Genta plunges 38%; Auxilium, Oscient slide; Warner-Chilcott IPO range set; AnorMED steady

By Ronda Fears

Memphis, Sept. 5 - Coming back from the long Labor Day weekend, biotech players were heartened and somewhat vindicated by their hopes of a pick-up in deal flow with the price range getting set on the Warner-Chilcott Ltd. initial public offering.

Rockaway, N.J.-based Warner Chilcott set a price range on its initial public offering of class A shares at $17 to $19, boosting estimated proceeds to $1.48 billion from a prior estimate of $1 billion. The IPO, via bookrunner Goldman, Sachs & Co., is projected to net $1.2 billion.

Timing is still uncertain, but one IPO-focused fund manager was excited about the deal.

"This is a jumbo IPO by any standard, and certainly for the biotech/pharma sector," the Denver-based buysider said. "We have been hearing that new deals will surge this fall, and this would be a great opener for that."

Warner-Chilcott has earmarked proceeds to reduce its senior secured credit facility by $470 million, to repurchase $228 million of outstanding 8¾% senior subordinated notes due 2015 and $463 million of preferred shares and for general corporate purposes.

The company specializes in women's health care and dermatology products in the United States, especially oral hormonal contraceptive and hormone therapy, including the April launch of the contraceptive Loestrin 24 Fe and psoriasis treatment Taclonex. Later this month, the company is launching Ovcon 35 Fe, the first chewable oral contraceptive to receive Food and Drug Administration approval.

In addition, the company inked a collaboration with Danish biotech LEO Pharma A/S in 2005 which gives Warner-Chilcott a right of first refusal for the U.S. sales and marketing rights to all dermatology product candidates in LEO Pharma's development pipeline through 2010. LEO Pharma generated revenue of $810 million last year and developed Taclonex.

Genta falls ahead of review

On a negative note regarding secondary action, Genta, Inc. took a huge dive Tuesday after briefing documents were posted at the Food and Drug Administration in advance of a committee review of its New Drug Application for Genasense in a type of leukemia questioning benefits from the new drug to existing drugs.

Genta shares (Nasdaq: GNTA) fell 53 cents, or 38.23%, to close at 86 cents with 43.2 million shares traded versus the norm of 2.25 million shares.

One trader said the prevailing sentiment on Genta stock after the news was that it was "too risky" as there will be "more margin calls and forced sells tomorrow."

But a buysider said that while indeed Genta was for the risk tolerant, he was selling Tuesday and would look to buy back on the weakness Wednesday or shortly thereafter.

"Today, I think we have seen the end of the drop for a while. Tomorrow may be a good entry point for risk takers," the buysider said.

"The data appears to show that Genasense improves the complete response rate in previous non-responders. Unfortunately, this is not the criteria which treatment for CLL [chronic lymphocytic leukemia] is measured. While this may be a better way to measure response to treatment, given that it is not the standard, I do not think that a single open label study will change the standard. I do not think that Genasense will be approved, as is. I will sell today and re-buy tomorrow."

The FDA Oncology Drug Advisory Committee will review the application for Genasense injection plus chemotherapy for the treatment of patients with relapsed or refractory chronic lymphocytic leukemia. The FDA staff said 10% more patients with chronic lymphocytic leukemia responded to chemotherapy when Genasense was added, but the difference is of questionable clinical significance. About 17% of Genasense patients saw the disease go into remission, compared with around 7% who were treated with chemotherapy alone.

AnorMED steady in stand-off

AnorMED, Inc. shares remained steady as the company recommended shareholders reject Genzyme, Inc.'s hostile takeover bid in an ongoing stand-off that for the time being, traders said, has the stock stalled at an elevated level, which has caused significant pain to shorters who were betting the stock would dive after the bid re-emerged last week.

