Lilly launches $1.5 billion floater; Human Genome $230 million convert at bat; MannKind taps PIPEs

By Ronda Fears

Nashville, Aug. 3 - Biotech players got a rush of activity Wednesday, topped by Eli Lilly & Co.'s launch of a $1.5 billion floater. In another debt deal, a more pure biotech name, Human Genome Sciences Inc. was pitching a $230 million convertible in the overnight market.

There was some primary activity in equities, as well, with MannKind Corp. announcing a widely anticipated funding effort by way of a $175 million PIPE transaction. Meanwhile, Lexington, Mass.-based Predix Pharmaceuticals Inc. filed for a $70 million initial public offering and ZymoGenetics Corp. was on deck with its follow-on offering estimated to fetch roughly $120 million.

Anadys Pharmaceuticals Inc., Ariad Pharmaceuticals Inc. and Nastech Pharmaceutical Co. Inc. are all scheduled to price follow-on offerings after Thursday's close. And BioDelivery Sciences International Inc. filed a 7 million share follow-on offering late Wednesday, but it is not expected to price until next week.

Market sources also said to expect another convertible launch by a biotech name on Thursday, suggesting it too would be an overnight transaction. No issuer name was being circulated, however.

In secondary action, Protein Design Labs Inc. got a huge shot in the arm from a collaboration pact with Biogen Idec Inc. and the stock soared over 12% ahead of its second-quarter results that are due to be reported after Thursday's closing bell. Biogen Idec, however, ended Wednesday slightly lower.

Impax Laboratories Inc. plunged Wednesday in reaction to an update on its late financials, which have yet to be filed with the Securities and Exchange Commission. Impax provided several estimates for the first two quarters of 2005 that were far short of Wall Street projections and the stock dove nearly 9%.

Lilly launches $1.5 billion floater

Big Pharma giant Eli Lilly launched $1.5 billion of floating-rate notes with price talk for a yield of Libor minus 300 basis points in year one, Libor minus 100 bps in year two and Libor plus 100 bps in year three. While the issue was expected to be a "hit," one high-grade bond trader said that it "probably won't draw a lot of traditional biotech players in."

Lilly has designated proceeds for general corporate purposes, including litigation liabilities and to help fund the repatriation of $8 billion in overseas earnings per the American Jobs Creation Act of 2004.

In its 10-Q report filed with the Securities and Exchange Commission on Wednesday, Lilly said it anticipated issuing $2 billion of new debt by the end of 2005, which was about twice as much as Lilly followers had been expecting. The company posted $1.1 billion in charges against second quarter results for the Zyprexa settlement and other litigation liabilities.

Lilly spokesman Phil Belt said the $1.5 billion floater is part of the $2 billion estimate in the 10-Q, not an additional amount. Lilly's total debt at June 30 was $4.68 billion.

Human Genome buying time

Human Genome Sciences Inc. was busy late Wednesday in the overnight Rule 144A market pitching a new $230 million convertible - talked with a 2.25% handle and 20% initial conversion premium - to take out its older 5% and 3.75% convertibles, both due in 2007.

The new notes are seven-year bullets and there is not expected to be any call overlay or other funky maneuver to boost the premium, which buyside players said would make it more appealing from their point of view.

"This is simply a rollover of debt due in 2007 to debt due in 2012. The CFO has been advertising this move for many months," said a buyside source at a fund based in California. "It was expected and unless the terms turn out to be unfavorable, I predict that the stock should obtain a very modest boost once it is clear that this is a done deal. That might take a few days."

Another buysider, in New York, however, said that while the move buys Human Genome some time in terms of ultimately repaying its bond debt, there seems to be pressing trouble in its drug pipeline.

"The point is that Human Genome Sciences keeps pushing out further and further their debt because they can't get a product to market or a rich partnership contract with a big pharma company," the buysider said. "A $230 million bond deal kind of makes that $7 million royalty payment [announced Monday] from GlaxoSmithKline plc pretty paltry."

The Rockville, Md.-based company has several drugs in clinical development, to treat lupus and rheumatoid arthritis; chronic hepatitis C, cancers, HIV and AIDS, and anthrax infection. Its partners include GlaxoSmithKline, Schering-Plough, Merck and Pharmacia & Upjohn, among others.

