Cell Therapeutics prices $82 million notes to yield 6.75%; Nabi's stock dives on failed clinical trial

By Sheri Kasprzak

New York, Nov. 1 - After generating lots of chatter in biotech circles late last week, Cell Therapeutics, Inc. finally priced its $82 million convertible senior notes offering under Rule 144A.

Market talk was right on the money with the coupon coming in at 6.75% with a 10% initial conversion premium.

The notes are convertible into common shares at $2.63 each, equal to 110% of the closing bid price of $2.40 on Oct. 31. The notes are convertible at a rate of 373.78 shares for every $1,000 in principal.

The size of the deal, however, had been talked between $50 million and $70 million with a single investor likely taking $20 million of the notes.

The pricing set Cell Therapeutics' stock in motion early with the company gaining 7.5% in pre-market trading before settling on a 3.75% gain of $0.09 to end the day at $2.49. In after-hours trading, the company's stock slipped $0.02.

The note deal is slated to wrap up by Nov. 4.

CRT is the bookrunner.

One market source said late last week when the deal was still being talked that he didn't like the company, and now that the offering has priced, he's still less than enthusiastic about them.

"They don't have anything worth looking at," said the sellsider of Cell Therapeutics. "NABI [Nabi Biopharmaceuticals] same thing."

Of the pricing of the deal, the same source simply said, "Surprise, surprise, surprise."

Cell Therapeutics has a couple of convertible issues in play - a 5.75% due 2008 and 4% due 2010 - both of which are busted and trading in the 60s.

Also on Tuesday, the company announced that it two institutional buyers have agreed to convert their 5.75% notes and 4% notes into 3.3 million common shares. The conversion agreement will close along with the note offering.

Seattle-based Cell Therapeutics develops treatments for cancer.

Nabi stock suffers blow

As for the aforementioned Nabi Biopharmaceuticals, the company's stock suffered a massive dive on news that its vaccine for Staphylococcus aureus infections failed to meet the goals of its phase III clinical trials.

The company's stock plummeted 71.75%, or $9.22, Tuesday to finish at $3.63, gaining just $0.09 in after-hours trading. Nabi's shares had gained 9.36%, or $1.10, on Monday to close at $12.85 on possible takeover speculation.

Nabi will halt further development of StaphVAX and plans to withdraw its marketing authorization application to market the vaccine in the European Union.

"We are obviously surprised and very disappointed with the results of StaphVAX confirmatory phase III trial," said Thomas McLain, Nabi's president and chief executive officer, in a statement. "While we complete our assessment over the next few months, we will refocus our capabilities in developing vaccine and antibody products in other areas of significant medial need. This includes advancing other bacterial vaccines in development - NicVAX, a vaccine for smoking cessation and Civacir, an antibody product for the prevention of hepatitis C post-liver transplant."

McLain said in his statement that at the end of the third quarter, Nabi had cash and marketable securities totaling $137 million.

Despite the devastating blow to Nabi's stock, the convertible paper, which is a small issue, was actively traded and steeply lower, according to one trader, but "expanded on a hedge."

"It kept us pretty busy," the trader said, adding that few other biotech convertible names were traded.

One analyst said such an enormous trauma to the company may, in the long term, require a sale of the company itself.

"To truly bounce back requires a catalytic event," he said. "In the near term, such an event is unlikely from StaphVAX or the pipeline. That leaves a financial move - cost cutting - or a transaction. I suspect it will take several months before something happens.

"My guess is that a sale of the company is possible. Stocks tend to overshoot on news, so there may be a small recovery in the stock, given the base business and assets."

On Tuesday, Nabi's 2.875% convertibles due 2025 traded down more than 40 points to 69.25, and were seen at 68.38 bid, 69.38 offered at the end of the day.

Nabi is based in Boca Raton, Fla., and is focused on developing drugs that prevent and treat infectious and autoimmune diseases, including hepatitis B infections and HIV-related immune thrombocytopenia.

