Corautus, Cepheid deals emerge; BioMarin bounces; GCP gains on PIPEs deal; Par pounced on news

By Ronda Fears

Memphis, Feb. 24 - Biotech stocks were still looking to gain legs, or plant their feet firmly in a direction, traders said. On the sellside, optimism prevailed, but some buysiders were feeling rather bullish. In any event, a couple of deals emerged Friday from Corautus Genetics, Inc. and Cepheid, Inc. for business in the week at hand.

"I believe we are at the beginning of a bear market. Low quality will/could struggle here," said a buyside market source. Contrary to another market source's view earlier in the week that risk tolerance was on the rise, he remarked, "The small investor mood is much more guarded, leery and cautious at this point in time versus the outlook in 2004."

Yet, a sellside source, clinging to a bullish view on biotechs, pointed to the new deals announced Friday as evidence the market is at least friendlier.

"We have been seeing a steady rise in deals, and that means that buyers are out there," said the sellside capital markets analyst. "From everyone we talk to there is a lot of new money in the sector ready to be put to work."

Corautus plans $36 million deal

Corautus late Friday announced plans for a follow-on offering of 6.5 million shares of common stock off the shelf.

The company - focused on gene therapy products for the treatment of cardiovascular and peripheral vascular disease - is developing and testing gene therapy product candidates using the Vascular Endothelial Growth Factor-2 gene to promote therapeutic angiogenesis in ischemic muscle.

Atlanta-based Corautus said proceeds, estimated at $35.9 million including the greenshoe at a price of $5.19 per share, would be used for working capital, funding clinical trials and manufacturing costs.

The company also said that after the deal it would have sufficient funds available to support current and planned operations through second-quarter 2008.

Corautus shares (Nasdaq: VEGF) closed Friday up 7 cents, or 1.35%, at $5.62.

Cepheid stock finds support

Cepheid, a biodefense concern, announced early Friday plans for a follow-on offering of 10 million shares, which could raise an estimated $98 million, and the stock was off more than 3% in pre-market action. But the stock found support, reversed and ended the day 3% higher.

"I have been a long investor in Cepheid for several years. I agree with the raising of the capital and have no problem with it," said a buysider in Atlanta. "But, I also realize, that short term the stock is probably going to have a down trend. It is a normal pattern.

"If it doesn't tank at the open it means that word is out among the market makers that the price is being supported. Market makers aren't about to short if they know they are going to get burned," he continued. Then, he added, "Look at the open - it's up, not tanking. It's being supported."

Indeed, Cepheid was as low as $8.79 in pre-market trading but opened at $9.08 where it closed Thursday. Cepheid shares (Nasdaq: CPHD) settled up by 28 cents, or 3.08%, at $9.36.

Sunnyvale, Calif.-based Cepheid is a molecular diagnostics company that develops, manufactures and markets fully integrated systems for genetic analysis in the clinical, industrial and biothreat markets.

Cepheid said there are now about 1,100 of its Biohazard Detection System units with its GeneXpert modules in around 270 U.S. postal facilities. In addition, the company is fulfilling a purchase order for 2.3 million anthrax test cartridges used with BDS that should be done by fourth quarter.

Proceeds, estimated at $98 million including the greenshoe at a price of $9.08 per share, will be used to fund future acquisitions, although the company said it has no acquisition targets.

BioMarin posts narrower loss

BioMarin Pharmaceutical, Inc. posted narrower losses for fourth quarter and 2005, and the stock shot up 6%, but market sources said the spike was related to anticipated good news coming down the pike, counterbalanced with an expectation that the company will likely need to tap the capital markets sometime this year if it is not a takeover target.

Novato, Calif.-based BioMarin reported a fourth-quarter net loss of $15 million, or 20 cents per share, compared with a net loss of $82.4 million, or $1.28 per share, for fourth-quarter 2004, with total revenues of $13.9 million, up from $9.5 million. For 2005, the company posted a net loss of $74.3 million, or $1.08 per share, compared with a net loss of $187.4 million, or $2.91 per share, for 2004, on revenues of $18.6 million, off from $25.7 million.

The company projects a 2006 net loss of $49 million to $52 million, which includes $5.9 million of expenses related to the 2004 acquisition of Orapred and $7.5 million of stock option expenses Previously, the company estimated sales of Naglazyme - to treat mucopolysaccharidosis, also called Hunter syndrome - for 2006 of $28 million to $32 million and, along with partner Genzyme, forecast sales of Aldurazyme - also a treatment for mucopolysaccharidosis - for 2006 of $90 million to $100 million.

BioMarin shares (Nasdaq: BMRN) gained 74 cents, or 6.08%, to settle Friday at $12.92.

Near-term events prop BioMarin

BioMarin players are mostly looking forward to near-term events, including a presentation at the October American Society of Human Genetics, to provide more visibility, traders said. The company said there will be news flow earlier than that, though.

The company said it expects to announce results from the double-blind, placebo-controlled portion of the phase 3 clinical trial of Phenoptin for phenylketonuria - a genetic condition that can cause mental retardation - in late March and initiate a phase 2 clinical trial of 6R-BH4 in poorly controlled hypertension in second or third quarter and a phase 2 clinical trial of 6R-BH4 in peripheral arterial disease in fourth quarter.

Also, the company said that on March 14 a researcher from Emory University School of Medicine will make a presentation on its hypertension therapy drug Tetrahydrobiopterin at the Annual Scientific Session of the American College of Cardiology in Atlanta.

