Accentia IPO pushed back; Keryx zooms; Rigel off; Adherex gets big partner; Abgenix seen in play

By Ronda Fears

Nashville, July 15 - Biotech players were loathe to entirely declare that the tide had turned but there was room for hope in capital-raising efforts among issuers and bankers, given success in Keryx Biopharmaceuticals Inc.'s follow-on stock offering in the wake of giant Genentech Inc.'s jumbo bond offering.

Rigel Pharmaceuticals Inc. also priced a follow-on stock offering but it was discounted, whereas Keryx's was priced in line with Thursday's closing level. Both were deemed a success, however, as Rigel's was upsized in terms of the number of shares sold.

Despite the optimism prevailing late in the week, Accentia BioPharmaceuticals Inc.'s initial public offering was held back and is now expected to price in the upcoming week.

Also, Genomic Health Inc. filed a $75 million IPO late Friday. The Redwood City, Calif. company develops cancer drugs, with a lead product targeting breast cancer. Timing has not been established, nor a price range, but JPMorgan and Lehman Brothers will be joint bookrunners.

Partnering is a big source of funding for small start-up biotechs and Adherex Technologies Inc. said Friday has inked a deal with GlaxoSmithKline plc. Glaxo also participated to the tune of $3 million in Adherex's $9 million PIPE deal. A couple of other PIPEs totaling $15 million from ReGen Biologics Inc. and Xenomics Inc. emerged Friday too.

Mergers and acquisition activity continues to be a matter of speculation, and Abgenix Inc. and Sepracor Inc. were active on chatter along those lines. In both cases, takeover protection in their bonds delineated moves between multiple issues.

Genentech Inc.'s bonds were still very active, even for a Friday, bond traders said, and tightened "a little, nothing much, maybe 2 basis points," as Genentech shares edged down $0.02, or 0.02%, to $89.58.

Elsewhere in secondary activity, Chiron Corp. was a big mover to the downside, in both the stock and bond markets, as the U.S. Food and Drug Administration asking for an additional clinical trial before it approves Pulmoniq for lung transplants. The stock was hit by downgrades as analysts also noted ongoing problems with influenza manufacturing facilities in the U.K. Chiron shares Friday fell $1.24, or 3.33%, to $36.03. Also, its convertible bonds were off about a quarter point.

Medimmune Inc., with a rival flu medication FluMist, was a beneficiary in Chiron's demise. Medimmune shares gained $0.67, or 2.36%, to $29.11.

Accentia pushed to next week

Accentia has pushed back its initial public offering to the July 18 week's calendar, with perhaps another reduction in the indicative range before it is finalized. On Monday last, the indicative range was cut to $8 to $10 per share from $11 to $13 with market sources citing resistance from large institutional clients.

At the midpoint of the most recent price range, the Tampa, Fla.-based respiratory disease and oncology drug company is looking at estimated proceeds of $41.2 million to $49 million versus an original estimate of $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.

Accentia previously decided to delay its initial public offering from two weeks ago due to positive product news from the Food and Drug Administration, company chief finance officer Alan Pearce earlier told Prospect News.

Echoing sentiment from bankers and buyside market sources, Pearce acknowledged resistance from large institutional investors while there was "a tremendous response" from retail buyers.

"You can't, you don't want to, build a book full of retail clients," said a sellside source familiar with the deal. "You have to have some big institutional buyers involved."

A buyside market source told Prospect News he saw the biggest resistance to Accentia among potential institutional investors being the immediate dilution from Accentia's previous private financing with convertible securities.

Accentia, focused on the commercialization of targeted therapeutics in drug delivery technologies related to respiratory, oncology and critical care, was formed by the Hopkins Capital Group LLC and affiliates in 2002.

Keryx spikes after pricing pat

Keryx Biopharmaceuticals priced 5 million shares of common stock at $14.05 per share, even with Thursday's closing price, in an off-the-shelf secondary offering via bookrunner JPMorgan Securities.

