Altus rockets out of gate; Teva talk tightened; Alexion zooms; Amylin better; Cephalon gains; Nektar rises

By Ronda Fears

Memphis, Jan. 26 - Outside of the dive in Amgen Inc., there was plenty to cheer about in the biotech ranks, not the least of which was the first initial public offering from the sector in 2006 - from Altus Pharmaceuticals, Inc. - and it was a rave, gaining more than 12% in the immediate aftermarket.

Most of the biotech sector was on higher ground, although Amgen saw a 5% drop after it reported earnings that barely missed Wall Street expectations. Drug data and the like rather than earnings drove many of the gains, however.

Nektar Therapeutics, for example, shot up nearly 7% as it and Exubera partner Pfizer, Inc. announced approval of the inhaled insulin in Europe. Also, on Friday the Food and Drug Administration is slated to make a decision on the drug, which analysts have estimated could generate annual sales upward of $1 billion.

Nektar shares (Nasdaq: NKTR) gained $1.32, or 6.84%, to $20.62, and a convertible market source saw its 3.25% issue due 2012 change hands at 113 with the underlying stock at $19.30. The issue was marked at 112.5 at Wednesday's close by another sellside convertible shop.

Alexion Pharmaceuticals, Inc. also saw a big spike, on positive trial data, and Amylin Pharmaceuticals, Inc. saw a nice gain. Alexion reported positive phase 3 clinical results for its anemia drug eculizumab, which it has now dubbed Soliris, and its shares (Nasdaq: ALXN) settled higher by $4.45, or 20.27%, at $26.40. Amylin rose on better-than-expected sales figures for Byetta, a twice daily type 2 diabetes shot marketed with Eli Lilly & Co., of $49 million. Amylin shares (Nasdaq: AMLN) added $1.96, or 4.63%, to $44.33.

Also of note, ViroPharma Inc. shares took off Thursday after the company announced it would take out the remaining $79 million of its convertibles, thus eliminating its debt and reducing annual interest cost by $4 million. ViroPharma shares (Nasdaq: VPHM) gained 66 cents, or 3.29%, to $20.70.

Altus debut zooms over 12%

Altus Pharmaceuticals, Inc. priced an upsized initial public offering of 7 million shares, boosted from 6 million, at $15.00 - smack at the middle of a price range of $14 to $16 - and the stock shot up right out of the chute.

A sellside syndicate source said there was very strong demand for the deal, with the books "way" oversubscribed, but the company decided to boost the size rather than get aggressive on the share price. "That way the buyers are happy and the company gets more, too," he said. "Everybody is happy."

Buyers were still scrambling to buy into the story after the stock debuted, and many initial participants were then able to turn a quick profit. Altus shares opened at $15.26 and quickly rose, settling the day with a gain of $1.82, or 12.13%, to $16.82.

A buysider in Boston remarked, "Altus is impressive. Before I joined [a buyside shop], I worked there for 3 years."

Cambridge, Mass.-based Altus, formerly a subsidiary of Vertex Pharmaceuticals Inc., is focused on the development and commercialization of oral and injectable protein therapeutics for chronic gastrointestinal and metabolic disorders.

The buysider continued, "Vertex is/was proud [of Altus]. The company is solid. It's one of the few IPOs in recent memory to get what they wanted and what they deserve, independent of Vertex. Altus has some solid products in phase 1 and 2 that are low risk targeting defined markets. They should do pretty well."

Altus has ALTU-135, or TheraCLEC-Total, in clinical development to treat malabsorption as a result of pancreatic insufficiency, a condition that affects most cystic fibrosis patients, as well as many patients with chronic pancreatitis, pancreatic cancer, and HIV/AIDS. It also has ALTU-238, a crystallized formulation of hGH designed to be administered once weekly for the treatment of growth hormone deficiency in both pediatric and adult patients.

Proceeds of $95 million, on a net basis without counting the greenshoe, are slated for drug development and general corporate purposes.

Vertex shares (Nasdaq: VRTX) gained 53 cents on the day, or 1.57%, to $34.21.

