Advanced Magnetics raises $32 million; Genta pockets $41 million; Favrille bags $45 million; Cubist rises 4%

By Ronda Fears

Memphis, March 7 - Cubist Pharmaceuticals, Inc. was sharply higher in pre-market activity Tuesday and flirted with a new 52-week high on reports from the company of a favorable vote at the FDA to approve the expanded use of its antibiotic Cubicin, which analysts expect would lead to higher sales.

Lexington, Mass.-based Cubist said an FDA committee voted that there was substantial evidence of safety and efficacy of Cubicin to expand its indication to include the treatment of S. aureus bacteremia and infective endocarditis. Industry onlookers expect the FDA to approve a label expansion to include both bacteremia and endocarditis within a couple of weeks.

"The stock will bounce around until the FDA approval on March 24," said a sellside biotech stock trader. "I look for it to trend positive as investors realize that the phase 3, whose endpoint was designated by the FDA, was successful."

Cubist shares (Nasdaq: CBST) settled the day higher by 88 cents, or 3.75%, at $24.32.

Cubist short covering extensive

Cubist shares Tuesday traded in an intraday range of $23 to $25, flitting around the 52-week high of $24.60, which was struck last Friday on anticipation of the FDA panel discussion.

While analysts expect an expanded label for Cubicin would lead to higher sales, most were not venturing a guess on those figures specifically. But, traders said that widespread expectation that the FDA will officially stamp Cubicin for increased usage put many players in the position of short covering and selling puts as the stock rise was steeper than anticipated.

On the panel's vote, however, the Cubist $22.50 put options made an about-face into negative territory, after having shown high volume and open interest Monday as a hedge against the possibility of an unfavorable outcome. On Monday trading in Cubist stock was halted.

JMP Securities analyst Adam Cutler in a report Tuesday said he expects the Cubicin label expansion should lead to increased revenue for Cubist, based on use in more patients and at higher doses. He did not specify a dollar figure on the increase, however.

Likewise, Merrill Lynch analyst David Munno said he expects higher sales but did not make a forecast. Munno did say, though, that with a broader label for Cubicin and a larger sales force Cubist should be able to at least reach its 2006 sales guidance of $190 million to $205 million.

Favrille edges up on PIPE deal

Favrille, Inc. expects to pocket $45.2 million from a PIPEs transaction led by MPM BioEquities Adviser, LLC. The deal involves the sale of 8.6 million shares at $5.26 each, plus five-year warrants for another 3 million shares with a strike price at the same level.

On the news, Favrille shares (Nasdaq: FVRL) edged up by 4 cents, or 0.76%, to settle Tuesday at $5.30.

The placement also includes investors among the likes of Federated Kaufmann Fund, T. Rowe Price Associates, Tang Capital Management, ProMed Management, Forward Ventures, Sanderling Ventures, Alloy Ventures and William Blair Partners.

San Diego-based Favrille, which went public just about a year ago, said proceeds will be used for clinical development of the company's FavId product for B-cell non-Hodgkin's lymphoma. The remainder will be used for working capital and general corporate purposes.

"$45 million will get this product [FavId, in phase 3 trials] to market, smart move," said a sellside trader. "We go higher. This is a product with a future; $45 million is a lot."

John P. Longenecker, chief executive of Favrille, said the financing should be sufficient to fund operations through the analysis of the phase 3 clinical trial for FavId during the second half of 2007.

"This will enable us to continue our clinical development of FavId for B-cell non-Hodgkin's lymphoma while aggressively preparing for its commercial launch," Longenecker said. "We have also strengthened our shareholder base in the process and helped to position our company for long-term growth."

Advanced Magnetics rises 1%

Advanced Magnetics, Inc. was higher Tuesday in the face of a spot sale of stock, as players were steeled by the fact that it was not discounted from the going market price. The company fetched roughly $32 million from a follow-on offering of 1.23 million shares at $27.46 per share, pat with Monday's close.

"It's fantastic news. $50 million in cash while burning $15 million - they are in solid shape. Also, [they] only had to issue 1.2 million shares, and thus EPS leverage is strong," said a buyside source in Boston, who noted he did not participate in the deal as he already has a full position in the story. But, he added, "We have increased our target to $50-plus."

Advanced Magnetics shares (Amex: AVM) added 25 cents on the day, or 0.91%, to settle Tuesday at $27.21.

Cambridge, Mass.-based Advanced Magnetics said proceeds will be used to fund clinical development programs, including continued development of ferumoxytol as an iron replacement therapy and general working capital purposes.

Ferumoxytol, the key product in Advanced Magnetics' pipeline, is in phase 3 trials as an iron replacement therapy in chronic kidney disease patients, whether or not on dialysis. The company expects to submit a New Drug Application for ferumoxytol in intravenous iron replacement therapy to the Food and Drug Administration in mid-2007.

Genta sinks 10% on PIPE deal

Genta Inc. shares took a dive on the heels of pricing a direct placement of a whopping 19 million shares at $2.15 each - an 11.5% discount to Monday's closing price of $2.43 - for total proceeds of $40.85 million.

A group of institutional investors has agreed to purchase the shares by March 10 via bookrunner SG Cowen & Co., LLC and joint placement agent Rodman & Renshaw, LLC but they have not been named.

Genta shares lost 17 cents, or 6.54%, on Monday, when the best-efforts deal was announced, and dropped another 24 cents on Tuesday, or 9.88%, to settle at $2.19, near where the deal priced. Volume in the stock was off the charts, with some 20 million shares traded Tuesday, versus the norm of 6.3 million shares.

The latest deal was the company's third PIPE transaction in the past 15 months, following a $17.5 million deal last August and a $22.5 million deal in December 2004.

Berkeley Heights, N.J.-based Genta is a biopharmaceutical company focused on treatments for cancer. Its lead product is Genasense, which completed phase 3 trials in combination with chemotherapy in the treatment of several types of cancer.

Genta panned versus its peers

Genta faces stiff competition in the antisense area from several other biotechs, including Isis Pharmaceuticals, Inc., that have been better received by the market, one buyside source said. Shares of Carlsbad, Calif.-based Isis gained Tuesday by 17 cents, or 2.18%, to $7.98.

Isis markets the antisense drug Vitravene for the treatment of cytomegalovirus and retinitis in AIDS patients in the United States and Europe and has seen success with its Triangulation Identification for Genetic Evaluation of Risks, or Tiger, technology - a biosensor system, for identification of infectious diseases.

"The more I have come to understand the Tiger technology, the more I am impressed with it. There is simply nothing like it. It can identify any organism, previously known or unknown, if the sample contains as few as 10 organisms. It can do so using a wide variety of sample types - blood, air, soil, puss, sputum, soil, water, etc.," the buysider said.

"Isis is farther along in the game and it still is not understood by Wall Street. Tiger is almost certainly going to make a lot of money. When the money begins to roll in, Wall Street will become a quick learner. Until then, however, this stock is a tremendously undervalued investment."

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