cents, or 0.25%, at $23.60, but final terms on the convertible had not hit the tape by press time.

Oxigene deal at deep discount

Oxigene, Inc. priced an upsized follow-on offering of 6.5 million shares of common stock, boosted from 6 million shares, but at a deep discount of $3.65 per share versus Wednesday's closing level of $4.30.

Fans of Waltham, Mass.-based Oxigene, which is engaged in research and development of products to treat cancer and certain eye diseases, were happy to buy into the follow-on, however, and one noted that the stock did very well Thursday in light of the deal terms and settled the session "way over where the [new shares] priced."

Oxigene shares closed Thursday off 15 cents on the day, or 3.49%, at $4.15.

"I think the stock staying over $4 was remarkable and it did way better than that," the afore-mentioned buysider said.

"The company has a higher market cap, greater institutional holdings and more retail interest now. It's a great buy at this price. The only disappointing thing I can say is that it looks like the public offering was a low-ball deal."

Oxigene announced Monday it was cleared to start a phase 3 study of its lead drug candidate, Combretastatin A4P, in patients with advanced inoperable lung cancer. Combretastatin A4P is designed to disrupt blood vessel formation by changing the shape of cells that line vessel walls, keeping them from attaching, and the company said it is the first drug of this type to enter a phase 3 trial.

BioCryst pockets $30 million

BioCryst Pharmaceuticals, Inc. shares also fared well after a big private placement, also at a huge discount to the current market for the stock, hit the tape Thursday.

The Birmingham, Ala.-based company has commitments for a $30 million direct offering of 2.23 million shares at $13.46 each to a group of institutional investors led by Kleiner Perkins Caufield & Byers and Texas Pacific Group Ventures.

BioCryst shares ended Thursday at $15.31, off 24 cents on the day, or 1.54%.

BioCryst, focused on treatments for colon cancer, cardiovascular diseases and viral infections, said proceeds will be used for clinical trials on its antiviral product to treat influenza.

Abgenix risk arbs scramble

Arbitrageurs were scrambling to cover short positions in Abgenix, Inc. on its $2.2 billion buyout by Amgen, Inc., plus risk arbitrageurs were clawing into the scene as well.

Amgen's acquisition of Abgenix was a long-speculated deal, but the $2.2 billion price tag, plus the assumption of some $500 million or so of Abgenix debt, was not fully anticipated.

Abgenix shares on Thursday mirrored after-hour activity Wednesday with the stock ending near the takeout price of $22.50 a share, but it drifted lower from the open. Abgenix shares opened Thursday at $21.80 and closed the session higher by $7.03 on the day, or 47.99%, at $21.68.

Volume in the stock was huge, with 61.72 million shares changing hands Thursday, versus the norm of 2.86 million, but market sources also noted massive activity in Abgenix options.

"There's too much downside risk in the stock," said one risk arbitrage fund manger. "Abgenix is a one-drug company, so if the deal falls apart the stock has 10 points of downside risk. We are trying to buy call spreads, to estimate a definitive loss if the deal falls apart."

He said the January 2006 and April 2006 call options with strike prices at $12.50 and $15.00 were a focal point for most players. The January 2006 $12.50 call options shot up $4.20 to $9.20 on Thursday with open interest of 13,328. The January 2006 $15.00 call options shot up $5.40 to $6.90 on Thursday with open interest of 9,801. The April 2006 $12.50 call options shot up $5.70 to $9.30 on Thursday with open interest of 1,706. The April 2006 $15.00 call options shot up $4.35 to $6.80 on Thursday with open interest of 3,733.

Amgen shares also zoomed on the news after closing off by 68 cents, or 0.88%, at $76.78. Amgen was last seen, at 5:26 p.m. ET, up $2.22, or 2.89%, at $79.00.

The merger is expected to be completed by the end of first quarter 2006 and Amgen said it would be funded with cash on hand.

Abgenix convertibles rocket up

The Abgenix debt to be assumed by Amgen is its two convertible issues - a newer 1.75% bond and an older 3.5% bond - both of which Amgen indicated in a conference call it would redeem soon after the merger was sealed.

Abgenix's 1.75% convertible was among the first group of bonds issued in the convertible market with cash takeover protection, a sellside convertible analyst said, and the older 3.5% issue is putable at par in the event of a change of control. Since the 3.5s have been trading below par for an extended amount of time, the analyst said it would seem reasonable to guess that holders will put them as a result of the merger event.

Because of takeover protection, the analyst estimated that the Abgenix converts roughly were worth an extra 4 shares of stock or 9 points.

The 1.75s were seen moving up Thursday to the 177 area with the stock at $21.75, versus trading Wednesday in the 120 neighborhood. The 3.5s moved up from the mid-90s to the low 100s.

Cell Genesys gets boon, too

Cell Genesys, Inc., the former parent to Fremont, Calif.-based Abgenix, saw a nice bounce on the Amgen buyout news, as well. It is expected to see a $135 million windfall from the deal by cashing in its equity stake.

South San Francisco, Calif.-based Cell Genesys, with a market capitalization of $285.5 million, is one of the largest shareholders of Abgenix, owning about 6 million shares as of September.

Analysts said the cash would be a huge shot in the arm for Cell Genesys and possibly help raise its credit rating. The company's lead drug, GVAX, is in phase 3 clinical trials for prostate cancer and phase 2 clinical trials for pancreatic cancer and leukemia.

Cell Genesys shares rose Thursday by 70 cents, or 12.57%, to $6.27. Its 3.125% convertible bonds due 2011 rose in tandem with the stock, adding 7 points on the day to 86.5.

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