Amgen hurls déjà vu punch

Manifesting some biotech players' fears, Amgen, Inc. shares recoiled sharply after its earnings hit the tape. The stock fell nearly 5% although the Big Biotech posted a 20% gain in fourth-quarter earnings and a 12% rise in revenues.

"It was déjà vu all over again," said a biotech stock trader at one of the bulge bracket firms. "What can I say? Maybe greed kicked in, or some guys think the economy is going kerplunk and there is nowhere for this stock to go but down. I really thought this was not going to happen, based on what was going on yesterday, but maybe that was just hopeful wishing."

Indeed, there were several analysts with notes out Thursday to the effect that there was little sparkle left in the Amgen story; Merrill Lynch cut the stock to neutral from buy. Amgen reported a fourth-quarter profit of $824 million, or 66 cents a share, up from $689 million, or 53 cents a share for fourth-quarter 2004. Excluding special charges, earnings would have been $928 million, or 75 cents a share, a 24% increase, and that missed Wall Street expectations by a penny. Revenue increased 12% to $3.3 billion.

Amgen shares (Nasdaq: AMGN) hit an intraday high of $76.27 but came off that to end the day at $75.47, higher by 53 cents, or 0.71%.

As for the déjà vu, it was like a flashback to the reaction to Genentech, Inc.'s earnings two weeks ago when a massive sell-off in the stock sent it reeling even after the other Big Biotech story reported a 64% spike in fourth-quarter earnings. Genentech shares (NYSE: DNA) on Wednesday added 21 cents, or 0.24%, to close at $86.41 compared with a 52-week range of $43.90 to $100.20.

Amgen and Genentech also inked a collaborative research pact Thursday.

Teva sees phenomenal demand

Teva Pharmaceuticals Industries Ltd. began circulating price talk early Thursday for $1.5 billion of straight senior notes, with terms evolving throughout the day in a tightening trend, mostly to reflect strong demand. The paper was expected to price in near the time the Israel-based generic drugmaker prices $1.25 billion of convertible bonds, which are slated after Thursday's close.

"Demand is phenomenal," remarked a syndicate source working on the straight portion of debt. He said the fact that Teva is "the biggest generic drugmaker out there" was a big factor in its popularity.

The $2.75 billion of debt will be used to repay the bridge loans Teva incurred in the acquisition of Ivax Corp., which also is slated to close Thursday.

For the straight debt, talk initially put the 30-year tranche yielding Treasuries plus 140 to 150 basis points, or 6.1% to 6.2%, and the 10-year tranche yielding Treasuries plus 105 to 110 bps, or 5.55% to 5.6%. By noon, the 30-year tranche was tightened to 140 to 145 bps over Treasuries.

For the convertibles portions, a Teva finance unit is pitching a $750 million tranche of 20-year convertible senior notes talked with a coupon of 1.5% to 2% and an initial conversion premium of 22.5% to 27.5%; the issue is non-callable for five years with a put in year five. A $500 million tranche of 20-year convertible senior unsecured bonds is talked with 0.25% to 0.5% coupon and 14% to 17% initial conversion premium; the issue is non-callable for two years with a put in year two. Both convertible tranches have full dividend and takeover protection.

New, old interest for Teva paper

Teva's new paper was getting strong interest from existing players in Teva issues not to mention folks from the Ivax camp as well as emerging markets focused buyers for the straight bonds.

Teva is not a newcomer to the convertible market, and its existing convertibles were better on the news, with one big sellside shop pegging the 0.5% due 2024 at 115.25 with the stock at $41.60 and the 0.25% due 2024 at 122.25. Another sellside shop on Wednesday closed the 0.5s at 114.5 and the 0.25s at 120.125.

Teva shares (Nasdaq: TEVA) ended Thursday higher, gaining 38 cents on the day, or 0.94%, to $41.01 and were seen higher still in after-hours activity.

A buyside market source at a convertible shop on the West Coast commented, "Love the name. The current converts trade a little cheap - no takeout might be why. We like the existing issues on an outright basis a little better [than the new issues]." Later, though, after seeing the interest in the new Teva converts, he said, "Teva new we will be active in after all."

Another player who also is not a newcomer to the Teva trade said, "I like Teva, I like Big Pharma, I like generics, I like liquidity, and I like downside protection...enough for a relationship - not just a one-night stand, or just a flip."

