Thermage, ActivBiotics IPOs on tap at lower ranges; Millennium, Elan market bonds; Vasogen off

By Ronda Fears

Memphis, Nov. 9 - Biotechs took a beating in the secondary market, but there were new deals to focus on for distraction. In equities, Thermage, Inc. and ActivBiotics, Inc. were both seen on deck with initial public offerings and lowered price talk, while Millennium Pharmaceuticals, Inc. and Elan Corp. plc were in the fixed-income markets pitching new deals.

Additionally in the stock arena, players were preparing for a likely follow-on deal from Alnylam Pharmaceuticals Inc. after it filed a $150 million stock registration at the Securities and Exchange Commission.

"Alnylam is one of the sexiest stocks in biotech," said a buyside trader in New York. "She just keeps getting better looking with time. It was a nice call today and prospects for the future are great."

Alnylam shares (Nasdaq: ALNY) closed Thursday off by 29 cents, or 1.48%, at $19.26 and in after-hours activity the stock lost another 26 cents, or 1.35%, to $19.

Last week Alnylam shares surged after Merck & Co. Inc.'s purchase of Sirna Therapeutics, Inc. for $13 a share - more than double where the stock was trading beforehand. Also gaining on that news was CytRx Corp. Both are involved in drug research using short interfering RNA technology.

CytRx shares (Nasdaq: CYTR) added 3 cents, or 1.53%, on Thursday to close at $1.66.

"The Sirna news first started a rash of speculation that Alnylam would be snapped up," the trader continued. "Now it looks like Alnylam could be the hunter instead of the hunted. The numbers look favorable. Alnylam's market cap is somewhere around $620 million, as of today's close, and CytRx is roughly $120 million. It would be a slam dunk."

Cambridge, Mass.-based Alnylam has its lead drug candidate, ALN-RSV01, in phase 1 trials for lung infections caused by respiratory syncytial virus. Los Angeles-based CytRx has Arimoclomol for amyotrophic lateral sclerosis, or Lou Gehrig's disease, scheduled to begin phase 2b trials in the United States and Canada in mid-2007.

ActivBiotics, Thermage at bat

On the heels of Catalyst Pharmaceutical Partners, Inc. getting its IPO off at half the original range, ActivBiotics and medical devices concern Thermage were seen on deck to price their IPOs at lower levels as well.

ActivBiotics on Thursday cut the expected price range to between $8 and $10 per share from a previous range of $12 to $14, while Thermage cut price talk to $8 to $9 per share from $11 to $13.

Lexington, Mass.-based ActivBiotics' lead product, Rifalazil, is an antibacterial agent in phase 3 trials for intermittent claudication - pain, cramping or fatigue - associated with peripheral arterial disease. It also has phase 2 trials under way for Rifalazil for carotid artery atherosclerosis, as well as M40403 for post-operative ileus and ABI-0043 for skin and skin structure infections.

Hayward, Calif.-based Thermage has its ThermaCool system, a non-invasive treatment of wrinkles that uses monopolar radiofrequency energy to heat and shrink collagen and tighten the epidermis and subcutaneous tissue. IPO proceeds are earmarked to market ThermaCool as well as for research and development and a $5 million repayment of a working capital line with GE Capital.

In trade Thursday, after debuting with a small gain the day before, Catalyst shares (Nasdaq: CPRX) added a nickel, or 0.82%, to settle at $6.15.

Millennium on the prowl

Millennium Pharma was in the convertible bond market Thursday pitching a $200 million five-year note talked to yield 2.25% to 2.75% with a 32.5% to 37.5% initial conversion premium, and while convertible market sources were not enthusiastic about the deal, equity players were excited that the company may have its eye on another merger prospect.

As expected with a convertible deal on the table to price after the market close, Millennium shares (Nasdaq: MLNM) took a hit, losing 72 cents on the day, or 6.02%, to close at $11.25.

On Oct. 17, Millennium bowed out from the race with Genzyme, Inc. to acquire the Canadian biotech AnorMED, Inc. Genzyme had been pursuing AnorMED for a year or more and its bid of $8.55 was bested by Millennium with a $12 offer that Genzyme went on to beat at $13.50. Millennium pocketed $19 million in break-up fees from AnorMED after their deal fell through.

