CV Therapeutics quiet in gray, Impax Labs refinances converts; Nitromed off; Ligand moves up

By Ronda Fears

Nashville, June 27 - Biotechs were lackluster on Monday, tracking the broader markets as no major news emerged to move the sector. Even positive news failed to move some names higher, such as Nitromed Inc., which began trading after the stock was halted Friday on news of Food and Drug Administration approval of its heart medicine for African-American patients.

As for primary market activity in biotech names, a big theme was refinancing old debt.

Bond deals from Fisher Scientific International Inc., CV Therapeutics Inc. and Impax Laboratories Inc. were gaining attention, as well as private financing transactions from Valentis Inc. and Aeolus Pharmaceuticals Inc. A $5 billion bank facility was launched by Fresenius Medical Care AG, too, as the German dialysis company moves to finance its $3.5 billion acquisition of Nashville-based Renal Care Group Inc.

Fisher Scientific, a Hampton, N.H.-based manufacturer, distributor and marketer of scientific and laboratory products, was busy in the financing arena Monday, too, with a drive-by junk bond. The $500 million issue was printed with a 6.125% coupon and the 10-year senior subordinated notes (BB+) priced at 99.087 to yield 6.25% - smack at where it had been talked. Proceeds will be used to fund the tender for the company's 8% senior subordinated notes due 2013 and for general corporate purposes.

Impax Labs issued a new 3.5% convertible to finance the redemption of its 1.25% convertible issue, which is in technical default because of missing deadlines to file financial reports with the Securities and Exchange Commission. The news prompted debate about similar coups for investors, and a buyside source said it inspired hope for holders of Ligand Pharmaceuticals Inc.

CV Therapeutics' upcoming convertible offering was finding a warm reception, according to market sources, but it was quiet in the gray market ahead of pricing. In fact, some sources thought the books were going well enough that pricing would be advanced to Monday's close, but that was not confirmed by bookrunners Lehman Brothers and Merrill Lynch & Co.

Nitromed in red despite drug launch

Shares of Nitromed Inc. were halted throughout Friday at $18.97 on news of its BiDil drug gaining FDA approval - but despite the positive news, the stock fell victim to pressures from the broader market and ended lower Monday.

Nitromed shares lost 8 cents, or 0.42%, to close Monday at $18.89.

"This is a significant milestone for Nitromed," said the company's chief executive Michael Loberg. He said the company was ready to pounce on the retail market in two to four weeks, with a trained sales force and labels already at the print shop.

Nitromed has decided not to partner for the licensing and marketing of the new heart drug, Loberg said, although the company has a collaboration agreement with Boston Scientific Corp. to jointly develop nitric oxide-enhanced paclitaxel-coated stents.

Lexington, Mass.-based Nitromed had sought approval of the drug only for patients of African descent as clinical trials had shown it to be highly effective in those patients, but largely ineffective in the rest of the population. The FDA formally approved the application, which reportedly marks the first time the agency has approved a drug targeted at a specific ethnic group.

Despite the downdraft in Nitromed shares, one stock trader said late in the afternoon that there was "buying on dips and Nitromed is getting stronger."

CV Therapeutics buyers lining up

The market was beginning to look hard at the CV Therapeutics Inc. deal for Tuesday's business, whether it pops up as a surprise in the a.m. or in the p.m. as originally planned. Despite enthusiasm for the deal heard in several corners of the market, buyside traders said they had not seen a gray market emerge for it.

CV Therapeutics is pitching $100 million of eight-year convertibles talked at 3.25% to 3.75%, with an initial conversion premium of 20% to 25%. The issue with proceeds intended to repurchase some or all of the $79.6 million 4.75% convertible due 2007.

A big selling point for the issue is three years of collateralized coupon payments, which also will be provided for with proceeds. But many buyers lining up to participate in the new deal are simply fans of the company and its focus.

"We like CVTX a lot," said a buyside analyst at a convertible hedge fund.

The firm is also selling 6 million shares of common stock.

Last week, CV Therapeutics and Solvay Pharmaceuticals Inc. said the FDA extended the deadline to Sept. 10 for deciding whether or not to approve their Aceon high blood pressure drug as a means to lower heart attack risk in heart disease patients. Aceon was first approved by the FDA in 1993 to treat high blood pressure, and offers 24-hour blood pressure control with once-daily dosing. The companies agreed in December to co-promote Aceon in the U.S. until 2010.

CV Therapeutics hopes to begin promoting Aceon to cardiovascular specialists this summer and then sees a potential launch of its Ranexa, a treatment for angina or chest pain induced by artery blockage, in the first half of 2006, company CEO Louis Lange said. CV Therapeutics said it expects to submit a new drug application for Ranexa by the end of August, one month earlier than previously expected.

"I think the drug works at least in angina, and that alone justifies the current price. If they get the ACS [acute coronary syndrome] indication then it's a home-run," said the convertible analyst. "I also think they have a great deal with Solvay on Aceon, and would be surprised if Aceon doesn't get the expanded label [they enjoy in Europe] here in the U.S. That then leaves their third drug/imaging agent, Regadenoson, as a free call option."

Impax refinances 1.25% converts

Impax Labs was in the market with a refinancing transaction for an existing convertible, too.

The company said it sold $75 million of seven-year convertible notes at par with a 3.5% coupon with an initial conversion price set at 130% of the average closing price of its common stock during the 10 trading days beginning and including June 20.

The transaction, with Highbridge International, was negotiated without a placement agent, Impax Labs chief financial officer Arthur Koch Jr. told Prospect News.