Teva also inherited Ivax fans who were getting involved in the straight bonds. There also was "definite" emerging market interest in the Israel-based company's bonds.

"It would be bad if they bought an empty hole but Ivax earnings are estimated to double this year so Ivax will bring enough to make the deal accretive," said a former Ivax holder now involved in Teva, who said he was planning to buy the 10-year straight bonds. "Teva made a great deal."

Cephalon does about-face

Cephalon Corp. stock shot up 7.5% on Thursday, rebounding from the previous day's losses on news that the launch of its attention deficit hyperactivity drug Sparlon would be delayed until second quarter as the FDA reviews these types of drugs.

In addition to the stock marking a nice gain Thursday, Cephalon's convertible bonds were better as well. "Cephalon has done a complete about-face since yesterday afternoon," said a sellsider on a big convertible desk in New York.

Sellside analysts were generally bullish on Cephalon despite Wednesday's news, but there were still some holders with at least a watchful attitude at present.

One sellsider focused on the equity said he expects Sparlon to be approved in the next quarter, and with Cephalon standing to gain exclusivity to the sleep disorder drug Provigil, pending litigation with Barr Pharmaceuticals Inc., he raised his earnings and revenue estimates for 2006 and 2007. Another sellside shop noted that with the nearly $6 drop in Cephalon shares on Wednesday after news of the Sparlon delay he sees the drop as "a handsome opportunity" to buy.

Cephalon shares (Nasdaq: CEPH) on Thursday settled at $71.88, up $5.05 on the day, or 7.56%.

Cephalon said that because the FDA will be reviewing the safety profiles of several drugs for ADHD, over the next several weeks, it will not hold an advisory panel meeting on its Sparlon until March 23. The FDA had originally been slated to make a decision on Sparlon by late January.

Cephalon news sidelines some

As a result of the delay, Cephalon said it now expects to launch Sparlon during the second-quarter 2006. The company also said it will issue financial guidance Feb. 14, a day before it is due to report earnings.

Yet there were still some Cephalon players who were sitting on the sidelines.

"The panel review is for current ADHD meds. The FDA last year has seen some cases of death and dangerous side effects for a few leading ADHD products currently in use. They have been reviewing these cases for the past six or so months and will now get together on the 9th of February and the 22nd of March, to discuss these alarming cases," said a Cephalon holder in Arizona.

"Sparlon was caught up in the FDA's planned review of existing ADHD drugs to determine if there's any link to sudden death, hypertension, stroke or heart attack for both adults and children. It's doubtful that Sparlon won't get full approval from the FDA. Although the higher dose of Sparlon might be questionable.

"How much of an impact this drug will do for Cephalon is also questionable," the buysider continued. "The adult study failed to show any efficacy. So if approved it will be indicated for pediatrics and adolescences only. So, we should see Sparlon launch in April 06, they say. I will hold the stock till then."

Durect drop signals buying

Durect Corp. was seeing some buy interest Thursday, though, after taking several hits in recent weeks.

A couple of sellside sources on the West Coast said the recent weakness was a buying opportunity but there were still some leery onlookers from the buyside.

Another factor, according to another West Coast market source on the buyside was an SEC filing related to Durect's association with Endo Pharmaceuticals Holdings, Inc. related to their joint development of the sufentanyl patch for chronic pain. "Looks like Endo is giving Durect more time. At least it looks like an amendment to the dates."

"Really it's a shame Durect can't get this on track. This used to be seen as having very big potential, but now it's completely discounted," the buysider said. "But it looks like Durect has yet to give up."

"This might simply be a case where there is more buying pressure at around $4 than selling. The Endo news by itself doesn't seem that material to cause the volume and buying that we are seeing this morning."

Durect shares (Nasdaq, DRRX) on Thursday added 14 cents, or 3.25%, to $4.45 after a similar gain Wednesday.

One sellside analyst suggested that a poorly executed secondary offering from Durect in November led to resentment among some players and that the management team has not made amends with shareholders, but with long-term fundamentals in tact investors with a timeline of more than six months should build a long position in Durect.

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