Human Genome shares closed Wednesday up a penny at $14.81 but on the offering news the stock was seen in after-hours trading off by as much as 81 cents, or 5.47%.

MannKind CEO pitches in

The Street had been expecting MannKind to make some sort of capital-raising effort, analysts said, and the chief executive's big participation level in the PIPEs deal was cheered loudly, with the stock gaining more than 11% n the news.

MannKind Corp. announced Wednesday that it has raised $175 million from the private placement of 17.1 million shares of common stock and warrants for another 3.4 million shares, both at $12.228 per share. That was a big premium to Tuesday's closing price of $10.23, one sellsider observed, but he added that the PIPE transaction was probably not negotiated off the Tuesday price.

Full details of the offering, led by placement agents Wachovia Securities and Leerink Swann & Co., could not be confirmed by press time Wednesday.

The thing that made players happy, the sellsider said, was that CEO Alfred Mann pitched in $87.5 million to participate.

"That is a pretty big vote of confidence," he said.

On the deal, MannKind shares traded as high as $1.75 better intraday before easing back to close up by $1.20, or 11.73%, at $11.43.

Based in Valencia, Calif., MannKind is a biotechnology company focused on therapeutic treatments for cancer and diabetes. Proceeds are earmarked for product development, working capital and general corporate purposes.

MannKind has agreed to register the shares associated with the PIPE transaction, but a time frame was not specified.

Protein Design spikes on Biogen deal

Protein Design Labs shares surged as much as 18% on Wednesday on news of a deal with Biogen Idec to jointly develop three antibodies in return for an upfront payment of $40 million and the sale of $100 million of its shares to Biogen.

By day's end the stock has dropped back to close up by $2.94, or 12.62%, at $26.24. Meanwhile, Biogen shares ended off by 15 cents, or 0.37%, to $40.69.

The two biotechs said they will share the costs of developing the antibodies daclizumab - currently being tested for the treatment of multiple sclerosis - volociximab, which is being tested to prevent tumor growth - and fontolizumab, which targets autoimmune diseases.

If the project succeeds, Protein Design Labs would be entitled to up to $660 million in milestone payments, the company said. But some analysts were estimating the deal has a potential value of $800 million, and several sellside shops upped their targets on the stock on the event.

"In our view, this deal is a big win," said JMP Securities analyst Charles C. Duncan.

Players were particularly intrigued with the prospects regarding MS given that in February, Biogen and partner Elan Corp. plc withdrew their MS development drug Tysabri from the market because of a potentially fatal brain condition contracted by a patients in trials. Protein Design Labs is conducting a phase II trial of its MS antibody and initial results are anticipated in the second half of 2005.

On Thursday after the closing bell, Protein Design Labs is scheduled to report second-quarter results.

Impax Labs drops on estimates

Generic drugmaker Impax Labs, which has been hammered off and on for months by delays in filing its financial reports with the SEC, provided estimated results Wednesday and the market snubbed the company's numbers. The stock dropped $1.45, or 8.95%, on the day to close at $14.76.

Impax reported first half revenues of $78.1 million and first half net income of $10 million, far off analysts' expectations. The company estimated second-quarter net income of $3.9 million, which would compare to estimated net income of $6.1 million in the first quarter. Net income for the six-month ended June 30 includes costs associated with redeeming its $95 million of 1.25% convertible bonds.

Impax Labs said those numbers are good, if the SEC makes no change in its proposed revenue-recognition policy. At first glance, onlookers said the numbers look optimistic, but a sellside trader in New York said he "feels less hopeful as more time passes without filing" the financials at the SEC.

"I never did see where the sales could come from with the products that would be approved. It takes a long time for a generic drug to work through the system," the sellsider said. "Then, there are the delays from patent litigation - I think there are three separate actions coming up this fall."

Impax said its financial reports, delayed while federal regulators mull how to report sales from Teva Pharmaceuticals, are being assessed by the Office of the Chief Accountant of the Securities and Exchange Commission.

Any final decision on proposed revenue-recognition policy will have no effect on the company's liquidity or cash position, it said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.