Voyager rejigs IPO talk, cuts size; QLT plunges on severe cutbacks; LabCorp up sharply on buyback

By Ronda Fears

Nashville, Dec. 8 - The initial public offering of Voyager Pharmaceutical Corp. will try again after Thursday's close to get off, market sources said, after big institutional accounts muscled the deal into a smaller size with sweetened price talk.

Market sources continued to say the deal seemed to be going very well, however. Raleigh, N.C.-based Voyager now has cut the size to 4.5 million shares from 5.9 million and the guidance was lowered to $11 to $15 a share from $15 to $19. The deal is pricing via the OpenIPO auction venue of W.R. Hambrecht & Co.

Voyager plans to use proceeds, now ranging from $49.5 million to $67.5 million before fees and the greenshoe, for clinical trials of its lead drug candidate Memryte - a small biodegradable implant for mild to moderate Alzheimer's disease. The product is currently in phase 3 trials.

"Through a source, I heard it will clear at $12," said a buyside market source, saying that $50 million to $75 million "really is a much more realistic figure for a biotech. The institutions did not want to pay in the $15 to $19 range, especially knowing the bargain that the angel investors got. So they have forced Hambrecht and Voyager to lower the price or the size of the offering. Otherwise, nothing has changed fundamentally."

Another buysider said: "With the lower price, this is a steal in my opinion. But I can understand the lower bidding since Memryte is still a few years away from being approved by the FDA and not many people out there know about Voyager at this particular time. The early investors here will reap higher rewards.

"From Voyager's perspective, the reduced stock offering should allow more reasonable time to solicit the additional funds (equity or debt) at a lower cost. A stronger story after mid 2006 will allow the additional funds to be solicited in a less dilutive way to the shareholders of this IPO."

Voyager entrant enthusiastic

Voyager just discovered "that they cannot raise the large amounts originally hoped for, and will now need to adjust plans, timetables, etc., to realign to what Mr. Market is saying," said a third buysider, involved with venture capital investing.

"That, I am sure, comes as a disappointment to them. For investors, however, the Dutch auction just took a degree of risk out of the equation. We will get more shares for our investment, and there is much less chance that the price will fall in the open market. Nothing has changed long term, except the early investors just took a haircut from some original expectations.

"That is the name of the game if you want to play the angel investor game as well as the IPO game. Mr. Market is an interesting fellow, and he does what he does. In the days that follow, we shall see what the short-term effect is and what happens. There may still be some surprises in the coming days on both sides. I have adjusted my bids to add more at lower prices, and drop the bids that are now out of the range of possibilities.

"Long-term, this probably means that early investors are going to make more money. Short-term it means that Voyager has less to work with, and must adjust plans to make it to commercialization. Reality has just stepped in the door with all of its warts. But reality isn't so bad. We have an auction, a tradable security shortly, and still all of the hope for the future."

LabCorp up 4% on buybacks

Burlington, N.C.-based Laboratory Corp. of America Holdings shares took off after announcing a $500 million stock repurchase program, half of which it has accomplished in a transaction with Bank of America, NA by using bank borrowings. The company plans to repay the bank debt with a $250 million bond offering that was announced Thursday.

LabCorp shares Thursday roared higher by $2.30, or 4.42%, to close at $54.34.

LabCorp, which conducts independent lab work such as drug and alcohol testing in addition to blood cell counts and other clinical services, announced plans to sell $250 million of 10-year senior unsecured notes via bookrunner Banc of America Securities LLC.

Late Wednesday, LabCorp announced a stock buyback of $500 million and in connection with the program immediately purchased about 4.8 million shares of stock for $250 million from Bank of America, funding it with borrowings under an existing senior credit facility.

Proceeds from the bond offering will be used, along with cash on hand, to repay the bank debt.

The remainder of the share repurchase program will be purchased in the open market from time to time, the company said, with funds from its existing senior credit facility, future offerings of debt or other credit facilities, or cash on hand.

LabCorp converts active, up

LabCorp's existing debt was higher on the news, as well, a convertible trader said. He pegged the LabCorp zero-coupon convertible closing out the session at 75.5, up about 3.5 points on the day outright, but said the issue traded very actively and in a wide price range Thursday.

"The [LabCorp] bonds opened at 76.5 and were weaker, trading down to around 69ish, until lunch," the trader said. Then, he said, the issue steadily climbed during the afternoon and "traded as high as 76.785 before easing back to 75.5, right at the close."

Moody's Investors Service rated the new LabCorp notes at Baa3. Standard & Poor's Corp. rated the issue BBB.

Moody's said the rating and outlook assume that the company will be able to accumulate cash to prepare for a put on its zero-coupon convertible bonds, which comes in September 2006 at a potential liability of $530 million. The rating agency anticipates LabCorp will generate annual operating cash flow of between $570 million to $600 million, and free cash flow of $475 million to $500 million over the next two years, resulting in an adjusted operating cash flow to adjusted debt ratio of 40% and an adjusted free cash flow to adjusted debt ratio of 30%.

QLT stock falls nearly 12%

Vancouver, B.C.-based QLT, Inc. announced it will slash its work force by up to 46% and said it also may sell some assets in an effort to cut expenses by 20% in 2006 from an estimated $100 million this year as it continues to struggle with competition for its lead drug, the eye treatment Visudyne, and poorly executed acquisitions.

QLT also said that its chief medical officer, Dr. Mohammad Azab, resigned effective Jan. 1, without further explanation or whether he would be replaced.

The shares fell 12% at one point on heavy volume in reaction to the development, closing out the day off by 80 cents, or 11.43%, at $6.20.

There were plenty of sellers in the stock, although analysts like Merrill Lynch's Hari Sambasivam and many traders saw the news as a positive move by the company. Merrill has a neutral rating on the stock, however.

"Their market cap is about $650 million, cash position almost $450 million and the company will buy back $72 million worth of its shares going forward," said a sellside equity trader.

"Following today's action the risk of the company falling back into the red at the bottom line has basically evaporated. With that in mind and the headwind from the buyback as a short, what is the opportunity cost of holding onto that position going forward? It was a much different story when the Genentech story was fresh and QLT was trading around the $20 level. Let's see what happens when volume dries up over the next few days and the buyback accounts for an increasing percentage of daily volume."

QLT shrinks Visudyne view

Visudyne sales have suffered from competition, QLT acknowledged, particularly the off-label use of Genentech Inc.'s cancer drug Avastin. Genentech also has Lucentis, a drug in direct competition with Visudyne, that is expected to hit the market next year.

QLT warned that it now sees 2005 sales of Visudyne coming in at $480 million to $485 million, down from an earlier forecast of $500 million to $530 million. But the company, which also sells skin and urology drugs, plans to concentrate on its core eye care unit and one other therapy, which it said will be selected in 2006 based on trial data.

"We are narrowing our focus to those programs that are critical to our future," interim chief executive Robert Butchofsky said on a conference call. "The first step is an overall, immediate reduction in head count of over 20%, with the potential that it could increase up to 46% assuming the divestment of some of our existing assets."

QLT acknowledged, too, disappointing rewards from its $650 million acquisition of Atrix Laboratories Inc. in 2004, which was touted at the time as a means to broaden its pipeline. Rather, sales of Atrix's cancer drug Eligard have been weaker than expected and the launch of the acne drug Aczone has been delayed.

In addition Thursday, QLT said it will double its share buyback program, launched in May, to $100 million from $50 million.

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