Medarex slides; Biomet gains on anticipated sale; Cell Therapeutics higher; Acusphere dives on PIPE

By Ronda Fears

Memphis, April 7 - Medarex, Inc. raised $117.5 million with its follow-on sale, and the stock took a dive on the deal, but some players were buying on the weakness.

The deal, which included 10 million shares of common stock off the shelf priced at $11.75 each, was discounted from Thursday's closing level of $12.28, and there was some pressure on the stock afterward. But players were generally positive about how the deal went.

"From a technical standpoint I am happy to see this wash out weak money, as it is indicating an end to the down slide. This is a perfect opportunity to load up on some more shares if one believes in the long term of Medarex. It's not that bad," said a buyside trader.

"There is some dilution of shares, but the cash of the company is increased at the same time. The net effect is basically a wash. I see this as a good thing because they can use the money."

Medarex shares (Nasdaq: MEDX) ended off Friday by 53 cents, or 4.32%, at $11.75 - smack where the follow-on priced, but in after-hours activity the stock was seen off by another 23 cents, or 1.96%, at $11.52.

Princeton, N.J.-based Medarex - focused on human antibody-based therapeutic products - earmarked proceeds to advance products into commercialization, for capital expenditures and to meet working capital needs. Four of its 32 products are in phase 3 clinical trials.

Biomet players want high bids

Biomet, Inc. gained Friday ahead of Merger Monday with players anticipating bids for the orthopedic device maker might be as high as $46 a share, although analysts have placed the price tag in the neighborhood of $40. For the most part, traders said it was not a matter of if but when, and for how much, Biomet would be sold.

Amid media speculation, the orthopedic device maker acknowledged Thursday that it has hired Morgan Stanley & Co. Inc. to explore strategic alternatives to enhance shareholder value - a catch phrase for being on the auction block.

"Everything depends on what the offer price is. One analyst said $40 to $41, so including a time value that'd be $38 to $39 for now. S&P put it at $46. I heard $48.50, but honestly I tossed that out; it seems a bit much. Price will determine who wins," said a sellside trader.

"This noise is nothing new to the Biomet story; everyone has thought for a while now that they would, or should be, involved in some sort of deal. It's just official now."

Biomet shares (Nasdaq: BMET) closed Friday higher by 31 cents, or 0.8%, at $38.87 but traded as high as $39.45. Volume was not that high, the trader noted, with 3.74 million shares changing hands versus the norm of 2.26 million shares.

Biomet timing crucial now

One buyside market source involved with the story said the timing of Biomet's search for a buyer seems critical with the biotech and medtech sectors poised to flatten out or trend lower. He said he was a seller in the uptick Friday, noting that if Biomet is unsuccessful, then the stock is likely to fall to the low $30s or high $20s.

"One has to wonder why now? There is likely at least one suitor in line. Why does the [Biomet] board feel that now is the time? My guess is the board sees the peak value to be now," the fund manager said.

"Aside from the general concern about over-valuation in the sector, looming value killers are DOJ investigation and possibly a health care reform platform for the next presidential election."

In March 2005, Warsaw, Ind.-based Biomet said it was subpoenaed by the U.S. Attorney for the District of New Jersey requesting documents related to any consulting and professional service agreements with orthopedic surgeons using or considering the use of Biomet's hip or knee implants.

The usual suspects are among the lineup of speculated bidders for Biomet, he said: Johnson & Johnson, Stryker Corp. and Zimmer Holdings Inc., which are all heavily involved in orthopedic devices.

"I think a price tag of $9 billion is more in line with sales and IP [intellectual property] value. Remember, this is not a growth company. And let's see, that puts it at $36.50," he said. "I could be way off with that, but I can get out here and be ahead."

Cell Therapeutics rises 3%

Cell Therapeutics Inc. got lifted Friday by news late the day before that it plans to sell or exchange between $50 million and $100 million of new convertible bonds that would replace one or more of its existing issues.

"The company needs money. This isn't bad news," said a sellside biotech stock trader. "Taking out the convertibles at a big discount would be very good. Last I checked the converts probably could be had for somewhere between 40 and 60 [percent of par], so that would be very smart, even if they do it partially with stock."

On Thursday, a source in the convertible market speculated Cell Therapeutics is addressing the outstanding $85.5 million of 5.75% convertibles that come due in 2008.

Cell Therapeutics shares (Nasdaq: CTIC) ended Friday higher by a nickel, or 2.87%, at $1.79.

The Seattle-based biotech, which is focused on cancer treatments, did not provide any terms or timing for the transaction.

Acusphere drops over 7%

Acusphere, Inc. announced a $40.2 million private placement Friday that consists of 5.77 million units at $6.9675 each, consisting of one share and one third-share warrant. Each whole warrant is exercisable at $7.97 each from Oct. 12 through April 12, 2011.

The price per unit was a slight discount to the company's $6.98 closing stock price on Thursday, and the warrant strike price represents a 14.2% premium to Thursday's close. But the stock took a dive Friday.

Acusphere shares (Nasdaq: ACUS) closed off by 51 cents, or 7.31%, at $6.47 after opening at $7.15.

The deal frustrated some holders.

"Par for the course. I first bought in before the Nycomed deal [in October 2005]. Sherri [chief executive Sherri Oberg] has given me so many haircuts since then I have lost count. The bad news here is that this money was raised to fund the company through 2007, and of course, they will have to raise another $50 million to fund the sales force/launch in 2008," said a Florida buysider. "The stock is definitely not cheap in here given the time value, despite the fact that the interim data might be good. Plus, as in anything else 'new' that gets launched, the 'initial' uptake is always slower than planned, which will cause disappointment."

But a buyside market source in Boston said that it was encouraging to see the deal get done.

"The point is between now and the actual commercialization the company would have needed cash. If it were up to me, without knowing internal data and facts, I would have waited after positive results of the phase 3 trials [for AI-700] when obviously the stock price would have been higher and the dilutive impact would have been smaller," the Boston fund manager said.

Watertown, Mass.-based Acusphere is focused on treatments for cancer, asthma and cardiac disorders. The company has AI-700, an ultrasound contrast agent, in phase 3 trials for the detection of coronary heart disease. Acusphere inked a deal Oct. 24 with Nycomed Danmark APS for $150,000 in upfront license fees and an additional $58 million in potential milestone payments for the development of AI-700.

"But if you think about it, there are many positives to this offering. The first obvious is that the company has a lot more cash to make it through this year and first part of next. They sold it at a 52-week high point of close to $7 bucks a share Also, even though warrants were issued, they carry an exercise price of close to $8 bucks. Obviously, there was plenty of demand for the stock at these levels," the Boston fund manager said.

"The increased cash balance puts the company in a great position to cut a much better deal with Big Pharma if that's what's going on after the phase 3. The company doesn't have to give a discount because it's worried about cash.

"Finally and most importantly, if you really believe the phase 3 and the eventual commercialization will be a success, this offering really doesn't matter jack crap. If you work through the numbers, if this drug works, you'll get anywhere from a $15 to $80-plus stock, easily. So, let people sell, the stock should fall naturally because of the dilutive impact. But if it goes below that theoretical level [$7], I'm buying again."

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