Following the saga some thought Millennium might become a takeover target itself, but now it appears to still be on the hunt. Cambridge, Mass.-based Millennium said proceeds from the new convertible debt would be used for potential license arrangements and acquisitions.

"Millennium is shopping for an acquisition. They are padding their bank book with a convertible," said a buyside source in New York. "The question is who will they buy? It's a short list as I see it: IMGN VPHM INGN CRIS."

He added that Immunogen, Inc. (Nasdaq: IMGN) has a market cap of $184 million, ViroPharma, Inc. (Nasdaq: VPHM) has a market cap of $855 million, Introgen Therapeutics, Inc. (Nasdaq: INGN) has a market cap of $180 million and Curis, Inc. (Nasdaq: CRIS) has a market cap of $86 million.

Last week at the Mass Opportunities biotechnology investment conference in Boston, Millennium officials said the company was aiming to get its Velcade as a front-line therapy for multiple myeloma, which would double the market opportunity for the drug.

Elan off despite debtload shift

In the high-yield bond market, Elan announced Thursday it would sell $500 million of senior fixed-rate notes due 2013 and senior floating-rate notes due 2013 through its finance unit with proceeds earmarked to take out some of its convertible debt. A roadshow is scheduled to begin Monday for the Rule 144A deal, for which Goldman, Sachs & Co. is running the books.

Elan's debt load has been a big overhang for the stock, but equity traders said the shifting of the burden in the transactions announced Thursday did little to allay concerns about the Irish drug concern.

"Volume demonstrates that nobody is interested in investing in Elan even at this price. That tells you something right there," said one sellside trader. "Elan is worth less than $10 a share to the most optimistic of investors! I say Elan's a fair price at $2 and change."

Elan shares (NYSE: ELN) settled Thursday off by 16 cents, or 1.12%, at $14.15 with 2.5 million shares traded versus the norm of 3 million shares.

Following the offering, Elan said it plans to redeem its $254 million of 6.5% convertible guaranteed notes due 2008 issued by Elan Capital Corp. In addition, proceeds are expected to be used to repay any convertible notes not converted into equity (at a conversion price of $7.42), as well as repay some of the $613 million of 7.25% guaranteed senior notes due 2008 issued by Athena Neurosciences Finance.

Standard & Poor's assigned a B rating to the new notes, and Moody's Investors Service assigned a B3 rating, both with a stable outlook.

S&P noted that the ratings on Elan reflect the company's expected continued losses over the intermediate term, a currently limited product portfolio and high reliance on the controversial multiple sclerosis drug Tysabri, which was only recently approved for return to the market.

Moody's said Elan's rate of cash use is significant as Elan faces $613 million of debt maturities in early 2008. Upward rating pressure could result from a very successful re-launch of Tysabri, which Moody's said would suggest that Elan is on a clear path to generating positive free cash flow. But the agency said there could be negative pressure if it appears Elan is unlikely to achieve positive earnings and cash flow by the end of 2008.

Vasogen drops 20% on PIPE

In the PIPEs market, Vasogen Inc. said Thursday it is gearing up to close a $20.3 million direct placement of units to a group of institutional investors, including Federated Kaufman Fund and RA Capital.

The 43.2 million units, priced at $0.47 each, are comprised of one share, one warrant for two-fifths of a share and one warrant for one-tenth of a share. Each whole two-fifths share warrant is exercisable at $0.63 each for five years. The whole one-tenth share warrants are exercisable at $0.53 each for six months.

On the news, Vasogen shares (Nasdaq: VSGN) lost 11 cents, or 20.11%, to settle the day at 43 cents.

Mississauga, Ont.-based Vasogen has taken a beating this year from conflicting data on trials for its heart drug Celacade, which onlookers have seen as regulatory setbacks for its approval.

The company said proceeds from the PIPE transaction will be used for the development of Celacade and for the development of VP025, its lead candidate from a new series of drugs being developed for the treatment of neuro-inflammatory disorders. The rest will be used for working capital.

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