Alexza IPO gets off; Cepheid off; Dyax deal seen; Elan, Biogen up; Neurocrine shakes off trial miss

By Ronda Fears

Memphis, March 8 - Alexza Pharmaceuticals, Inc. got its initial public offering off Wednesday before the market opened at a price below the indicative range, but the stock saw very little activity in the session.

"About all you can say about it [Alexza's IPO] is that it got done. I mean it didn't even trade until after noon," said a sellside trader familiar with the deal. He noted that the debut stock - just the fourth biotech IPO in 2006 - ended higher, however.

Elsewhere in secondary action, Elan Corp. plc and Biogen Idec, Inc. were hot topics late in the session as trading resumed in those stocks about 3:30 p.m. ET after being halted for two days while a Food and Drug Administration panel deliberated the return of their multiple sclerosis drug Tysabri to trials.

In a unanimous vote, the FDA panel recommended the return of Tysabri, which was pulled from trials by Elan and Biogen in February 2005 after three patients being treated with Tysabri and Avonex, another MS drug, developed a rare brain disease known as progressive multifocal leukoencephalopathy, or PML, and two died. The FDA later mandated the withdrawal of Tysabri, hence the current discussions.

Elan skyrocketed in just the short period of trading Wednesday amid remarkable volume of 18.2 million shares, versus the norm of 10.7 million shares. Elan shares (NYSE: ELN) climbed $3.09, or 24.3%, to close out the session at $15.79, but retreated in after-hours activity. At 5 p.m. ET, the stock was seen at $15.62.

"Everyone was sitting on the button, ready to make their move when the go-ahead was given," said a sellside trader at one of the bulge bracket firms.

Biogen also was sharply higher, with traders managing to shift some 1.9 million shares, versus the norm of 3.4 million, and it went higher after-hours. Biogen shares (Nasdaq: BIIB) gained $3.50, or 7.69%, to end at $49, and was seen at 5 p.m. ET at $49.46.

The FDA panel, however, will later be considering under what guidelines, or possible restrictions, Tysabri will be allowed to return to trials and that, the trader said, was cause for Elan shares to pull back.

"That caveat did not immediately sink in, I don't think," the trader said. "Ultimately, it probably won't be [a] giant deal, but [it] accounted for a little of the pull back [in Elan]."

Dyax spot sale on deck

Dyax Corp. was in the market after Wednesday's closing with a spot follow-on sale of 5.5 million shares off the shelf via bookrunner Deutsche Bank Securities Inc., according to market sources.

The company announced the deal, a revival of sorts, right after the session closed.

Late last summer, Dyax announced plans for a follow-on offering of 9 million shares, with estimated proceeds of $52.8 million based on Aug. 19 average price of $5.87, but the deal never came to market.

Dyax shares (Nasdaq: DYAX) ended Wednesday off by 7 cents, or 1.12%, at $6.20. In after-hours activity the stock was seen lower by another 30 cents, or 4.84%, at $5.90. The 52-week range on the stock is $3.04 to $6.82.

"I'll have to be optimistic that someone wants to invest more money at this level, or probably in the $5 range," said a buyside analyst.

Cambridge, Mass.-based Dyax has earmarked proceeds for research and development and general corporate purposes, including funding the progress of its lead product candidate, DX-88, into phase 2 clinical trials for the prevention of blood loss during certain on-pump heart procedures, specifically coronary artery bypass graft surgery.

"Dyax seems to be on good tracks to meet its early 2007 goals of having a product to market. Last summer when it peaked around $6.80, it was not anywhere near the type of shape it is in now," the buysider continued.

"Next, I believe money is going to flow out of oil over the next few weeks and into tech and biotech. A spring sell-off should bring crude to the $50 to $52 range. If I'm right about were the money will be going, then there is going be an influx of cash somewhere and I think the tech and biotech sectors, and health care are the plays."

Crude oil futures fell $1.56 on Wednesday with the April contract settling at $60.02 a barrel on the New York Mercantile Exchange, after hitting a low of $59.25 earlier in the day.

Alexza shares higher on debut

Alexza Pharmaceuticals, Inc.'s debut "sputtered along," as one trader put it, but the stock managed to gain ground - albeit amid light volume - after pricing well below the indicative range for the IPO.