On the pricing, considered a triumph in that it was not discounted, Keryx shares were up in pre-market trading 2.5% and continued to climb throughout the session. By day's end the stock was up 12.53%, or $1.76, to close at $15.81 on very heavy volume. Some 5.32 million shares traded, compared with the three-month running average of 412,267 shares.

As expected with a follow-on offering on the table, Keryx shares declined when the deal emerged earlier this week but there was a buying surge ahead of the pricing Thursday, a trader said.

"All the signs were 'Go!' on this, so everyone was happy," the trader said.

New York-based Keryx plans to use proceeds to fund ongoing development of its two drug candidates that are in late-stage clinical trials. 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.

Rigel ups discounted follow-on

Rigel Pharmaceuticals fetched $75.7 million in gross proceeds with a follow-on offering of an upsized 3.65 million shares of common stock at $20.75 per share, discounted from Thursday's closing price of $21.56. The offering was boosted from 3 million shares.

In trade Friday, the stock tracked lower toward the secondary pricing level. Rigel shares settled at $20.87, off 69 cents, or 3.2%, on the day. Some 1.4 million shares changed hands, far ahead of the three-month running average of 200,875 shares.

Still, company executives were pleased with the deal.

"The results that we got turned out to be very positive. We had both new and existing investors," said Rigel chief financial officer James Welch. "We were very pleased."

"When" came sooner than expected for Rigel in terms of tapping the capital markets for funding as the company made the secondary offering following a comment by Welch to Prospect News last week suggesting it was a matter of "when, not if" to raise more funds.

"There's a certain window where we are contaminated insofar as talking about an offering in relation to our clinical trials," Welch said. "The timing was right for this now."

San Francisco-based Rigel, which develops treatments for rheumatoid arthritis, allergies and other conditions, plans to use proceeds to fund research and for other general corporate purposes.

Abgenix a target for Novartis?

M&A buzz heated up again Friday and Abgenix was a name bandied about as perhaps a target of the likes of Novartis AG, which according to speculation would be looking to add manufacturing capacity.

"Novartis will buy Abgenix. I heard that they have been looking at them for the manufacturing," said a trader.

"Smart money is buying. Citadel now owns 5.4% of the company (there's a new 13-G filing out)."

Abgenix has a 100,000 square-foot facility in Fremont, Calif., that is available for clinical and commercial manufacturing, he pointed out. The plant has four 2,000-liter and two 12,000-liter bioreactors and is built to comply with both FDA and E.U. guidelines, he added.

The newer Abgenix convertible bonds would stand to fare very well in a takeover scenario, the convertible trader said. From a convertible arbitrage position, he estimated takeover protection in the bonds would "make 5 points," while outright holders would "make a killing."

The 1.75% due 2011 issue added 1.5 points on Friday to 97 bid, 97.25 offered with Abgenix shares at $9.97. The stock settled at $10, gaining 33 cents, or 3.41%, on the day.

Abgenix takeover might be best

It could be a coup for Abgenix holders, as some analysts have been skeptical about the company, calling it a "one-trick pony, saddled with debt," as one sellsider put it, referring to Abgenix pinning its future largely on the success of its cancer drug Panitumumab as a competitor to ImClone Systems Inc.'s Erbitux.

Panitumumab, being developed by Abgenix and Amgen Inc., would be a second or third competitor in the therapeutic EGFR antibody market, noted Global Crown Capital analyst Kate Winkler in a report earlier this week. She added that Abgenix has not procured any new technology licensees since 2003.

"Given the lackluster market introduction of the pioneer product in this field [Erbitux], we are not especially optimistic about the ability of a follow-on product to yield the level of revenues that would enable Abgenix achieve its goal of becoming cash-flow positive by 2008 or 2009," Winkler said in a report.

Debt is a major obstacle, too, the analyst said, citing roughly $440 million in cash and investments against some $464 million of borrowings, all convertible debt. She expects Abgenix's cash burn in 2005 to come to $105 to $120 million.

Sepracor as a target debated

Sepracor was another name moving on renewed merger speculation.

Sepracor has been the source of considerable market chatter regarding it being targeted as a takeover candidate but that had died down to about a whisper until Friday. The buzz resumed loudly on a Smith Barney Citigroup report in which analyst Andrew Swanson mentioned his target price on the stock reflects a 75% chance that Sepracor becomes the subject of a takeout.

