Replidyne debut shaky but closes in the green; Indevus rises in face of spot sale; Depomed loses 3%

By Ronda Fears

Memphis, June 28 - Biotech stocks were higher with the broader markets, but players noted light volume and cringed at the deeply discounted, and reduced, initial public offering of Replidyne, Inc. even though it ended the day in positive territory.

"The Replidyne deal just reeked of desperation," said a buyside source in Colorado that focuses on IPOs. "It was a disaster by all accounts. I mean they cut the price by a third and then cut the size, to boot. That is very bad, and the sad thing is it's a decent company."

After pricing at $10 - well below guidance for a range of $14 to $16 - the Replidyne shares (Nasdaq: RDYN) settled the session higher by a dime with some 1.5 million shares traded in a band of $9.66 to $10.25.

The buysider speculated that because Replidyne has a late-stage drug approaching commercialization, the stock managed to find some support on its debut, but "it was shaky, and they were making a hell of a pitch for it." He did not participate in the deal, however.

Replidyne reduces IPO size

Replidyne raised $45 million from the downsized IPO of 4.5 million shares - cut from 5 million - with the funds earmarked for clinical trials, research and development and the anticipated commercialization of its antibiotic Orapem, as well as future clinical trials for its topical antibiotic REP8839.

Louisville, Colo.-based Replidyne acquired exclusive rights to Orapem in March 2004 from Daiichi Asubio Pharma Co., Ltd. for the United States and Canada and an exclusive option to the rest of the world, except Japan. Orapem was discovered by scientists at Suntory Institute for Biomedical Research, now Daiichi Asubio Pharma Co., Ltd., and is manufactured by Nippon Soda Co., Ltd.

If approved, Replidyne says Orapem would be the first oral antibiotic of the penem class to be marketed in the United States. Orapem is in the same class of antibiotics as penicillins and cephalosporins.

A New Drug Application was submitted for Orapem at the Food and Drug Administration in December and is partnered with Forest Laboratories, Inc. Forest Labs shares (NYSE: FRX) dropped Wednesday by 44 cents, or 1.18%, to $36.97.

Indevus settles higher by 1%

In another biotech deal, Indevus Pharmaceuticals, Inc. raised $32.55 million in proceeds, or $30.2 million on a net basis, from a spot follow-on offering of 7 million shares at $4.65 each, discounted from Tuesday's close of $5.08.

"What totally surprises me is that we are up for the day. If we don't go down to the $4.65 level I think that bodes very well for the near term future of the share price," said a Indevus player based in New York. "It would be saying that the stock was very undervalued at the low $5-plus level, to which I think we would agree."

Indevus shares (Nasdaq: IDEV) added a nickel on the day, or 0.98%, to settle at $5.13. Some 682,293 shares traded, versus the norm of 427,606 shares, in a band of $4.94 to $5.21.

"This deal will close next week. I think the stock will then be positioned to start a run," the New York buysider said. "You have to be impressed by the last 30 minutes of trading. This stock could have tanked, yet closed strong. I think you will see new buy recommendations and then a steady flow of very good news."

Lexington, Mass.-based Indevus currently markets Sanctura for overactive bladder and Delatestryl for male hypogonadism. The company also is in clinical development with a once-daily formulation of Sanctura in addition to Nebido for male hypogonadism, PRO 2000 for the prevention of infection by HIV and other sexually transmitted pathogens, IP 751 for interstitial cystitis, pagoclone for premature ejaculation and stuttering, and aminocandin for systemic fungal infections.

"It would have been nice to see them raise enough to take out the convertibles, but it's two years yet before the convertible becomes due and a lot can happen in two years," the buysider added, referring to the company's $72 million of 6.25% convertible notes due July 2008.

"Sanctura XR will have been on the market for a year and Nebido for a half-year by that time. They won't of course by then have reached max potential but I believe that projections will show that at peak they'll bring in a possible, if not probable, $150 million a year. Those two drugs alone will make this a $20 stock."

Tercica adds 13%, Insmed off

As Insmed, Inc. continued to slide Tuesday on profit taking, one buyside source said players were plowing some of that money into Tercica, Inc. as both companies have drugs for human growth hormone deficiency - Iplex by Insmed and Increlex by Tercica. A sellside trader, however, said it was just another trade "to stay busy."

"The only ones buying Tercica, on this relatively low volume, are the traders who are going to dump it tomorrow," the trader said. "I say this because the upshot is that if you are long Insmed and/or short Tercica right now, you are already doing just fine."

Insmed shares (Nasdaq: INSM) dropped 3 cents, or 1.89%, to $1.56, after losing 11% on Tuesday to what traders referred to as profit taking.

Tercica shares (Nasdaq: TRCA) gained 55 cents on the day, or 13.82%, to close Wednesday at $4.20. In perhaps an early sign that the trader was correct in that the stock would be dumped on the rise, Tercica shares were seen in after-hours trading giving back more than half the day's gain, off by 40 cents, or 7.14%, at $3.90.

The buysider, however, said there was some legitimate positioning taking place based on speculations about the success of the two companies' drugs.

"I am coming back from [an] endocrinology conference in Boston [on Monday] where Tercica presented new data from two ongoing studies in which they have not seen any hypoglycemic cases at all. The trick is kids need to eat something (a bite of food, candy bar, etc.) when they are taking the shot," the buyside analyst said.

"If that's the case there will be no concerns at all. Moreover, [a] majority of the previously reported hypoglycemia cases during the trial were hypoglycemic even at baseline (that is before any treatment). I guess this makes a very strong case for Increlex."

On Monday, Tercica provided an update on the first six months of the Increlex launch showing cumulative prescriptions have more than doubled in the past three months.

Insmed on Tuesday reported study results showing that Iplex significantly improved height velocity in children with severe primary insulin growth factor-I deficiencies.

Depomed off on King deal

Despite a marketing deal for its diabetes drug Glumetza, Depomed Inc. went south Wednesday, but the dip sparked some players to boost their position.

"I cannot see today's news as anything but positive. Perhaps the market was looking for a more glamorous company to do business with and thus the down action," said a sellside trader.

Depomed shares (Nasdaq: DEPO) lost 20 cents on the day, or 3.24%, to close at $5.98.

King shares (NYSE: KG) ended higher by 2 cents, or 0.12%, at $16.05.

Depomed announced that it has inked a deal with King Pharmaceuticals Inc. to co-promote Glumetza in which King will begin selling Glumetza in the United States and Puerto Rico and Depomed will retain the right to co-promote the product with its own sales force. The companies plan to launch the product in the third quarter.

"For me there has been a slow fundamental change to the worse over the last few years [at Depomed], due to competitive reasons on branded and other generics," said one buysider.

"My first thoughts were to sell on this news. That said, I will likely hold or even buy here because King, while not well liked, actually has a pretty good salesforce. They are a genuine mid-major. And the deal they signed is pretty sweet for them [Depomed]. Lastly, and least compelling I will admit is that they are increasingly a buyout target, with revenue growing fast."

Glumetza is a once-a-day extended-release form of the diabetes medication metformin that uses Depomed's AcuForm drug delivery technology. The FDA approved Glumetza last June. Depomed expects a market opportunity for metformin-based products of more than $1.4 billion a year.

Depomed will pay King a fee from gross profits, after subtracting the cost of sales and a 1% royalty to Biovail Corp. for the 500 mg version of the tablets. King and Depomed will share marketing costs at an agreed percentage. Depomed will pay for manufacturing and distribution costs, while King will pay for costs related to its own sales force.

Biovail shares (Nasdaq: BVF) dropped 4 cents on the day, or 0.18%, to $21.86.

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