The Palo Alto, Calif.-based biotech priced 5.5 million shares at $8 each - below price talk of $10 to $12 - via joint bookrunners Piper Jaffray and Pacific Growth Equities LLC. Co-managers are RBC Capital Markets and JMP Securities.

Alexza shares (Nasdaq: ALXA) settled the day higher by 6.38% at $8.51 with just 1.18 million shares traded.

Pre-IPO, Frazier Healthcare Ventures and Versant Ventures were the largest shareholders in Alexza, each with 12 million shares. Frazier reduced its stake in Alexza to 9.64% from 12.73% in the IPO. Likewise, Versant cut its stake to 9.64% from 12.73%. As a whole, directors and executives of the company lowered their equity stake in the company to 37.11% from 48.81% in the IPO.

Alexza has one product candidate that has completed a phase 2a clinical trial, AZ-001, to treat migraine headaches and several other candidates in earlier-stage trials. Proceeds are earmarked to fund clinical trials. At Dec. 31, the company posted $38.4 million in cash and equivalents plus $3.2 million available under an equipment line of credit, which with the follow-on proceeds should be sufficient to fund planned operations through at least the next 18 months.

Cepheid plunges 6% on deal

Cepheid Inc. took a dive Wednesday after pocketing some $86 million from the follow-on offering of 10 million shares at $8.60 - discounted 6% from Monday's close of $9.15.

"They are not profitable, do not have enough money and it's [the follow-on] like printing more money," said a buyside source selling off his position in Cepheid. "Bad management plus bad economics equal sell, sell, sell."

Cepheid shares (Nasdaq: CPHD) on Wednesday lost 59 cents, or 6.45%, to $8.56, below where the deal priced.

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. The company said proceeds are earmarked to fund future acquisitions of molecular markers and/or complementary products in the fields of oncology, infectious diseases and other fields appropriate for molecular diagnostics.

Neurocrine ends slightly higher

Neurocrine Biosciences, Inc. took a hit early Wednesday after announcing it would drop its proposed multiple sclerosis product using altered peptide ligand technology after it failed a phase 2 clinical trial, but by day's end the stock had shaken off the news and settled in positive territory.

"[I] never did quite understand why they pursued the MS program after their initial sponsor dropped out," a buyside market source said. "I think they considered taking this last relatively low cost effort more as an opportunity to expand their knowledge base of the MS compound for future development in other areas. [Dropping the program is] not a big deal long term."

Neurocrine shares (Nasdaq: NBIX) traded as low as $66.95 on Wednesday but closed the session higher by 60 cents, or 0.87%, at $69.30.

San Diego-based Neurocrine said the trial results showed the APL technology for MS did not meet its primary endpoint and demonstrate efficacy, although the product was safe and well tolerated. Based on the results, the company has discontinued the MS program but said it will complete other APL phase 2 studies evaluating the APL technology for the treatment of Type 1 diabetes using a different epitope.

Those results, the company said, are expected in third quarter.

Neurocrine updates 2006 plans

Neurocrine also said Wednesday that in addition to pursing the APL technology to treat Type 1 diabetes its main clinical development candidates include an oral small-molecule GnRH antagonist for the treatment of endometriosis and benign prostate hyperplasia, urocortin 2 for congestive heart failure and a CRF antagonist for anxiety/depression and irritable bowel syndrome.

The company said it also is advancing a back-up compound for GnRH and has brought forward into clinical development a back-up CRF antagonist. In addition, the company has initiated a phase 1 clinical trial for a new compound, an H1 antagonist, NBI-75043, for the treatment of insomnia.

"Neurocrine is continuing to focus its resources on several new product candidates, which are currently advancing through development, and we will report on these phase 2 and proof of concept results throughout this year," said Wendell Wierenga, executive vice president of research and development at Neurocrine.

Generex climbs 5% on trial

Generex Biotechnology Corp., however, reported positive preliminary results in a long-term clinical trial of its Oral-lyn in juvenile patients with Type 1 diabetes, and the stock got a nice shot in the arm.

"This might be the ticket for blast off today," said a trader, and indeed it was.

