Amgen rejigs deal, still a magnet to convertibles, stock players; Chelsea, YM taps PIPEs; Nektar breaks out

By Ronda Fears

Memphis, Feb. 14 - Amgen, Inc. upsized its convertible bond offering to $5 billion from $4 billion Tuesday and reset coupon guidance at the low end of the original range, and still buyers flocked to the books. The underlying stock also was buoyed by $3 billion of proceeds going toward stock buybacks.

Moreover, Amgen's move was applauded by convertible and stock players alike. One buyside market source involved only in the underlying shares commented, "Amgen shows up for Valentine's Day to show us some love."

There were a couple of sizable PIPEs deals on the tape Tuesday, too, and biotech players were gearing up for Adolor Corp.'s follow-on offering of 5 million shares after the close Wednesday.

Adolor shares (Nasdaq: ADLR) chalked up another gain Tuesday, adding 9 cents, or 0.38%, to $23.90 but coming off the session high of $24.37. Exton, Pa.-based Adolor, which concentrates of pain medications, has its lead product candidate, Entereg, under development with GlaxoSmithKline plc to treat people who have had bowel resection surgery.

Amgen tightens convert talk

Revised talk on the Amgen convertibles (A2/A+) put the five-year tranche pricing at a yield of 0.125%, versus previous guidance for a coupon of 0.125% to 0.625%, and the seven-year tranche pricing at a yield of 0.375%, versus previous guidance for a coupon of 0.375% to 0.875%.

Each tranche now will be $2.5 billion with no greenshoe, which was previously $300 million on each leg. The initial conversion premium on both tranches remains talked at 10% to 13%, but through hedge and warrant transactions, Amgen is limiting dilution from the potential conversions by effectively boosting the premium to 50%.

Amgen shares (Nasdaq: AMGN) ended Tuesday up by 79 cents, or 1.11%, at $71.93. On Monday the stock rose in after-hours activity after having edged lower in the regular session.

Final terms on the convertibles are slated to be set after Tuesday's close.

Thousand Oaks, Calif.-based Amgen has earmarked about $3 billion of proceeds for share repurchases.

Amgen players sweet on deal

Players in both Amgen convertibles and the underlying shares were sweet on the deal, even with the tighter guidance for the bonds.

A convertible buysider in Florida, who is a big fan of the Amgen deal, said: "Interest rates are low and [they're] borrowing money at rates that haven't been seen for years. Everybody else is doing it so there is no reason why Amgen should not join the party. Almost like free money compared to the return they will get if they keep performing."

He explained further: "Bond interest is tax-deductible for Amgen. Bond principle does not have to be repaid until maturity sometime next decade. This is not the same as taking out your Visa card to finance short-term consumption or even taking out a mortgage to buy a house. This is much better. Credit card interest is exorbitantly high and is not tax deductible. Mortgages are amortized, which means principle must be repaid as part of the monthly payments. Bond principle is not amortized which means you don't have to repay any principle for years and only have to make a tax-deductible, bi-yearly coupon payment (at today's still low interest rates).

"So for a similar interest rate, bond payers are much better off than mortgage payers since bonds allow you to make fewer payments and have use of the entire principle amount throughout the life of the debt.

"This is a very low cost, tax-advantaged method for Amgen to raise operational funds and reward shareholders at the same time. Share buybacks financed with debt are the single best way to decrease a firm's WACC [weighted average cost of capital]. As long as Amgen is growing earnings faster than its WACC, the stock price will continue to rise. Analysts, hedge-funds, bond rating agencies, and smart shorts know this. The only group out there that doesn't look at WACC are technical analysts - but they will come around as well when the price per share rises and their charts flash the buy signal.

"If your argument is that share buybacks are always a waste of money, I disagree. Big Biotechs need to buy smaller biotechs at a price that will be accretive to future earnings - otherwise the business model of the entire industry falls apart. Every dollar in higher share price for Amgen stock directly corresponds to a fewer number of shares that must be used to acquire other companies when the stock is being used as currency. If shareholders feel they are being rewarded for holding the stock, the price per share will rise and Amgen will need fewer shares for its next acquisition target. Since Amgen is not over leveraged, I am confident that the [stock] slide is over."

Chelsea pockets $21.5 million

Chelsea Therapeutics International Ltd. wrapped up a private placement for $21.5 million, including a fully exercised greenshoe, with the sale of 7.2 million shares at $3.00 each and five-year warrants for another 2.2 million shares with a strike price of $4.20.

Chelsea shares (OTCBB: CHTP) opened at $3.20 on Tuesday, versus the $3.25 close on Monday but settled out the day unchanged at $3.25 with 6,500 shares traded.

Healthcor Management, LP led the investment roster on the deal, followed by RA Capital Management, Great Point Partners, GMT Capital, Vivo Ventures and others.

"We had a lot of interest from our series A investors," Simon Pedder, chief executive of Chelsea, told Prospect News in an interview Tuesday. "The other part of the dichotomy is that in actively talking to the investment community, a number of people expressed an interest in investing actively in buying our stocks. We felt this would be the most rapid way of capitalizing to take our clinical and earlier pre-clinical stage products into our existing pipeline."

