NitroMed, Antigenics strike new lows; NPS Pharma, Insmed gain; Medtronic deal boosts Biomet

By Ronda Fears

Memphis, April 11 - Positive moves in the biotech sector were few and far between Tuesday as traders and analysts observed more of the same - profit taking and a tough biotech tape. Medtechs weren't exempt either, but after the bell rang Medtronic, Inc. rolled out a $4 billion two-part convertible bond deal and that sparked a Biomet, Inc. player to speculate that there could be wedding bells in the offing for the two medical device firms.

"Today was fire sale day," remarked a sellside biotech stock trader. "My experience with major pullbacks is: expect a bounce and sell the bounce and go short at any hint of exhaustion."

While gains were scant, they were easy enough to spot among the components of the major biotech indexes. NPS Pharmaceuticals, Inc. was one with little explanation offered by market sources. Another was Insmed, Inc., which was getting a pitch from a sellside shop.

"NPS Pharma was bucking the trend of the day. Most other stocks are awash in red, but NPS Pharma has been able to post a nice gain today. While I wish it was on higher volume, it is still a nice sign," the sellside trader said. "Is this the beginning of the rebound? Is this the beginning of strong buying? Is this the beginning of short covering? We will have to wait and see, but a nice trend to see."

NPS Pharma shares (Nasdaq: NPSP) added 46 cents on the day, or 5.58%, to settle at $8.71. Volume was 845,813, somewhat shy of the three-month running average of 1.06 million.

To be sure, however, the trend was far negative with even some biotechs skidding to new lows, including NitroMed, Inc. and Antigenics, Inc.

Cell Therapeutics, Inc. also flirted with a new low, erasing some nice gains since announcing last week that it plans to sell or exchange between $50 million and $100 million of a new series of convertible notes. Cell Therapeutics shares (Nasdaq: CTIC) ended the day off by 27 cents, or 13.64%, at $1.71 - smack at the new 52-week low hit last Thursday as the financing plans hit the tape.

Insmed pitched as bargain

Insmed didn't have any news on the tape, but there was new analyst coverage in circulation with a buy recommendation on the recent weakness and a target price nearly 50% higher than where the stock is right now.

"The upshot of the [C.E. Unterberg Towbin] report was that the longer you wait the more you'll pay. At least that's what I got out of it," said a source at a buyside shop in New York.

"The [C.E. Unterberg Towbin] analyst started Insmed coverage today with a buy rating with a three-month target of $3. Another analyst has set the price at $4 within a year. Other companies are researching Insmed and I expect more coverage soon. The stock has taken a relentless beating for several weeks and now it is ready to roar. I think a realistic three-month target is over $4."

Insmed shares (Nasdaq: INSM) on Tuesday gained 9 cents, or 5.33%, to close at $1.78.

Aside from having Food and Drug Administration approval for Iplex - a once-daily IGF-1 (Insulin-like Growth Factor-1) replacement therapy for children with severe growth hormone deficiency syndrome - which is due to launch commercially in May or June - the buysider said Insmed has a "huge pipeline" with drugs in trials for cancer, diabetes, muscular dystrophy and HIV.

Additionally, he noted that with the $43 million follow-on offering from the company last month, Insmed now "has a solid balance sheet with over $60 million in cash. Cash, plus the Iplex revenues will help push forward its pipeline."

Glen Allen, Va.-based Insmed raised $40 million on March 10 from a follow-on offering of 20 million shares off the shelf priced at $2.00 each, discounted from the previous day's close of $2.19.

NitroMed, Antigenics dive

Overall there was a dearth of news in life sciences Tuesday, traders said, so there was little solid reasoning to the widespread declines other than a wash out of marginal players. Thus, traders tended to focus on the big movers, such as NitroMed and Antigenics.

Not unlike Insmed and a host of other biotechs, NitroMed and Antigenics both have seen severe negative price swings in recent weeks and they both hit new 52-week lows Tuesday.

"It was gruesome, a slaughter nearly everywhere you looked," a sellside biotech stock trader said.

Lexington, Mass.-based NitroMed has been trying to stage a comeback since the sudden departure of its top two executives in late March, which was unexplained but seemed to be the culmination of a sour reaction from the markets to the company's lead product - BiDil, a heart medication that targets black patients, which just recently won FDA approval. The NitroMed helm is now being steered by NitroMed chairman Argeris "Jerry" Karabelas, who will serve as interim CEO, and Kenneth Bate, formerly the CFO of Millennium Pharmaceuticals, as CFO.

NitroMed shares (Nasdaq: NTMD) lost 37 cents Tuesday, or 4.81%, to end at $7.32, eclipsing a low of $7.51 hit on March 15.

A couple of weeks ago, Antigenics lost nearly half its value after the New York-based company said it was suspending trials of its kidney cancer drug Oncophage. On Tuesday, Antigenics shares (Nasdaq: AGEN) fell 23 cents, or 8.68%, to close at $2.42, coming in under the previous low of $2.50 that was struck March 24.