Cephalon lags ahead of earnings

Looking to biotech convertibles, Cephalon, Inc.'s converts were lower by about 0.50 point in line with its shares after the Frazer, Pa.-based biotechnology company reported better-than-expected third-quarter profit and double-digit sales growth. But revenue for the quarter didn't meet expectations and the company cut its 2005 sales forecast by $50 million.

Revenue for the quarter rose 18 percent to $309.5 million, but Wall Street had been looking for $317.9 million.

Its sales outlook was cut to $1.15 billion to $1.20 billion due to a planned reduction in wholesaler inventory levels. For 2006, Cephalon forecast earnings of $2.90 to $3.00 per share on sales of $1.35 billion to $1.40 billion.

The maker of drugs for pain and narcolepsy posted a net profit of $29.3 million, or 50 cents a share, compared with a loss of $165.2 million, or $2.94 a share, a year ago. Excluding one-time items, the company posted a profit of 78 cents a share, compared with 75 cents a year ago.

Cephalon's 2% convertibles due 2014 traded at 109.5, compared to its close on Monday at 110.157. Its 0% convertibles due 2033 were also seen lower by about 0.5 point. Its shares closed down $0.42, or 0.92%, at $45.17 and lost another 4% in after-hours trading.

Protein Design weaker

Protein Design Labs, Inc.'s convertibles were also down about 0.5 point after the Fremont, Calif.-based biotechnology company said higher costs led to a wider-than-expected quarterly net loss.

Its third-quarter net loss was $39.4 million, or 37 cents a share, compared with a loss of $13.6 million, or 14 cents a share, a year earlier.

Excluding items, the loss in the latest quarter was $11.5 million, or 11 cents per share, a much wider loss than the 4 cents per share loss expected on average by Wall Street analysts polled by Reuters Estimates.

Revenue more than tripled to $76.7 million from $19.8 million, helped by a 22% rise in product sales and a 52% rise in royalty revenue.

Protein Design's 2% convertible due 2012 traded at 132.25, compared to a level of 132.4 bid, 132.97 offered on Monday.

Protein Design's stock dropped $0.52 Tuesday to end at $27.50. In after-hours trading, the stock was down by another 5%.

Biotech underperforms market, Burrill says

The Burrill Biotech Select Index was outperformed by the Dow Jones Industrial Index and the Nasdaq composite index for the second straight month, according to a statement from Burrill & Co.

The Burrill Biotech Select Index lost 4% of its value while the Dow was off 1.2% and the Nasdaq was off 1.5% at the end of October.

"We know that this downward shift in biotech's performance on Wall Street does happen periodically - not because biotech's intrinsic value is flagging, but due to general market conditions," said G. Steven Burrill, chief executive officer of Burrill & Co., in a statement released Tuesday. "You can see this reflected in the reaction to the news that Chiron [Corp.] received a $62.5 million contract to supply the U.S. government with a vaccine designed to combat the H5N1 bird flu strain ... Earlier this year, this kind of news would have helped drive Chiron's stock value up considerably, but its share value closed the month up only 1%."

Burrill noted in his report that news of Novartis Pharmaceuticals Inc.'s plan to buy all of Chiron's stock at $45.00 per share, or a total of $5.1 billion, in cash will "give momentum to biotech going into November."

Chrion's stock edged up only 0.2%, or $0.09, on Tuesday to end at $44.23. On Monday, when Chiron agreed to the Novartis acquisition, its stock gained $0.74 to close at $44.14.

Less-than-stellar market conditions have forced some biotech names to abandon their plans for initial public offerings, according to Burrill.

In particular, Predix Pharmaceuticals, Inc. had intended to conduct an IPO of 5 million shares at $10 to $12 each, but the company has since withdrawn that offering.

SkinMedica Inc. is another company that had an IPO in the wings but pulled the offering as market conditions worsened. SkinMedica had planned to sell 5.25 million shares at $11 to $13 each.

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