ViroPharma issues $62.5 million deal; PIPEs volume seen strong

By Ronda Fears and Sheri Kasprzak

Atlanta, Oct. 18 - Solid action in the U.S. private placement market saw ViroPharma Inc. leading the pack with a $62.5 million issue.

The company issued $62.5 million of one-year senior bridge notes plus warrants for five million shares of common stock in a Regulation D transaction arranged by Piper Jaffray & Co. Proceeds, plus $53.5 million of cash on hand, are earmarked to finance a $116 million asset acquisition from Eli Lilly & Co.

The notes will pay 10% monthly until Feb. 18, 2005, then step up by 2% monthly until maturity on Oct. 18, 2005. On closing of the acquisition, subject to stockholder approval, ViroPharma intends to swap the bridge notes for 6% convertible notes due 2009 with a 20% initial conversion premium.

The acquisition of U.S. manufacturing and marketing rights for the drug Vancocin Pulvules, which is used to treat gastrointestinal infections caused by staphylococcus aureus and antibiotic-associated pseudomembranous colitis, is expected on Nov. 18. In 2003, Lilly's unaudited revenue from U.S. sales of Vancocin Pulvules was about $40 million.

ViroPharma sees funding solid

Revenues from the Vancocin Pulvules product should make a significant contribution toward ViroPharma's goal of achieving positive cash flow from operations in 2006 and, perhaps more importantly, the funding transactions put in place the capital it needs, said Michel de Rosen, ViroPharma chief executive.

"We believe our acquisition of Vancocin is a remarkable deal for ViroPharma, from multiple perspectives," Rosen said in a company statement. "This important acquisition should allow ViroPharma, over the next several years, to fund substantially all of our ongoing development and operating costs from the cash flows from Vancocin Pulvules. ViroPharma will no longer be required to rely solely on capital market funding to be successful.

"We now will have real cash flows to largely fund the development of our core value drivers: the product opportunities that exist in our clinical pipeline," Rosen continued. "Additionally, it allows us to introduce our commercial organization in a cost efficient manner to prepare for the emergence of products from our pipeline and any additional acquired products.'"

ViroPharma deal gets noticed

Since March, ViroPharma had been trying to establish more solid footing for its business plan, having launched an exchange offer for its existing 6% convertible notes due 2007 and in June, after several revisions, that "restructuring initiative," as Rosen referred to it, was pulled.

Early Monday, there was buzz in the convertible market about a ViroPharma deal but mixed speculation on whether it would be a revival of the exchange offer or a new deal altogether with those proceeds going to take out the old 6% issue. Then, the "deal" turned out to be an acquisition, and still some sell-side market sources questioned the company's ability to raise the $116 million price tag amount.

"That last ViroPharma exchange offer really attracted a lot of attention, and no bonds! I'm thinking that funding could be a concern," a sell-side source in New York said in an email note.

But on reading the terms in the company's announcement, he quipped: "Payable monthly starting at 10% per year and increasing by 2% each month!! Where do we sign up?"

ViroPharma 6s lately at 74.25

On Monday, the existing ViroPharma 6% convertibles due 2007 were flat at 74.25, having traded at that level on Oct. 8, a sell-side trader said. Another sell-side source pegged the issue at roughly 80 with the underlying stock at $2.10, but admitted his shop hadn't traded the bonds in a while.

ViroPharma shares closed Monday up a penny to $2.08.

In the wake of pulling the exchange offer for those notes in June, the issue dropped some 6 points to be offered at 70 after having run up about that same amount on the restructuring effort.

ViroPharma had tried to exchange up to $99 million of new 6% convertible senior "Plus Cash" notes due 2009 for all of its $127.9 million 6% convertible subordinated notes due 2007. It was a condition of the exchange that at least 80% of holders participated in the offer, but when it was abandoned only 3.7%, or $4.7 million, had tendered.

Market sources said holders had wanted at least $500 in cash and 258 shares whereas the company was offering $500 in cash plus 180.95 shares.

Zoltek sells $20 million deal

Elsewhere in the private placement market Monday, sell-side sources said volume remained strong.

"We're seeing a good bit of volume in the market today," said one source. "Mostly smaller deals, but still pretty good volume."

Among the larger deals was Zoltek Cos. Inc.'s $20 million convertible debenture financing agreement.

The 7.5% debentures are due in April 2008. The debentures are convertible into common stock at $12 per share.

Warrants, exercisable for six years, will also be issued for an amount of shares equal to 30% of the number of shares issued upon conversion at $13.

The company, based in St. Louis, plans to use the money from the financing to retire bank debt, complete the reactivation of carbon fiber production at its Abilene, Texas plant and to expand its Hungarian facility.

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