Arena up after follow-on; Altus interest grows; Nektar, Pfizer up; Glaxo gains on Gates' TB pledge; Teva prices

By Ronda Fears

Memphis, Jan. 27 - Arena Pharmaceuticals, Inc. shares took off Friday with encouraging signs from its narrowly discounted follow-on stock sale, which fetched nearly $165 million in gross proceeds. It was also fodder for optimism in biotech financing transactions as it followed the rave initial public offering from Altus Pharmaceuticals, Inc., which added another 11% in trade Friday.

"It's still touch-and-go with biotechs, as always, but we're pretty optimistic," said an investment banker with a leading firm that manages biotech deals.

He noted that despite the success of Altus and Arena there were a handful of deals that were pushed back on the calendar to the week of Jan. 30, namely the IPOs of Iomai Corp. and SGX Pharmaceuticals, Inc., and follow-ons from Alnylam Pharmaceuticals Inc., Genitope Corp. and Nuvelo Inc. Valera Pharmaceuticals, Inc.'s IPO also is slated for the week of Jan. 30.

Back to Arena's deal, not only was it just narrowly discounted from Thursday's close, the deal size was boosted as well.

San Diego-based Arena, which has an obesity drug in development along with several other drugs, sold an upsized follow-on offering of 9.75 million shares, up from 8.5 million shares, at $16.90 - discounted slightly from Thursday's close of $16.97 - via joint bookrunners CIBC World Markets Corp. and UBS Investment Bank.

"In addition to the market price of the shares offered, which was incredible, the demand was so strong that the company was able to increase its offering," said a sellside source familiar with the deal. "The strength in these small pharmas is evident."

Proceeds are earmarked for clinical trials for drugs in development and for general corporate purposes. The company expects to announce results from a phase 2 clinical trial of APD125 for insomnia by around the middle of 2006 and commence a phase 3 clinical trial of APD356 for obesity in the second half of 2006.

Arena shares (Nasdaq: ARNA) opened at $17.42 and went as high as $17.90 before retracing to close the day up by 36 cents, or 2.12%, at $17.36.

Altus interest grows further

Altus Pharmaceuticals, Inc. was really responsible for the upbeat attitude for biotech stock deals. The company on Wednesday priced an upsized IPO at the middle of price talk, for net proceeds of $95 million, and the stock gained 12% when it debuted Thursday. It added another 10% on Friday.

"We needed a nice opener, you know, and Altus filled the bill," remarked the afore-mentioned banker. "Not only was it a home run in the aftermarket, the deal size was very respectable."

Cambridge, Mass.-based Altus sold 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 Thursday right out of the chute and continued to find interest Friday.

Altus shares (Nasdaq: ALTU) added another $1.68 on Friday, or 9.99%, to close at $18.50.

The former subsidiary of Vertex Pharmaceuticals, Inc. is focused on the development and commercialization of oral and injectable protein therapeutics for chronic gastrointestinal and metabolic disorders. It has ALTU-135, or TheraCLEC-Total, in clinical development to treat malabsorption as a result of pancreatic insufficiency and ALTU-238, a treatment for growth hormone deficiency.

Vertex shares (Nasdaq: VRTX) took off sharply on Friday in the wake of the Altus IPO, gaining $1.74, or 5.09%, to $35.95.

Nektar stock sold off on news

Amid profit taking and some confusion about whether the inhaled insulin drug Exubera had received FDA approval Friday as expected, Nektar Therapeutics stock came off the day's high - a nearly 6% gain - but still ended in positive territory, and its convertible bonds also rose as news eventually filtered through the markets that the drug had indeed been given a nod by U.S. regulators.

"News of approval was already priced in," observed a sellside biotech stock trader.

Nektar shares opened sharply higher and rose to $22.25, which would have been a new 52-week high, but the shares began easing back around midday amid some confusion as to whether the FDA had in fact stamped Exubera for approval.

But traders said it was a textbook example of taking profits after buying on speculation.

"Everyone knew approval was coming but the fact that it wasn't in writing allowed the short sellers to exit the stock gracefully. Then, when approval hit, there were few buyers out there. They had already bought!" the sellsider continued. "The sellers came back in and have pounded the stock to its current levels. A classic buy on the rumor, sell on the news."

Nektar shares (Nasdaq: NKTR) still managed to settle on higher ground Friday, adding 13 cents on the day, or 0.63%, to $20.75.

Exubera is being developed by Nektar and partner Pfizer, Inc. It was approved in Europe on Thursday, and that sent Nektar shares up by nearly 7% as analysts estimate the diabetes drug could generate annual sales upward of $1 billion, of which Nektar is to receive a 15% royalty from Pfizer.

Pfizer shares (NYSE: PFE) also spiked on the news with the stock gaining 94 cents, or 3.75%, to $25.99.

