Amylin drops 3% on follow-on; Keryx up 3% on PIPE; Cubist off; Cephalon off, Generex dives 20%

By Ronda Fears

Memphis, March 27 - Amylin Pharmaceuticals, Inc. took a hit Monday on an announced follow-on stock deal, but traders pointed out that volume was light in the name. Meanwhile, a handful of biotechs with PIPEs on the tape Monday were higher, underscored by a big $83 million deal from Keryx Biopharmaceuticals, Inc.

Otherwise, various bits of news drove many biotechs lower Monday while broader stocks were mixed but with only slight movements on whole. The Dow Jones Industrial Average ended off 29.86 points, or 0.26%, at 11,250.11 while the Nasdaq added 2.76, or 0.12%, to settle at 2,315.58.

Cephalon Corp. shares continued to be ratcheted lower on the heels of the rejection last week from a Food and Drug Administration panel for its attention deficit hypersensitivity disorder drug Sparlon to be used for children and adolescents. Cephalon shares (Nasdaq: CEPH) on Monday lost $2.54, or 3.98%, to $61.26 amid heavy selling.

Amylin slips amid light selling

Amylin announced plans Monday for a follow-on offering of 8.5 million shares, but traders said there were few sellers into the news despite the dilution that the deal will bring. Rather, a sellside trader noted that a 5% drop in the stock early in the day was largely reversed by day's end.

The deal will involve an estimated "9% dilution but only a 3% drop in [the] stock price. The trading pattern has been consistent - low volume because [of] no sellers and buyers don't want to chase" it, the sellsider said.

"Fundamentals haven't changed about the company," he added. "There's still some upside to first-quarter numbers."

Amylin shares (Nasdaq: AMLN) closed off $1.44, or 3.08%, at $45.34. Some 1.6 million shares traded versus the three-month running average of 2 million shares.

San Diego-based Amylin plans to use proceeds to commercialize approved products, to fund late-stage product candidates and other pipeline candidates, to establish additional manufacturing sources - including the Ohio manufacturing facility - to increase research and development, to fund other operating expenses, for potential acquisitions and for general corporate purposes.

Amylin players shrug off dip

Like the sellside trader, buyside sources seemed mildly concerned about dilution from the deal and, rather, expect the deal might get upsized because of heavy demand.

"As in the past, Amylin lost ground because of a secondary offering. The thinking always seems to be: Why buy at higher prices when you think you can get it lower without commissions in addition?" said one buyside source in Boston.

"However, in my opinion, there won't be enough stock around to satisfy demand so look for additional shares to be sold [by the company] and those who did not get what they wanted to drive Amylin higher subsequently. In the past the secondary price has formed a support level which has served as a launch pad to higher levels. These prices will seem cheap soon enough."

Indeed, another buysider shrugged off any concern about dilution.

"Dilution for a growing biopharma company with two first-in-class drugs and a strong pipeline is meaningless. Every time Amylin has issued new shares it has taken advantage of market forces to raise capital to expand operations," said a buyside source in Atlanta.

"The current offering will raise nearly $400 million in capital, and Amylin will be able to accelerate programs that had been put on hold by the need to focus on Symlin and Byetta. As usual the initial reaction by Wall Street is to sell off on the news. This move will only make the company stronger."

Amylin has two diabetes products on the market - Symlin since April 2005 and Byetta since June 2005. The company shares revenue on Byetta sales in the United States with Eli Lilly & Co. Last week, Amylin and partners Lilly and Alkermes, Inc. announced the start of a clinical trial to develop a long-acting release, or LAR, version of Byetta that would reduce dosing from twice daily to once weekly.

Keryx to pocket $83 million

Keryx gained nicely Monday on news from late Friday that it was preparing to close a non-brokered $82.8 million direct stock offering in which two institutions agreed to buy 4.5 million shares at $18.40 each - pat with the closing stock price on Thursday.

"Great news that they raised up that kind of money without having to pay [broker] fees," said a sellside biotech stock trader in New York. "It is equivalent to almost $20 a share if they had been paying 7%."

Keryx shares (Nasdaq: KERX) gained 53 cents on Monday, or 2.87%, to settle at $19.01.

The trader said the financing move could be "an effort to put themselves in as strong a negotiating position as possible with potential Sulonex partners or a reflection of the company's intent to go it alone, a hedge against a bad phase 3 result, or all of the above. In any event, it's another smart move by [chief executive] Mike Weiss."

