PharmAthene going public via Siga merger; Corautus crashes, deal nixed; Novavax, Generex up

By Ronda Fears

Memphis, March 14 - With difficulties in the initial public market lingering for biotechs, PharmAthene, Inc., which has been talking about going public since last year, will accomplish that with what's known as a reverse merger in which a private company goes public by merging into a smaller public firm, namely Siga Technologies, Inc.

Combined, the company, which will be known as PharmAthene, features a substantial portfolio of procurement-stage biodefense products targeting anthrax, smallpox and chemical nerve agents, as well as a pipeline of drug candidates targeting bio-warfare agents and emerging infectious diseases.

"This is great news," said a buyside market source in New Jersey. "The [biodefense] industry is hot and that normally means M&A activity and partnerships. This is an area the government is going to continue to finance and should increase long-term prospects."

PharmAthene is backed with $78 million in venture capital, and onlookers Tuesday said it had been under pressure to make its business model work.

Annapolis, Md.-based PharmAthene's lead drug is Valortim, a monoclonal antibody used to treat anthrax infection, and is being co-developed with Medarex, Inc., and Protexia, a chemical nerve agent treatment inherited with its $18 million acquisition of Canadian based Nexia Biotechnologies, Inc. in March 2005. New York-based Siga's SIGA-246 is referred to as the most advanced smallpox treatment currently in development.

PharmAthene boosts Siga

Siga shares shot up 4% on the news, which Siga players were upbeat about since the stock had been in jeopardy of being delisted on the Nasdaq because of failing to meet the minimum price requirement. Siga shares (Nasdaq: SIGA) Tuesday added 4 cents to close at $1.03.

"The reaction was positive but probably will be better once we have a clearer picture of the company going forward," said the New Jersey buysider. "Right now, no one knows exactly where to peg the combined company. Watch what happens tomorrow."

Shareholders of Siga will have a 32% stake. The merger is expected to close during the second or third quarter of 2006.

"Our combined biodefense portfolio will target three of the top five biodefense priorities under [the U.S. government's] Project BioShield," said PharmAthene chief executive David Wright in a statement.

In fiscal 2005, the U.S. government earmarked $2.5 billion for Project BioShield, an initiative that encourages the development and government purchase of medical countermeasures against weapons of mass destruction.

Donald Drapkin, chairman of Siga, said, "In addition to a growing portfolio of biodefense technologies, which directly complements Siga's product focus, PharmAthene brings a management team that is highly experienced in identifying niche markets, developing drugs to address those markets, and launching successful products that dominate their respective therapeutic classes."

Corautus loses 15% on trial

Corautus Genetics, Inc. dropped sharply in reaction Tuesday to the temporary suspension of a phase 2b trial for its Vascular Endothelial Growth Factor-2 (VEGF-2) gene to treat angina by trial partner Boston Scientific Corp. The news not only sent Corautus stock tumbling, but prompted the company's follow-on stock sale from last week to be yanked.

Some players thought it was an over-reaction.

"If only three out of 295 suffered this condition, it doesn't seem like the entire thing should be scrubbed," said one Corautus holder. "I listened to the call. I am impressed with what is happening. This is temporary."

In the trial, Boston Scientific's Stiletto catheter system is used to deliver its VEGF-2 biologic to treat severe angina. Boston Scientific requested the voluntary suspension Monday as a result of reported cases of fluid build-up in the heart of three patients, which Corautus said does not appear to be related to its VEGF-2 biologic.

Natick, Mass.-based medical device maker Boston Scientific was unfazed by the news. Boston Scientific shares (NYSE: BSX) gained 19 cents, or 0.83%, to close Tuesday at $22.95.

Corautus shares (Nasdaq: VEGF) fell 62 cents, or 15.42%, to close Tuesday at $3.40.

Corautus stock deal canceled

As a result of the situation, though, Corautus said it mutually agreed with its underwriters to terminate the follow-on offering of 7.5 million shares last week, which was boosted from 6.5 million and a deal that buyside market sources said was oversubscribed by around threefold. The stock deal was slated to settle Wednesday.

"We will have to wait probably several months for the trial to resume, but I still believe it will be successful. And I have to admit some mixed feelings about canceling the financing," said the afore-mentioned buysider. "My portfolio took a hit today, but I am not discouraged."