Charlotte, N.C.-based Chelsea said proceeds will be used for clinical development of CH-1504, additional anti-folates in the company's pipeline and licensing clinical drug candidates. The remainder will be used for working capital and general corporate purposes.

CH-1504 is in trials now to treat rheumatoid arthritis.

"Our compound is different from methotrexate [traditionally used to treat RA] because it doesn't get metabolized," Pedder said. "Because it's not metabolized, we eliminate the typical short-term tolerance and long-term safety issues normally associated with methotrexate."

Short-term tolerance issues normally associated with methotrexate include irritations of the digestive tract and one of the long-term safety concerns of methotrexates is liver malfunction, according to Pedder.

A source at one of the investors in on the deal agreed with Chelsea management, saying, "It's a fantastic company developing a more tolerable formulation of methotrexate, which is the gold standard of treatment in rheumatoid arthritis."

YM Biosciences seeks $40 million

On the heels of announcing fast track approval for its lead drug, tesmilifene, for use with anthracycline chemotherapy on women with advanced breast cancer, Canadian biotech YM Biosciences Inc. said Tuesday it is gearing up to close a $40.4 million direct placement.

YM Biosciences shares (Amex: YMI) on Tuesday dropped 61 cents, or 11.53%, to $4.68, erasing the 11% gain seen the day before on the fast track news.

Mississauga, Ont.-based YM Biosciences plans to sell 9.5 million shares at $4.25 each to a group of institutional investors led by Great Point Partners, LLC - at a 19% discount to the closing price of $5.29 on Monday. SG Cowen & Co., LLC is bookrunner with Dundee Securities Corp. and Canaccord Capital Corp. as placement agents.

"With an extra $40 million in the bank, YMI should have about $60 million total. That means 10 quarters - 2.5 years - of cash in the bank. The extra $40 million allows YMI to negotiate partnerships from a position of strength, which is great news," said a sellside biotech stock trader.

"With the run-up, it may seem like [the direct placement price is] a huge discount but given we were at $4.00 last Wednesday I don't have a problem with the price. I'd be a buyer here. Nothing fundamental has changed except that now we have plenty of cash to move forward and no worries for years."

Proceeds will be used for the company's drug development as well as for general corporate purposes.

On Monday, YM Biosciences announced that the Food and Drug Administration gave its breast cancer drug tesmilifene fast track designation, which will expedite the review process. The company also announced fiscal second-quarter results Monday, posting a net loss of $5.5 million compared with a net loss of $2.83 million a year earlier, while revenue rose to $549,230 from $521,524.

YM Biosciences also said it is starting a phase 2 trial in collaboration with sanofi-aventis SA combining tesmilifene with Taxotere for the treatment of metastatic and recurrent breast cancer. Separately, YM has licensed tesmilifene to the Shin Poong Pharmaceutical Co. of Seoul to expand the development program into gastric cancer.

In addition to tesmilifene, YM is developing nimotuzumab, an anti-EGFr humanized monoclonal antibody, in a number of indications. A phase 2 monotherapy trial of nimotuzumab produced cytotoxic efficacy and evidence of survival benefit in children with recurrent brain cancer.

Last May, the company acquired Delex Therapeutics, Inc., a private clinical-stage biotech developing AeroLEF - an inhaled version the established pain medication, fentanyl - and a randomized phase 2b pain trial with AeroLEF has been initiated. YM BioSciences is also developing its anti-GnRH, anti-cancer vaccine, Norelin, for which phase 2 data has been released.

Nektar poised to rise: trader

Nektar Therapeutics announced Tuesday the Food and Drug Administration has granted orphan drug designation to the first amphotericin B inhalation powder for prevention of pulmonary fungal infections in patients at risk for aspergillosis due to immunosuppressive therapy.

Using a small proprietary pocket size inhaler, the company has conducted two phase 1 trials and has long-term toxicity studies underway to support the planned pivotal trials early next year. Orphan drugs are developed to treat diseases or conditions that affect fewer than 200,000 people in the United States, and the designation also provides seven years of exclusive marketing to the first developer, according to the FDA.

In what one trader described as typical break-out action, Nektar shares (Nasdaq: NKTR) slipped 8 cents, or 0.39%, to settle at $20.60. He also noted mild volume in the stock with 1.6 million shares changing hands versus the norm of 1.75 million.

"After a breakout, [the] trend usually tests the previous resistance, which now becomes a support. In this case, the low $20s was the previous resistance. That'll be tested today. This is an excellent entry point for anyone wanting to go long here," the trader said.

"Why does this happen? People who were stuck too long while trading in the range get scared when the price starts dropping again and sell. This creates a re-test of the previous resistance. Smart traders had been waiting for this entry point after a breakout. Once the initial profit taking is over the real rally begins. After today, we should [have] a strong and sustainable rise."

Nektar also is due to make a presentation at the BIO CEO and Investor Conference 2006 in New York City on Wednesday at 2 p.m. ET, and the trader said people who are anticipating positive news from the company have really already made those bets.

The Nektar convertibles were not overly active Tuesday on the news, either, which a sellside convertible trader also attributed to those bets already having been placed. He said late in the session that the Nektar convertibles were a bit easier Tuesday, in fact, but on just a couple of trades.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.