"It's highly unlikely there will be a problem with this trial," a sellside market source said. "Everyone knows the trial design, so everyone is expecting positive data. The main near-term play on the stock is simply the announcement of the top-line [trial] data. [Phenoptin] should be on the market mid-late 2007."

Should the Phenoptin data be bad, however, he said the stock could move sharply lower, down by 4 to 5 points, or nearly 50%.

BioMarin seen tapping market

Still, the sellsider expects BioMarin "will need to raise money over the next 12 to 18 months, assuming they don't get bought. We expect a follow-on offering in 2006."

In mid-July, BioMarin priced 8.5 million shares of common stock at $7.05 per share, discounted from the previous day's closing price of $7.56.

At Dec. 31, BioMarin said, the company had cash and equivalents of about $64.8 million.

The company has a joint venture with Genzyme Corp. for the development and commercialization of Aldurazyme, as well as a strategic business partnership with Daiichi Suntory Pharma Co., Ltd. and Serono SA for Phenoptin, Phenylase and 6R-BH4 for cardiovascular indications.

Par news not a surprise

Par Pharmaceutical has halted shipments of generic Flonase after a district court in Maryland granted GlaxoSmithKline plc a temporary restraining order to set aside the FDA's decision to grant Par an abbreviated New Drug Application for a generic version of Flonase, the prescription nasal spray for allergies.

Moreover, traders said the reaction to the Flonase news illustrated that players did not think it was a big deal, or at least "was not a big surprise." Since the dispute had been going on a while, he said the risk was already mostly priced into the stock.

"I think the business is just starting to get better," one sellsider said. "I'm holding. One buys a company because of good management. You trust management so your investment is rewarded. Par is doing the right things, all pointing to better earnings and stock price appreciation in the future."

Rather, he said the market was "moving past this to focus on what else they [Par] have going."

"The deal [Par announced Thursday] with Spectrum is a biggie. Generic injectables are the most sought after in the business right now. I know that Teva and Novartis were both looking to acquire companies specializing in injectables. This expands Par's pipeline in a very big way."

He was referring to the announcement Thursday that Par and Spectrum Pharmaceuticals Inc. had inked a deal whereby Par would sell and distribution of Spectrum's generic drugs. Under the terms of the agreement, Irvine, Calif.-based Spectrum will receive more than $10 million in milestone payments and the companies will share the profits from sales.

Spectrum rises on Par pact

In addition to the $10 million payment to Spectrum plus future royalties, Par also agreed to make an equity investment in Spectrum during the next 24 months plus some generic litigation burdens. Spectrum shares on Friday added more than 3%, also boosted by another partner, GPC Biotech AG pocketing €36.2 million from a PIPE deal to commercialize a cancer drug they have been working on together.

"You see, like SPPI, they [Par] have generics but they don't have the salesforce to sell the products," the sellsider said. It is not easy to get into the generic business anymore. Before yes, but now it is very hard. That means less competition going forward, which should lead to higher generic prices as well as stock prices."

Spectrum shares (Nasdaq: SPPI) on Friday gained 16 cents, or 3.12%, to $5.29.

Under the deal, which covers both current and future generic drugs of Spectrum, Par will assume all financial responsibility for litigation with Glaxo related to its filing for sumatriptan, a generic version of the migraine drug Imitrex.

"We are very pleased to begin working with the team at Spectrum," said Scott Tarriff, chief executive of Par. "Par is very impressed by the progress Spectrum has achieved in both the generic and proprietary arenas. Our collaboration provides Par access to injectable and ophthalmic pharmaceuticals, including sumatriptan injection, a very promising first-to-file opportunity."

Spectrum also has drug candidates in various clinical stages, including Satraplatin for hormone refractory prostate cancer and non-small cell lung cancer, EOquin for refractory superficial bladder cancer, Elsamitrucin for refractory non-Hodgkin's lymphoma; SPI-153 for hormone dependent prostate cancer and benign prostatic hypertrophy, EO9 for radiation sensitization, RenaZorb for end-stage renal disease and chronic kidney disease and SPI-1620 for adjunct to chemotherapy.

The company has strategic alliances with GPC Biotech AG, Johnson Matthey plc, Bristol-Myers Squibb Co., Zentaris GmbH, Altair Nanotechnologies, Inc., Chicago Labs, J.B. Chemicals & Pharmaceuticals, Ltd., FDC Ltd., and Shantha Biotechnics Pvt., Ltd.

GPC Biotech pockets €36.2 million

GPC Biotech AG, a collaborator with Spectrum on Satraplatin, on Friday wrapped up a private placement of stock for €36.2 million with two investment companies owned by Dietmar Hopp, the co-founder of SAP AG, with proceeds earmarked to commercialize the treatment for hormone refractory prostate cancer and non-small cell lung cancer.

Martinsried, Germany-based GPC sold 2.86 million shares at €12.67 each, and the stock soared from there.

In Europe, GPC shares (Xetra: GPC) gained €0.92, or 7.04%, to close Friday at €13.98.

In the United States, GPC shares (Nasdaq: GPCB) also rocketed upward, adding $1.39, or 8.9%, to settle Friday at $17.00.

"GPC is very hot to trot right now," said a sellside biotech stock trader. And, of Hopp, the trader said he was considered "the Bill Gates of Germany." Hopp is co-founder of SAP, the world's largest business software company and third largest independent software provider overall, according to GPC.

"The funds we have raised will give us additional flexibility as we consider playing the lead role in the U.S. commercialization" of Satraplatin, said GPC chief executive Bernd Seizinger.

Satraplatin, Seizinger said, is in a phase 3 trial in second-line hormone-refractory prostate cancer and is also being evaluated in several other clinical studies in various cancers.

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