Last week, Corautus netted $26.5 million from the stock deal, which was priced at $3.85 each, discounted from the previous day's close of $4.20. Lazard Capital Markets (bookrunner) and Jefferies & Co., Inc. were joint lead managers.

Atlanta-based Corautus is focused on gene therapy products for the treatment of cardiovascular and peripheral vascular disease with its VEGF-2 gene, and had planned to use proceeds for working capital, and to fund clinical trials and manufacturing costs.

While the setback was judged harshly on Wall Street, the buysider said Corautus offered smart explanations about the situation on a conference call Tuesday.

"The gist of the discussion was that the variation within the treatment groups was smaller than expected. The company says that does not imply efficacy. That is absolutely true - small variation does not imply efficacy by itself. BUT if you factor in that many patients are getting better, then a conclusion may be drawn that either placebos are improving in concert or that it is the treated patients," the buysider said.

"The company will not say the trial is working but anyone who does not have a negative axe to grind will come to that conclusion. I will be interested to hear further."

Novavax shares hit new high

In addition to biodefense plays, bird flu names are very hot items these days, also in part due to government spending in that area and news from Generex Biotechnology Corp. and Novavax, Inc. boosted their stocks, with Novavax hitting yet another new 52-week high.

"The annual flu vaccine market is worth up to $4 billion per year by 2010, according to Glaxo [GlaxoSmithKline plc] and this could be very conservative as nations like China and India adopt vaccination," said a sellside trader.

Malvern, Pa.-based Novavax hit another new high Tuesday after a sellside analyst called its potential bird flu vaccine "the best" out there. Novavax, which has mainly focused on drugs for women such as prenatal vitamins, contraceptives and hormone replacement therapies, is now working on creating a vaccine for the H5N1 avian flu. Since the first of the year, the stock has gained 58%.

Novavax shares (Nasdaq: NVAX) on Tuesday traded up to $6.86 but eased back to close higher by 51 cents, or 8.31%, at $6.65, passing the previous high of $6.18.

Generex was higher on pure headline exposure, traders said. The Toronto-based company announced Tuesday that Douglas Powell, director of immunobiology at it subsidiary Antigen Express, will present its H5N1 avian influenza vaccine program at the upcoming DNA Vaccines Forum in London later this week. Generex shares (Nasdaq: GNBT) gained 13 cents, or 5.96%, to end at $2.31.

"This one is a no-brainer and the trend is in Generex's favor right now," the sellsider remarked.

Another boost to vaccine developers like Novavax and Generex is plans by the U.S. government to spend around half of its $3.3 billion bird flu budget on developing vaccines, or $1.78 billion.

Human Genome drops 20%

Human Genome Sciences, Inc. shares tumbled Tuesday following mixed phase 2 clinical data for its drug Albuferon in combination with Ribavirin for hepatitis C.

"The headlines alone were confusing," said a buyside market source. "There was 'positive trial data' from the company, downgrades to the stock, and a Forbes.com headline about the trial data building confidence."

Human Genome shares (Nasdaq: HGSI) lost $2.78, or 20.34%, to close at $10.89.

"Why do people keep giving these guys money? Haven't they burned through over $4 billion, with nothing to show for it? When will these naïve investors wake up? Set the alarm clock. [It's] time to wake up," said a sellside market source. "The only people that really love this company are bankers. It's a wet dream. They always need money and gullible investors [are] always willing to give them money. Bankers see $$$$."

Rockville, Md.-based Human Genome said the 12-week interim data from a phase 2b clinical trial to evaluate the efficacy and safety of Albuferon in combination with ribavirin showed a reduction in levels of the hepatitis C virus in patients who had already undergone interferon-based treatments and those who had not. Yet, it also showed patients who had already failed traditional interferon therapy responded more favorably to the regimen than those who had not already taken interferon. The company added that dosage changes may be required.

Human Genome convertibles off

Human Genome Sciences saw its convertible bonds cheapen by about 1 point early Tuesday as the stock got pummeled on the trial data.

While the bonds slid alongside the underlying common stock, a buyside convertible analyst said it was not nearly as steep a loss because the situation offered a nice gamma trading event for the bonds.

Human Genome's 2.25% convertible due 2011 traded at about 96.5 against a stock price of $11.50 on Tuesday, while the 2.25% convertible due 2012 changed hands at 89 versus the same stock price.

© 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.