New York-based Keryx develops drugs used to treat diabetes and cancer. Sulonex is an oral heparinoid compound for the treatment of diabetic nephropathy, a life-threatening kidney disease caused by diabetes. Sulonex, previously referred to as Sulodexide, or KRX-101, is being studied in a pivotal phase 3/4 study.

In mid-July, Keryx raised $70.7 million in gross proceeds with a follow-on offering of 5 million shares of common stock at $14.05 per share - even with the previous day's closing price. JPMorgan Securities was bookrunner of that deal.

Metabasis up 1.5% after PIPE

Metabasis Therapeutics, Inc. said it is gearing up to close a direct placement for $39.69 million in which it plans to sell 4.9 million shares at $8.10 each to a group of institutional investors.

The price was a 9.5% discount to the $8.96 closing stock price on Friday, but sparked a rise Monday amid heavy volume.

"I was glad to see this deal finally got done. Maybe now we can move upward. I see at least a $10.00 share price by year-end," said a biotech fund manager in Atlanta. "This is exactly what they needed, more liquidity."

Based in San Diego, Metabasis is a biopharmaceutical company focused on the development of treatments for chronic diseases involving the pathway to the liver.

Cubist off 4% amid dim details

Cubist Pharmaceuticals, Inc. shares were hit Monday in reaction to news Friday night when Cubist announced that it has received an approvable letter from the FDA for a label expansion for it antibiotic Cubicin, but details have not been ironed out even after nearly three weeks of negotiations.

"Mr. Market wasn't in the mood to give anyone the benefit of the doubt today," said a sellside biotech stock trader. He added, though, that he agreed with several sellside analysts that the weakness in Cubist shares was a buy opportunity. "I feel like they are going to get this; it's just that details are sketchy right now and the market wasn't very patient today."

Cubist shares (Nasdaq: CBST) dropped 89 cents on the day, or 3.64%, to $23.56.

The company is seeking a label expansion for Cubicin based on results of a phase 3 study of Cubicin once-a-day at 6 mg/kg for the treatment of Staphylococcus aureus bacteremia and endocarditis. The approvable letter indicates that Cubist's application is approvable, subject to the FDA and Cubist reaching agreement on the label.

"The agency has not requested any additional data from us," said Cubist chief executive Mike Bonney in a prepared statement.

Lexington, Mass.-based Cubist and the FDA have been negotiating labeling for Cubicin for roughly three weeks but have been unable agree thus far. Cubist plans to respond to the approvable letter this week and hopes that will start a process to resolve the label negotiations within 60 days.

Generex plunges on bad press

Generex Biotechnology Corp., which has been on a tear as an avian flu vaccine play, took a 20% shave Monday as it announced manufacturing plans for its primary product, Oral-lyn - an insulin spray for type 1 and type 2 diabetes. The negative reaction was to an article in Smart Money, which the company responded to in a press release.

"They really shouldn't have said anything about it [the article], because it does the opposite of what they were intending. [It's] human nature, I suppose, to suspect the worse and once you take the defense, people feel like their suspicions are justified," said a buyside player in Generex.

"I understand they felt like they had to [address the article]. They were sort of backed up against the wall. From my stand point, it was nice to pick up some more shares" on the decline.

Generex shares (Nasdaq: GNBT) dropped 67 cents, or 20.43%, to $2.96 on heavy volume with 35.7 million shares changing hands versus the norm of 10.4 million.

Toronto-based Generex took issue with reference in the article to "financial struggles," pointing out that as of Friday it had cash and equivalents of $41 million - the strongest financial condition in its history. Generex said the article said that "for the past year, Generex hasn't been able to pay off its debt."

"That statement is false," Generex said. The article said that Generex failed to repay two promissory notes and inferred that as a result the noteholders were allowed to convert the debt into shares of common stock, but the company pointed out that terms of the debt allowed for the conversion into stock from the outset.

The article also stated that Generex stock faces the threat of delisting, which the company said was a situation it remedied last fall.

"We do not seek to discourage critical review; however, we consider that such review should be based on accurate facts," said Anna Gluskin, chief executive of Generex, adding that the company made its executives available for the author to speak with. "Unfortunately, whatever his underlying motives were, he chose to misstate and distort the facts thereby portraying the company in an unjustifiably negative manner."

Generex announced the successful completion of the delivery and installation of a turnkey filling operation at the facilities of PharmaBrand, SA in Quito, Ecuador - its joint venture partner for the commercialization of Generex Oral-lyn in Latin America. The company anticipates that the first commercial production run of 50,000 canisters of Generex Oral-lyn will be completed in April.

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