Theravance at bat; Amylin dives; Nektar reverses; CV Therapeutics takes a hit; First Horizon higher

By Ronda Fears

Memphis, Jan. 30 - Theravance, Inc. was at bat after Monday's close with a quick-sale follow-on offering of 4.6 million shares, according to market sources, who estimated the deal could fetch just shy of around $125 million for the South San Francisco-based biotech.

Theravance is focused on respiratory disease, bacterial infections and gastrointestinal disorders. Two of its five drug candidates are in late-stage development - telavancin for serious Gram-positive infections with Astellas Pharma Inc., and Beyond Advair, a collaboration with GlaxoSmithKline plc. Proceeds are earmarked in part to prepare for phase 3 trails for telavancin.

A buyside market source based in Dallas said that onlookers consider telavancin a "treasure trove" for Theravance.

"With the stock sale, being down 1.2% is not bad," the Dallas buysider said shortly after noon. "I'd love a chance to buy at $20 again. The stock is up over 25% in the last month, and such a run-up would considerably make the offering much more advantageous to the company."

Theravance shares (Nasdaq: THRX) on Monday dipped 40 cents on the day, or 1.46%, to $27 flat.

Amylin falls 5%, fans buy

Amylin Pharmaceuticals, Inc. shares took a dive early Monday in reaction to an article in Barron's magazine over the weekend warning investors to be cautious, as most of the good news about Amylin's star diabetes drug Byetta appears to be fully priced into the stock.

Not everyone was buying it, though. Or, rather, there were some savvy players buying into the dip.

Amylin shares (Nasdaq: ALMN) opened at $44 versus Friday's close of $45.25 but headed southerly in rapid fashion and closed the day off by $2.29.

"Script numbers [for Byetta] are terrific. It's almost as if Amylin has taken the part of Ulysses and must row through the sirens in this part of our voyage. And the sirens are trying to tell us to jump," said a buysider based in Las Vegas, who is bullish on Amylin.

"But volume around today's lows wasn't that high, so not much covering was possible as the shorts were competing with buying bulls. The way the stock is acting, we should see a test of the nice sounding $50 level very soon, perhaps even by the conference call next week."

Amylin 2.25% convertibles drop

Amylin's convertible bonds dropped in tandem with the stock, traders said, as debtholders tended to bail out of the story.

The 2.25% convertible due 2008 was quoted at the end of the day at 139.5 bid, 140.5 offered, off 5 points from Friday.

Amylin's stock market value already exceeds $4.8 billion, or 37 times the company's projected 2005 sales, and much hinges on it getting U.S. approval for a once-a-week version of Byetta, Barron's said.

That sparked many holders to reconsider and sell out, said a buyside market source on the West Coast who was involved in the convertible.

"Hanging your hopes on a company with a broken business model is useless. Amylin spends $2.93 to get $1.00 of revenue," he said. "Amylin must give one third of Byetta sales to Eli Lilly. Amylin will have only $176 million to start fiscal 2007. That's the reality, not fantasyland. Any company that keeps doing that quarter over quarter is headed for bankruptcy, sooner rather than later."

First Horizon build-up seen

First Horizon Pharmaceutical Corp. was described by traders on the equity side of the market as a name that was seeing the other end of the rotation shift, with buyers stepping in well ahead of the Atlanta-based drug wholesaler's 2005 results. The stock added nearly 3%, and the convertible bonds advanced as well.

"If I did my home work right, Triglide [a cholesterol drug] sales are up about 25% from the previous quarter," said a buyside market source in Florida. "It's a start and really adds that the remaining quarters for 2006 should be guided higher hopefully my management on the 23rd of February, although management likes the conservative route."

First Horizon is scheduled to report fourth-quarter and 2005 results on Feb. 23.

On Monday, First Horizon shares (Nasdaq: FHRX) gained 40 cents, or 2.64%, to settle at $15.56, and convertible players - hedge funds mostly - were tapping into the story as well.

We moved them up over 1 point today on swap," said a convertible market source at a sellside shop. "It's a good name to own going into the quarter." Later, he added, in regard to the day's rise that the bonds "got a lot more room to go."

First Horizon is a specialty pharmaceutical company engaged in the marketing and sale of prescription products for the treatment of cardiovascular, obstetrical and gynecological, and pediatric and gastroenterological conditions and disorders. The company sells its products to pharmaceutical wholesalers, chain drug stores and other retail merchandisers, as well as directly to pharmacies.

Matrix Labs to sell convertibles

Matrix Laboratories Ltd. has informed the Bombay Stock Exchange that its board on Monday approved an issue of up to $200 million of foreign currency convertible bonds, Global Depository Receipts, American Depository Receipts, preferred shares or a combination of the securities.

