Accentia runs into resistance; Canadian biotechs tap PIPEs; eyes on Genentech; Mylan up

By Ronda Fears

Nashville, July 11 - Biotech players Monday were keenly fixed on Genentech Inc. ahead of its earnings report after the closing bell but there also was considerably activity on the primary market front. Genentech shares were higher in advance of the results, and that enthusiasm spilled over into a x% spike in the biotech sector.

Genentech shares gained 33 cents, or 0.4%, to close at $83.50 but in after-hours trading were indicated higher by another 74 cents, or 0.89%, after the company reported a whopping 73% spike in second quarter earnings.

On the primary market front, it was a busy day for biotechs, although biotech stocks spent a fair portion of the session underwater while the broader markets were in positive territory. The Nasdaq Biotech Index, however, did manage to end up by a slight 0.18%.

Accentia BioPharmaceuticals Inc. lowered the price range for its initial public offering, which is expected Wednesday or Thursday, amid resistance from big clients. Meanwhile, Rigel Pharmaceuticals Inc. and Keryx Biopharmaceuticals Inc. filed follow-on stock offerings.

There also were a handful of biotechs tapping into the PIPEs market, including three from Canada.

Mylan bonds might hit 6-6.5%

Mylan Laboratories Inc., which has a $500 million two-part junk bond offering slated to price Thursday, shot up sharply Monday after it said first-quarter earnings would top analysts' forecasts and backed its earnings estimates for fiscal 2006 and 2007.

Mylan expects adjusted first quarter earnings of 24 cents to 26 cents a share, versus an analyst consensus of 19 cents a share. Looking ahead, Mylan reaffirmed fiscal 2006 earnings guidance of 92 cents to $1.15 a share and fiscal 2007 earnings of $1.20 to $1.74 a share.

On Mylan's strength, a buyside source in the high-yield community told Prospect News on Monday that the Canonsburg, Pa.-based generic and branded drugmaker should be able to fetch a "low 6% yield on the five-year and mid-6% on the 10-year" bond tranches. Official indicative terms are not being circulated yet, however.

Mylan shares Monday gained 26 cents, or 1.34%, to $19.67.

Accentia lowers IPO range

Accentia lowered the indicative range for its IPO to $8 to $10 per share from $11 to $13 and a banking source familiar with the deal said large institutional clients continue to exert pricing muscle in biotech offerings, which mirrored comments from a spokesman at Accentia last week when the IPO was delayed.

Ironically, perhaps, Merrill Lynch & Co. biotech analysts observed in a report Monday that biotech investing is now in vogue.

By lowering the price range on the IPO, the Tampa, Fla.-based respiratory disease and oncology drug company decreased estimated proceeds to a range of $41.2 million to $49 million from $55.8 million to $66.2 million.

The number of shares being sold remains unchanged at 6.25 million, with 5.25 million sold by the company and 1 million shares by Pharmaceutical Product Development Inc. There also remains a greenshoe of 937,500 shares.

Jefferies & Co. is bookrunner, with Robert W. Baird & Co.; Ferris, Baker Watts and Stifel Nicholas & Co. as co-managers.

Accentia resistance on dilution

A buyside market source, who commented on the basis of anonymity, said he saw the biggest resistance to Accentia among potential institutional investors because of the immediate dilution from a previous private financing with convertible securities.

"Just look at the prospectus. According to one section, dilution from the Biovest and Laurus convertibles was estimated at $8.44 per share," the fund manager said.

According to the IPO prospectus, after giving effect to the sale of shares of common stock at an assumed IPO price of $9.00 per share and the conversion of all shares of preferred stock and the exercise of preferred stock options and warrants outstanding as of March 31, there would be an immediate increase in the pro forma as-adjusted net tangible book value of $1.43 per share to existing stockholders and an immediate dilution of $8.44 per share.

The prospectus said 634,084 shares are issuable under rights to convert promissory notes issued by Accentia's Biovest subsidiary. The filing said the Biovest notes amounted to $5.8 million in principal and interest as of March 31.