Impax Labs said proceeds from the Section 4(2) deal, along with cash on hand, will be used to redeem its 1.25% convertible notes due 2024, plus interest. The Hayward, Calif.-based biotech firm said it had received a demand to accelerate payment on the 1.25% notes from a holder representing more than one-quarter of the $95 million issue. The company also noted that it had $78 million of cash as of May 31.

"We are glad to get this behind us," said Impax Labs chief financial officer Arthur Koch Jr.

Highbridge was the holder who accelerated payment on the old 1.25s, according to market chatter, but that was not confirmed by the hedge fund. The acceleration was possible due to a technical default with respect to the convertibles as a result of the company failing to file its 2004 annual 10-K report at the Securities and Exchange Commission within specified time frames. That also resulted in a default under the company's credit facility with Wachovia Bank, which has been waived by Wachovia.

On the news, a sellside trader said the Impax Labs 1.25% converts shot up around 10 points to par. The holder that accelerated payment because of the default held just over 25% of the issue. Impax Labs shares also zoomed, gaining 80 cents, or 5.16%, to close Monday at $16.29.

Ligand hope inspired by Impax deal

Drugmaker Ligand Pharmaceuticals is another name in a similar boat because of delayed financials and one buyside source said the Impax Labs transaction, which he couched as "an exchange that isn't an exchange" was a positive development for Ligand holders. A sellside source, however, said Ligand has more bargaining power, as its converts are trading well above par while Impax Labs' converts were well below par.

On May 20, Ligand announced it will restate financial results for 2002, 2003 and first quarter 2004 due to improper accounting for revenue and delayed filing its 2004 10-K report as well as its first quarter 2005 10-Q report.

San Diego-based Ligand, engaged in the discovery and marketing of drugs in the areas of cancer, pain, skin diseases, hormone-related diseases, osteoporosis, metabolic disorders, and cardiovascular and inflammatory diseases, has until July 29 to remedy the situation or face a delisting on the Nasdaq.

"If [Ligand convertible holders] negotiated a deal like Highbridge did with Impax, they essentially get paid for the old issue and buy a new one, it's like an exchange," the buyside source said. "For Impax they got paid the 1.25% plus interest on the old one and bought the new one with a 3.5% coupon."

It's quite a risky argument, the sellside analyst said.

"As far as IPXL goes, I think that the aggressive holder of the old convert probably told them that a new higher coupon offering was the minimum compensation that they would accept. Those bonds were trading at 90 before today, so the company could be pretty certain that the issue was going to get put back to them absent some other agreement," the sellsider said.

"My understanding of these situations is that if the company defaulted, then bondholders would be entitled to get their principal plus accrued interest. For issues trading above par, that wouldn't necessarily provide any upside or recourse."

There could be a problem with financing the put, however, which would motivate the company to negotiate. Ligand's 6% convertible due 2007 was quoted Monday in the neighborhood of 113.5 bid, 114.5 offered but little to no activity reported. Ligand shares gained 24 cents, or 3.75%, to close at $6.64.

Fresenius launches bank facility

Fresenius Medical Care AG held a bank meeting in the U.S. on Monday to launch the $2.5 billion pro rata portion of its $5 billion senior credit facility, according to a market source, following a bank meeting in Germany last Thursday. Proceeds are earmarked to finance the $3.5 billion acquisition of Renal Care Group Inc.

As previously reported, the pro rata piece consists of a $1 billion revolver and a $1.5 billion five-year term loan A, with both tranches talked at Libor plus 150 basis points; a proposed $2.5 billion seven-year term loan B is not expected to launch until fall. In addition to funding the acquisition, Fresenius will also use the new loan to replace its existing $1.2 billion credit agreement. Fresenius also is assuming $500 million of Renal Care debt.

At closing, Fresenius debt to EBITDA will be a little over 4 times, but the company hopes to bring that multiple down to 2.5 to 3 times in the next two to three years.

Under acquisition terms, Fresenius will pay $48.00 per Renal share in cash, with closing anticipated in the second half of 2005. Fresenius is a Bad Homburg, Germany-based dialysis products and services provider. Renal Care is a Nashville, Tenn.-based dialysis service provider.

Fresenius shares traded on the New York Stock Exchange slipped 12 cents, or 0.42%, to end Monday at $28.20. Renal Care shares were off 6 cents, or 0.13%, to close at $45.79.

Valentis, Aeolus tap PIPEs market

A pair of biotechs tapped into the PIPEs market with deals announced Monday by Valentis Inc. and Aeolus Pharmaceuticals Inc.

Valentis completed a private placement of units for $4.2 million, consisting of 1.68 million units at $2.50 each to institutional and accredited investors, including current stockholders. The units include one share and one half-share warrant. The full warrants are exercisable at $3.51 each for five years. Reedland Capital Partners was the placement agent for the deal. Valentis is a Burlingame, Calif.-based company focused on cardiovascular therapeutics.

Valentis shares gained 11 cents on the day, or 4.33%, to $2.65.

Aeolus has received agreements for up to $2.5 million from a private placement of convertible preferred stock with Xmark Opportunity Funds and Biotechnology Value Fund L.P., and other investors. The issue pays dividends at 6% and is convertible at $1 each. The investors also will receive one warrant for each preferred share purchased, exercisable at $1 each for five years. Based in Research Triangle Park, N.C., Aeolus is a focused on the development of treatments for Parkinson's disease, autoimmune disorders, tumors, chronic obstructive lung disease and stroke. Proceeds are earmarked for animal testing and the development of pipeline compounds.

Aeolus shares, traded over-the-counter, dropped 10 cents, or 17.86%, to 46 cents on Monday.

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