Generex shares (Nasdaq: GNBT) added 10 cents, or 4.95%, to close Wednesday at $2.12. The stock has been on a steady incline since February when he company announced a pre-investigational New Drug Application meeting with the FDA regarding plans to launch clinical trials for its H5N1 avian influenza vaccine.

Wednesday's news, however, was positive preliminary results of a long-term, six-month clinical trial of Oral-lyn, Generex's oral insulin spray, in juvenile patients with Type 1 diabetes mellitus - characterized by high blood sugar levels, especially after eating. This study involved a split-dose treatment with the insulin spray before and after each meal.

Generex believes that this approach offers a new diabetes treatment paradigm with improved efficacy and patient compliance, resulting in greater metabolic stability thereby better controlling diabetes and reducing the complications associated with it. Treatment of adolescents with Type 1 diabetes is challenging and Generex said it chose to replace the lunchtime dose because it is this one that is most frequently associated with non-compliance.

On Feb 28, the company announced that it received $11 million from the exercise of previously issued warrants, brining its cash position to more than $31 million - the highest it's been in more than four years.

Santarus lifted by trial data

On positive clinical trial results Wednesday and capital-raising plans aired in its annual report earlier in the week, Santarus, Inc. shares got lifted, traders said.

Santarus shares (Nasdaq: SNTS) added 7 cents on the day, or 0.99%, to end at $7.15 but were seen in after-hours action giving back a nickel of that with a trade at $7.10 right after the closing bell.

On Wednesday, the company said its delayed-release capsules of Zegerid showed positive trial results for reducing the occurrence of gastroesophageal reflux disease, or GERD, on an empty stomach at bedtime. It was tested against the existing GERD drugs Nexium from AstraZeneca and Prevacid from Tap Pharmaceutical Products, Inc., a joint venture between Abbott Laboratories and Takeda Pharmaceutical Co. Ltd.

The San Diego-based biotech that went public in 2004, which is focused on gastrointestinal drugs, said it may raise more funds through a securities issue, strategic collaboration or debt financing. In August, the company raised $29 million from a direct placement of 7.35 million shares and last month announced that it has secured a $75 million equity line with Kingsbridge.

Santarus currently markets Zegerid powder for oral suspension and received FDA approval in February to market Zegerid capsules. It also submitted a New Drug Application for Zegerid chewable tablets to the FDA in May 2005.

The company said it believes that with its current cash position and potential proceeds from the equity financing facility, it has sufficient financing to operate for at least the next 12 months but costs could prompt the pursuit of additional financing outlets in 2006.

Santarus gearing up for launch

A buyside analyst said the company is gearing up for the Zegerid capsule launch, which is critical in his view.

"I have serious doubt there will be any emphasis on the powder once the capsule is launched. The [sales] reps have been scaled back on the powder already," the buysider said.

"It makes sense to [make a capital markets effort] now and put more cash in the till for advertising and expenses associated with the impending launch of the capsule. The company makes it or breaks on the capsule. They need as much cash in the till that they can get to throw at the new product."

On Monday, the company reported a fourth-quarter net loss of $15.8 million, or $0.36 per share, reduced from a fourth-quarter 2004 net loss of $33.3 million, as revenues gained to $5.7 million from $1.3 million. For 2005, the company posted a net loss of $65 million, or $1.66 per share, compared with a net loss of $82.6 million in 2004, with revenues climbing to $26.5 million from $1.3 million. Santarus said that at Dec. 31 it had cash and equivalents of $69.4 million, compared to $114 million as at year-end 2004.

Also of note, Santarus chief executive Gerald Proehl is scheduled to make a presentation at the Citigroup Small and Mid-Cap Conference in Las Vegas on March 15.

Emisphere up on Novartis pact

Emisphere Technologies, Inc. also was mentioned shooting up after announcing a licensing deal with Novartis AG for an oral parathyroid hormone treatment using its eligen delivery technology. Tarrytown, N.Y.-based Emisphere is eligible for milestone payments from Novartis of up to $30 million, plus royalties on sales of products.

"The milestones are not even the significant part of the [Emisphere/Novartis] deal - it's the royalties," said a sellside trader.

Emisphere shares (Nasdaq: EMIS) gained 40 cents on the day, or 6.64%, to $6.42.

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