Isis falls on deal details

In the wake of a $75 million collaboration deal, Isis Pharmaceuticals, Inc. has lost 15% or more as the deal details sink in with long-time players in the story, a former player said Tuesday.

On Friday, Isis announced a series of related agreements in connection with a transaction with Symphony Capital Partners, LP and a group of co-investors to provide $75 million to fund the development of its cholesterol-lowering drug ISIS 301012 and two novel drugs from Isis' metabolic disease program.

"In the last few trading sessions alone, the market cap for this stock has declined more than the total valuation of the deal! Where is the value to shareholders? There is none," said a buyside trader in Boston, who was selling some but not all his position in Isis.

"The only value of the deal is to make sure the company stays in business a little longer."

On Tuesday, Isis shares (Nasdaq: ISIS) dropped 62 cents, or 7.87%, to $7.26.

Isis said Symphony Capital Partners and a group of co-investors have formed Symphony GenIsis Inc., capitalized with $75 million. Isis granted a license to the intellectual property for the three drug programs to Symphony GenIsis, but retains the right to buy it back by acquiring all of Symphony GenIsis's equity at an average 32% annual rate of return or 27% at the end of the four-year deal period.

In exchange, Isis granted to Symphony Capital a five-year warrant to purchase 4.25 million shares at $8.93 each, a 25% premium over Isis's prior 60-day average trading price, which was $7.14. Isis said it also paid Symphony Capital a structuring fee of $3.75 million and intends to consolidate the financial results of Symphony GenIsis into its financial statements.

"What most reasonable investors knew within three minutes after the Isis news release last Friday was that Isis and their shareholders are in one heck of a jam. I was stunned that so many Isis longs read great news out of this failing to attract big pharma," said a buysider on the West Coast.

"I expected the geniuses to spout their usual nonsense, but after three days you would expect some common sense, finally. If you think that you only have to wait another three or four years for shareholder value to increase, then you haven't learned one iota of what's up. Antisense is a good target validation and allows rapid design of drug candidates. As of today, that is about where it ends. Show me a large scale successful phase 3 clinical antisense trial and then I'll change my mind."

Medtronic pitches jumbo deal

Minneapolis-based Medtronic rolled out $4 billion of convertible notes, in two equally sized tranches, for Wednesday's business and at least at first glance the news perked up one trader in Biomet, Inc. shares as the Warsaw, Ind.-based orthopedic device maker is thought to be looking for a buyer.

Medtronic said that proceeds from the convertible offering would be used to buy back some $2.5 million of common stock, some from participants in the bond deal, and for general corporate purposes.

Indicative terms for the convertible bonds show a five-year tranche talked with a coupon of 0.75% to 1.5% and a seven-year tranche talked at 1.0% to 1.75%. Each tranche is pitched with a with initial conversion premium of 10%.

Medtronic also will carry out convertible note hedge and warrant transactions and expects the warrants to have an exercise price at a 50% premium to the common stock price. The transactions also are designed to minimize dilution from the conversion of the bonds.

On Tuesday, Medtronic shares (NYSE:MDT) closed lower by 43 cents, or 0.84%, at $50.50 but were higher in after-hours activity by 58 cents, or 1.15%, at $51.08.

Biomet lifted after close

Amid widespread chatter, Biomet acknowledged last Thursday that it had hired Morgan Stanley & Co. Inc. to explore strategic alternatives to enhance shareholder value - the market euphemism for being on the auction block - and while Medtronic had been considered only a possible bidder for it, the funding news will likely turn up the volume on that noise, a buyside source said.

Biomet shares (Nasdaq: BMET) closed off 66 cents, or 1.7%, at $38.08 on Tuesday. After the close, the stock was seen edging up by 2 cents to $38.10.

"Biomet has been given a short-term reprieve from the pressure on its stock due to the speculation of a buyout at an inflated price," a sellside trader said.

"There is not enough here to buy at the levels the board [Biomet board of directors] thinks they should have. There is not a long list of true suitors to buy this company."

The usual suspects are among the line up of speculated bidders for Biomet, he said: Johnson & Johnson, Stryker Corp. and Zimmer Holdings Inc., which are all heavily involved in orthopedic devices. There had been some speculation that Medtronic might be a looker, he said, but not seriously until maybe now that Medtronic has embarked on a capital-raising effort.

"Stryker will not buy Biomet. Zimmer will not buy Biomet. Smith & Nephew plc might. Johnson & Johnson won't. Medtronic might," the trader said. "There's my prediction, for what it's worth. Personally, I think they are going to have to drop their sights significantly to draw any serious bidders."

On several analysts' projections, players have been anticipating bids for the orthopedic device maker might be as high as $46 a share.

"It has been evident for some time that Biomet's price to earnings is too high for a company that has prospects of much slower growth going forward. Also, profits may be hit even harder if competitive pressures force price cuts," the trader said.

"Second, Biomet will not be an easy sell to potential buyers. The buyers are in the best bargaining position since Biomet's prospects are obvious to anyone doing their due diligence. The current price of Biomet stock is already too pricey."

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