The issue is conditioned on shareholder approval at a March 1 meeting, but Matrix Labs shares took a dive in Bombay on Monday, dropping Rs. 11.55, or 4.22%, to Rs. 262.15.

The Secunderabad, India, manufacturer of active pharmaceutical ingredients intends to use proceeds from any offering to repay its bridge loan and/or term loan as well as for growth of the company.

CV Therapeutics heartened

CV Therapeutics Inc. on Friday got the long-delayed Food and Drug Administration approval for the drug Ranexa for treating chronic angina, its first to hit commercialization, and the stock shot up Friday. But on Monday there were some big players taking profits in the stock, though traders said they expected once that business was concluded the stock would resume an upward track.

After climbing 3.5% on Friday, CV Therapeutics opened Monday higher by nearly a $1 per share but began retracing gains by noontime and took a nosedive late in the afternoon.

CV Therapeutics shares (Nasdaq: CVTX) settled the day down by $1.14, or 4.41%, at $24.93.

"There are some big guys taking profits. Once those few big sellers get out of the way, we'll see a steady trend upwards. The volume is there in spades. At the end of the day, this rotation is very positive," said one market source.

"The sentiment has not gone well for CV Therapeutics. The label may have been the best that could have been hoped for but it still sounded negative. However, fundamentally much has changed. Risk is greatly reduced and the long term outlook is much better."

The FDA approved Ranexa for patients who have not achieved an adequate response with other anti-anginal drugs and said it should be used in combination with other treatments, such as beta blockers or nitrates, the company said. There had been concern that the FDA might approve it for a more restricted group of patients; so, the company was pleased with the language.

CV convertibles mirror stock

Moreover, convertible traders said the action in CV Therapeutics' convertible bonds mimicked that of the stock, with some profit takers shifting out of the situation to look for greener pastures so to speak.

"There was a lot of activity in these bonds today, a lot. It was a lot like what happened with the stock, though. The [convertibles] opened a lot higher, like at 120, and they went out Friday at 118.5, then traded up to 121.625 early on," said a sellside convertible trader. "After noon they hit the skids, though, and the last I saw, around 2:30 or so, the bonds were at 119 with the stock at $26.22."

The CV Therapeutics 3.25% convertible due 2013 closed at 115.5 bid, 116 offered, according to another sellside shop.

He said he thought a lot of the sellers in the CV Therapeutics story saw little upside now that Ranexa has been approved. He pointed to reports that with about 25% of the estimated 6.4 million Americans with chronic angina targeted for the drug because they are resistant to existing drugs, Ranexa sales are projected at $40 million to $60 million this year.

"That is not a whole lot of revenues when you really look at it," the convertible trader said. "It looks OK for a company like CV Therapeutics, which looks to have had like $23 million in third quarter, but against that they have nearly $400 million of debt to service. A lot of people are looking at it like if they can get out with a profit now, they'd just as soon do that."

The Palo Alto, Calif.-based company said complete prescribing information, including detailed safety and dosage information, will be available soon and should be available in pharmacies in late March. Also, CV Therapeutics is conducting a study of the drug hoping to apply for FDA approval of Ranexa as a first-line therapy for angina. Results from that trial are expected in late 2006 or early 2007. If the drug's label is expanded, analysts expect sales could reach $500 million a year within two or three years.

Nektar reverses, piques buying

Nektar Therapeutics shares reversed course in a hard about-face on Monday, extending a classic buy the rumor, sell the news scenario that gained steam with a downgrade to the stock by Morgan Stanley following FDA approval Friday of the inhaled insulin drug Exubera marketed by Nektar and Pfizer, Inc.

Traders had said Friday that after a big run-up in Nektar shares Thursday - around 7% - when Exubera received approval in Europe that approval in the United States was largely priced in, so holders began taking profits after the stock opened Friday with another 6% spike.

Nektar shares (Nasdaq: NKTR) on Monday fell back 86 cents on the day, or 4.14%, to $19.89.

"Some big money hit the stock hard in the last hour or two and started shorts scrambling to cover, driving the price back up," said a biotech stock trader. "I won't be surprised to see strong plays both ways this week on Nektar."

Nektar's convertibles were weaker Monday along with the stock, traders said, but also found strong buying interest during the afternoon.

The Nektar 3.25% convertible due 2012 still ended the day easier by about 0.375 point on an outright basis, one convertible trader said, but he added buying dominated action in the bonds during the afternoon whereas selling prevailed in the morning. He also noted heavy activity in the bonds.

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