"The shorts are really hurting right now and don't have a lot of options," one trader said. "My thinking has changed. I think there could be a bidding war emerge now, whereas before I really didn't think there would be a lot of interest. I have to justify my position somehow, so I might as well take that stance."

AnorMED shares (Nasdaq: AOM) ended Tuesday higher by 6 cents at $10 while Genzyme shares (Nasdaq: GENZ) also added 6 cents to $67.25.

Genzyme has offered to acquire all of the outstanding shares of AnorMED for $8.55 each in cash.

Vancouver, B.C.-based AnorMED, however, believes that bid "does not reflect the fundamental value of AnorMED" and, if successful, "will deprive AnorMED shareholders of significant upside potential in their investment."

AnorMED player still hopeful

One buysider said he still thinks a competing bid for AnorMED could resurface.

"Genzyme first made their $8.55 offer in October '05 and were turned down. Eight months later they come back to the table with...drum roll please...the same offer! Consider that over 10 million shares have traded near or above the $10 level since last week. That's the market speaking to a deal worth at least $10," he said.

"Regardless of what the short shills may say, the market speaks louder to me. Genzyme has deep pockets and can afford to increase their offer. An additional $100 to $150 million would likely seal the deal. Previously, AnorMED was looking to sell the European rights to Mozobil [a stem cell enhancer] to Genzyme and was close to signing a deal prior to being nixed by Baker. The deal was structured as an up front, lump sum payment in exchange for European rights."

In April, AnorMED asserted that a proxy filed by a group of dissident shareholders, represented by Felix J. Baker. and seeking to replace the AnorMED board of directors was an attempt by The Baker Group to gain control of the company. Baker controls hedge funds that own roughly a 23% stake in AnorMED.

"Anormed's float is owned largely by hedge funds. Baker, Atticus, Amaranth, et al., own upwards of 50% of this company. They will leverage this opportunity to the max. They know the market, the players, have deep connections, and most of all, they know how to play the game better than anyone," the buysider continued.

"Eight months after their initial offer, Genzyme sees no additional value in the company? Since the initial offer, AnorMED has completed enrolment in one phase 3 trial and is 90% complete in another. They have announced positive early results in their HIV program. They have shuffled the board and are poised for growth. Yet the same offer is put forth? AnorMED is on the eve (in biotech timelines) of releasing top line phase 3 data and Genzyme is clearly trying to scoop this up on the cheap.

"The size of this deal will not scare away potential suitors. At $380 million almost anyone can join the foray."

Auxilium off 5% after-hours

Back to downers, Auxilium Pharmaceuticals, Inc. slipped in reaction to a lowered net loss estimate for the year. The company also said it would terminate a co-promotion pact with Oscient Pharmaceuticals Corp. for the testosterone gel Testim, which also sent Oscient shares lower.

In after-hours activity, Auxilium shares (Nasdaq: AUXL) were lower still. The stock lost 10 cents on the day, or 1.16%, to close at $8.55 and then after the close fell another 43 cents, or 5.03%, to $8.12.

Auxilium said it will bulk up its sales force for existing drugs and lease a manufacturing facility, moves that will cause a wider-than-expected loss this year. The company widened its 2006 net loss forecast to a range of $48 million to $51 million, compared to its former guidance of $40 million to $43 million. The company left its projection of 2006 revenues of $64 million to $68 million in tact.

In mid-June, Malvern, Pa.-based Auxilium shares dropped around 8% on news that its Testim missed the primary endpoint in a study with diabetes patients.

Oscient shares also lost ground on Auxilium's news, with the stock (Nasdaq: OSCI) off 2 cents, or 1.67%, to $1.18.

As a result of Auxilium backing out of the deal to promote Testim, Waltham, Mass.-based Oscient will receive a $1.8 million payment in addition to its share of Testim profits through Aug. 31. Oscient said that by ending the Testim co-promotion it will focus more attention on its newly acquired high blood cholesterol drug Antara and respiratory tract antibiotic Factive.

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