"This had all but died out, talk about Sepracor as a target. Then there was one sentence in one report and it all fired up again," said a convertible trader.

Sepracor has four converts in play but only one of which - the 0% issue due 2024 - has takeover protection for holders. Two older zero-coupon issues and the 5% due 2007 do not. As a result, traders saw nothing but the 0s of 2024 move, and that issue added 3.5 points outright, or 1.5 points on swap, to 102.625 bid, 103.625 offered, the convert trader said.

Sepracor shares shot up $1.22, or 2.08%, to $59.98.

The stock was taking off on Smith Barney's Swanson boosting his revenue and EPS estimates for Sepracor. But he said in the report Friday that "Sepracor's current valuation can only be supported by a takeout; our $70 target reflects a 75% chance this happens." Thus, he reiterated a hold rating on the stock.

But due to better than expected revenues from Sepracor's sleeping pill Lunesta, Smith Barney upped its revenue estimates for the second quarter to $62 million from $45 million and EPS loss to 50 cents from 66 cents, although the 2006 sales estimate was left intact at $470 million. Sepracor is slated to report results before the market opens on Tuesday.

Sepracor, based in Marlborough, Mass., focuses on two therapeutic areas - respiratory and central nervous system disorders.

Adherex nabs Glaxo as partner

Adherex said it has received a $3 million investment from GlaxoSmithKline for participation in its previously announced $8.96 million private placement, and the two companies have entered into a licensing and development agreement for investigational oncology drugs.

In the private placement, GSK bought roughly 10.7 million units - consisting of one share and a warrant for a third of a share - at 28 cents each. The whole warrants allow for an additional share at 35 cents each for three years. The stock on Friday added 5 cents, or14.46%, to end at 38 cents.

The proceeds will be used for development programs and operations. Under the terms of the licensing agreement, Adherex will have exclusive license to develop Glaxo's oncology drug eniluracil.

Glaxo may buy back the eniluracil license at various times. If GSK does buy back the rights to eniluracil, Adherex will receive payments of up to $120 million dependent upon certain sales and development milestones. However, if Glaxo does not buy back the compound, Adherex will be free to develop eniluracil alone or with partners, and will pay Glaxo development or sales milestone payments.

Adherex also granted Glaxo the option to a worldwide license on Adherex's ADH-1 tumor compound. If Glaxo chooses to accept the license, Adherex will receive development and sales milestone payments totaling $100 million upfront.

Based in Research Triangle Park, N.C., Adherex is a biopharmaceutical company focused on the development of cancer treatments.

Xenomics wraps $2.77 million deal

Repeat PIPE issuer Xenomics, Inc. closed a $2,771,000 offering of convertible preferred stock Friday.

The New York-based company sold 277,100 shares of series A convertible preferred stock at $10 each.

The preferreds are convertible into common shares at $2.15 each.

The investors received warrants for 386,651 shares, exercisable at $3.25 each for five years.

This is the third PIPE Xenomics has conducted this year.

In the first, which closed on Feb. 3, the company sold 1.47 million units of one share and one warrant at $1.95 each for proceeds of $2,866,500. The second offering, for $2,954,998, wrapped on April 13. In that deal, the company sold 1,515,384 units at $1.95 each. The terms for the units were the same as the February offering.

"This financing will reinforce and sustain Xenomics' innovative program to develop and deliver improved medical diagnostic tests based on our proprietary Transrenal-DNA technology," Randy White, the company's chief executive officer, said in a statement.

"Based on the proceeds from those financings [the February, April and July financings], our capital resources were sufficient to carry Xenomics' [research and development] operations through to the end of next year. The latest funding enables us to accelerate our efforts to develop Transrenal-DNA diagnostic tests for an increasingly broad range of applications."

Xenomics develops non-invasive diagnostic tests. The proceeds from the offering will be used to fund the development of diagnostic tests, as well as product regulatory approval and commercialization.

Xenomics' stock closed down $0.05 at $2.20 Friday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.