Nektar convertibles hold firmer

Nektar's convertibles managed to hold on to more strength against the stock's pullback intraday, market sources said, and further gains are anticipated for Monday.

The 3.25% issue due 2012 traded as high as 122 - a 5-point gain from Thursday - as the stock shot up nearly 6% on the Exubera news. The bonds eased back with the stock, too, amid the market confusion about FDA approval, but a convertible trader at one of the bulge bracket firms noted the issue traded last at 118.25, up 1.25 points from Thursday's close.

When Nektar shares settled at $20.75, though, that sent the end-of-day marks on the bonds to around 117.5 bid, 117.75 offered, the trader said.

Convert traders said the Nektar bonds were very active Friday and many were expecting a lot more action Monday to the upside.

"It got a lot of air time on the news," one trader said. "Diabetes is a big problem and anything to make that treatment easier will be a blockbuster."

Glaxo in TB trials via Corixa

On Microsoft Corp. chairman Bill Gates' plans to pump about $1 billion into research and development targeting tuberculosis, one market source pointed to Corixa Corp., which has been acquired by GlaxoSmithKline plc. Corixa and Glaxo currently have a phase 1 clinical study under way to evaluate the safety and immunogenicity of a novel, proprietary prophylactic vaccine. The vaccine contains both Corixa's MPL adjuvant and a recombinant tuberculosis protein antigen invented by Corixa that is designed to induce protection against tuberculosis.

Gates pledged Friday at the World Economic Forum in Switzerland to triple his foundation's funding for eradicating tuberculosis to $900 million, and The funding is part of a larger campaign against TB, which killed 1.6 million people worldwide last year. Gates, Nigerian president Olusegun Obasanjo and British treasury chief Gordon Brown called for help to prevent 14 million tuberculosis deaths over the next decade.

"I do like the stuff GSK has in the pipeline right now, too. It may take a while for the developments to reach the market, though. But in the meantime, there's always the nice dividend payout for patient investors. And, the dollar is getting stronger."

Health experts at the World Economic Forum also urged renewed caution against the spread of the avian influenza virus. Glaxo also is hot lately because of its involvement with discovering an avian flu vaccine. Glaxo hopes to start clinical trials in early April for its vaccine against the deadly H5N1 bird flu strain, a company executive said Thursday at the event in Switzerland. The London-based company would test two versions of the vaccine and the first results should come about three months later, with production slated to start by the end of 2006.

Teva convertibles climb

Teva Pharmaceutical Industries Ltd.'s two new convertibles, totaling $1.25 billion, opened above par out of the chute Friday after getting priced at the middle to aggressive ends of guidance.

The Israel-based generic drugmaker sold a $750 million block (Baa2/BBB) with a 1.75% coupon and 25% initial conversion premium - at the midpoint of talk for a yield of 1.5% to 2% and 22.5% to 27.5% for the premium - and a $500 million chunk (Baa2/BBB) of convertible paper with a 0.25% coupon and 15% initial conversion premium - at the tight end of talk for a yield of 0.25% to 0.50% and a premium between 14% and 17%.

A syndicate source said the 1.75% note was at 100.375 around midday, while the 0.25% note opened up by around 3/8, and was around 100.25 bid, 100.5 offered around midday.

Teva shares (Nasdaq: TEVA) gained 29 cents on Friday, or 0.71%, to settle at $41.30.

"[Teva] has historically been an attractive name to outright funds as high quality credit in the health care and pharma space, and the company has delivered in terms of earnings growth, stock price performance," the source said. Teva is, he added, "overall an attractive company."

Another syndicate source said investor interest in the notes was strong, including outrights like Fidelity. About 60% of the notes were allocated to outrights, while the remaining 40% went to hedge funds.

A sellside analyst based in New York valued both bonds 1% to 1.3% cheap, saying the simple choice for investors was "whether you want more yield pick-up or premium."

Teva straight bonds ease

Teva is using proceeds from the issue, along with $1.5 billion of straight bonds, to refinance bridge loans related to its completed acquisition of Ivax Corp., which closed Thursday. Unlike the convertibles, however, the straight notes eased in the immediate aftermarket.

The company sold a $1 billion tranche of 30-year 6.15% senior notes at 99.986 to yield 6.151%, or 145 basis points over Treasuries - at the wide end of tightened price talk, which had been amended intraday Thursday to 140 to 145 bps over Treasuries from Treasuries plus 140 to 150 bps.

Teva also sold a $500 million tranche of 10-year 5.55% senior notes at 99.856 to yield 5.569%, or 105 bps over Treasuries - at the aggressive end of guidance for a spread of 105 to 110 bps over Treasuries.

In the secondary, the 10-year notes were spotted down at 98.1457 and the 30-year notes were spotted slightly lower at 99.547.

Kenneth Lim and Reshmi Basu contributed to this article.

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