Up to 1,307,190 shares are issuable to Laurus Master Fund Ltd. upon the conversion of convertible notes issued to Laurus in connection with a credit facility entered into on April 29, according to the prospectus. The notes are first convertible beginning 180 days after the closing the IPO, the filing said, with conversion based on an assumed IPO price of $9.00 per share, excluding accrued interest. Another up to 444,444 shares of common stock is issuable to Laurus on the exercise of a warrant granted in connection with the Laurus credit facility.

On April 29, Accentia issued the $10 million convertible note, including $3.1 million in warrants, to Laurus.

Rigel follows up with follow-on

"When" has come sooner than expected for Rigel Pharmaceuticals Inc. in terms of tapping the capital markets for funding. The company filed a 3 million stock offering on Monday, following up on comments from the company to Prospect News last week.

Timing and pricing on the 3 million share stock offering have not yet emerged, however. Rigel shares on Monday gained 30 cents, or 1.41%, to end at $21.59.

Rigel announced last Wednesday that it plans to launch a midstage clinical trial in the third quarter to test its lead allergy medication, coinciding with the summer and fall pollen season. At that time, Rigel chief financial officer James Welch told Prospect News last week that the company has no specific plans to tap the markets at this time, but had 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 control timing in a capital-raising effort.

The company has agreements with Janssen Pharmaceutica NV, Pfizer Inc., Novartis Pharma AG, Merck & Co. Inc. and Daiichi Pharmaceuticals Co. Ltd. Also, as of March 31, the company posted $70.5 million in cash and equivalents and available-for-sale securities.

Keryx plunges on follow-on

Keryx Biopharmaceuticals Inc. announced Monday plans to sell 5 million shares off the shelf via bookrunner JPMorgan Securities Inc. and the stock plunged 7.5% in pre-market activity but retraced a good deal on strength in the broader markets.

"Data is encouraging but not a knockout. The targets most analysts have are great but probably at least two years off," said one stockholder. "This is typically a sleepy company, but not today."

Before the market opened, the stock was indicated lower by $1.06, or 7.54%, but largely recovered closed off just 30 cents, or 2.13%, to $13.76.

Keryx is focused on the development and commercialization of pharmaceutical products for the treatment of diabetes and cancer. It has two product candidates in late-stage clinical development. Its lead candidate is Sulodexide, or KRX-101, for the treatment of diabetic nephropathy, a life-threatening kidney disease caused by diabetes. The other is Perifosine, or KRX-0401, for the treatment of multiple forms of cancer.

On June 29, the company announced the initiation of pivotal phase III and phase IV clinical programs with Sulodexide under FDA guidelines for accelerated approval.

Foursome of biotechs tap PIPEs

Funding through the PIPEs market on Monday was dominated by Canadian-based biotechs, with a little more than $30 million in deals announced by HepaLife Technologies Inc., PhytoMedical Technologies Inc. and Advanced Research Technologies Inc. In the U.S., Philadelphia-based Hemispherx Biopharma Inc. announced a $20 million deal.

HepaLife Technologies has received an equity line from Fusion Capital Fund II LLC for up to $15 million with proceeds targeted for research and clinical tests. Based in Vancouver, HepaLife is develops products that detect liver toxicity and treat liver dysfunction. In over-the-counter trading in the U.S. the stock rose 19 cents, or 10.5%, to $2.00

PhytoMedical has secured up to $10 million through an equity line with Fusion Capital with proceeds to be used for research activities and clinical tests. Vancouver-based, PhytoMedical develops plant-derived treatments for cachexia, obesity and diabetes. In over-the-counter trading in the U.S. the stock was up 10 cents, or 11.24%, to 99 cents.

Advanced Research Technologies has placed $5.9 million of 7% convertible preferreds with OppenheimerFunds Inc. with proceeds slated for working capital and corporate development. Based in Montreal, Advanced Research Technologies makes optical molecular imaging products such as its SoftScan, a medical imaging device designed to improve the diagnosis and treatment of breast cancer. On the Toronto exchange, Advanced Research shares gained C$0.04, or 4.4%, to C$0.95.

Hemispherx has received an equity line from Fusion Capital for up to $20 million with proceeds earmarked to extend its New Brunswick, Pa., facility for the production of Ampligen and Alferon N injections, as well as for general corporate purposes. The company develops treatments for viral and immune-based chronic disorders such as HIV, hepatitis and Asian flu. The stock closed off 5 cents, or 2.69%, at $1.81.

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