Cadence rises after pricing below range; ImClone dips, ends up 5%; PDI off by 4%; Arena rebounds 7%

By Ronda Fears

Memphis, Oct. 25 - In another disappointing initial public offering, Cadence Pharmaceuticals, Inc. got its deal off but below range, but traded up in the immediate aftermarket. Market sources said another one or two IPOs could get done this week, while the rest of the slate is likely to slide into next week's business or beyond.

Meanwhile, in mainstream biotech secondary activity, ImClone Systems, Inc. stole headlines as noted investor Carl Icahn took the helm of the New York-based biotech, which reported mixed third-quarter results. Sale plans were solidly nixed by Icahn, which some onlookers said was no surprise as sales of ImClone's only product, the colon cancer drug Erbitux, are expected to fall off henceforth.

Earnings news continued to keep many biotech players sidelined, but syndicate sources said that despite less-than-stellar conditions they expect more showings from the IPO calendar this week.

Cadence raised $54 million from the sale of 6 million shares at $9 each - below talk of $11 to $13 - and the stock traded up on debut. The stock (Nasdaq: CADX) opened at the $9 mark and never went below that, settling the day with a gain of 40 cents with some 1.9 million shares traded. It went as high as $9.65 before easing back at the close.

"We feel like we are between a rock and a hard place, actually," said a biotech fund manager in Boston, who passed on the Cadence IPO.

"On the one hand, we like getting a bargain, so to speak, when these come below range. But, on the other hand, it may not be a bargain. If the marketplace is saying this is not worth $11 to $13, more like $9, then you figure there is some profit margin figured into it, but maybe not. Just because it traded up does not give me warm fuzzies. I stepped away from it. I will revisit it in a month or so and see where it is then."

San Diego-based Cadence has developed IV APAP, an intravenous formulation of acetaminophen for pain and fever, and Omigard for device, surgical wound and burn-related infections. Proceeds are earmarked to fund clinical trials, manufacturing and working capital.

A syndicate source said he also expects Achillion Pharmaceuticals, Catalyst Pharmaceutical Partners, Inc. and Rosetta Genomics Ltd. to get their IPOs priced before week's end but everything else on the calendar to get pushed back. The latter would include ImaRx Therapeutics, Inc. and Light Sciences Oncology, Inc.

"It still feels better as the month comes to a close and we enter the last stretch of the year," remarked a banker at a middle market firm.

"I am not saying everything that has been backed up will get done. But I think we could see another handful, maybe half a dozen deals, get off the ground."

ImClone up on short covering

Stealing much of sector's attention was the situation at ImClone, as the controversial biotech announced Wednesday that it named noted financier Carl Icahn as its new chairman and reported third-quarter earnings rose 85%, handily beating analysts' expectations although revenues fell short. Traders said heavy short covering drove the stock higher but that was not expected to stick.

In addition, Joseph L. Fischer resigned as interim chief executive officer and has been replaced by a newly formed executive committee of the board, which will be chaired by Alex Denner and include directors Richard Mulligan and Charles Woler.

In premarket action, the stock (Nasdaq: IMCL) took a dive to as low as $26.91 but opened stronger and settled with a gain of $1.56, or 5.3%, at $31 - the intraday high.

"What about ImClone? Well, a new CEO is the key to the company's future, near and long-term, and most important, new clinical trials data," said a sellside market source.

"Carl [Icahn] likes to make money, but I think it will be uphill for him and the company will eventually have to be parceled out. He needs a new CEO, but no good CEO will take the job without seeing survival data for Erbitux in mono, pancreatic cancer, and mCRC [metastatic colorectal cancer]."

ImClone results a mixed bag

Despite flat sequential Erbitux sales, ImClone posted net income of $57.3 million, or 65 cents per share, up sharply from $31 million, or 35 cents per share, a year ago, and a rise in revenue to $150.7 million from $106.5 million last year. First Call analysts had expected EPS of 45 cents on revenue of $163.3 million.

Erbitux, ImClone's only commercial product, produced sales that were roughly flat with second quarter and most onlookers expect those numbers to continue to deteriorate without an expanded label, chiefly due to competition from Amgen, Inc.'s colorectal cancer drug Vectibix, which was launched earlier this month.

ImClone reported royalty revenue of $78.6 million in third quarter compared with $46.6 million in third-quarter 2005, an increase of 69%. Royalty revenue for the third quarter of 2006 includes 39% of Bristol-Myers Squibb Co.'s in-market Erbitux net sales.

Merrill Lynch & Co. said Wednesday, in keeping a sell recommendation on ImClone stock, that it projects peak worldwide Erbitux sales of $1.15 billion, including use of Erbitux in first-line colorectal cancer, "which is really only a 50/50 probability."

Like many others, Merrill analyst Eric Ende said he expects Erbitux sales to begin declining in fourth quarter. He noted that Amgen's Vectibix was launched earlier this month at a 20% lower price than Erbitux and with a less frequent dosing and "a better safety profile."

ImClone has been working to expand the use of Erbitux to include lung cancer and head and neck cancer, however.

ImClone still staging solo act

Echoing remarks in August from ImClone that it took itself off the auction block after failing to receive an offer that it considers fair value, the company said on its earnings call Wednesday that it was no longer for sale and would seek to develop its pipeline and expand Erbitux sales on its own.

There was considerable skepticism about that prospect, however.

"While Icahn has been known to extract value from other companies, we do not believe he can fix Erbitux as it is an inferior drug to Vectibix," Merrill's Ende said in a report Wednesday.

"We expect Erbitux sales to decline irrespective of his efforts. Also, [the] recent loss of a key patent may further hurt profitability and reduce the likelihood of a buyer above the current stock price."

Erbitux is marketed with Bristol-Myers, which owns roughly 17% of ImClone, and traders said there was a modest amount of speculation that Bristol-Myers would be a buyer for ImClone.

"There is a lot they could gain, but not at the current price," one sellside trader said.

"I don't think anyone really thinks that is a viable argument."

Bristol-Myers shares (NYSE: BMY) ended off Wednesday by 9 cents, or 0.36%, at $24.66.

Despite the Erbitux skepticism, Icahn said in a prepared statement, "Erbitux is an important drug, and action must be taken quickly to make up for the errors and inaction of the last three years. My immediate priorities as chairman are to 1) investigate the reasons for why the relationship between ImClone Systems and its partner Bristol-Myers Squibb has seriously deteriorated over the past few years and 2) to act expeditiously to find a qualified CEO with biotechnology experience."

In September, Icahn, who owns about 14% of ImClone, filed a proxy to remove half of ImClone's board and now that three of the six directors he sought to remove are gone, the board is primarily made up of his allies.

PDI off on lost Sanofi contract

Elsewhere, PDI, Inc. slid Wednesday after announcing it has received notification from Sanofi-Aventis SA of its intention to terminate its contract sales agreement, effective Dec. 1.

"I can't wait for all the lame excuses on the loss of the Sanofi contract, following losses earlier this year on GlaxoSmithKline and AstraZeneca," said a buyside source in Boston.

"Let's face it, the current management is incompetent, impotent and strangely aloof on the urgency of getting new business before they burn what's left of the cash and go bankrupt."

He noted the SaddleRiver, N.J., biotech is scheduled to release earnings Nov. 7.

PDI said the Sanofi contract, which represents about $18 million to $20 million in annual revenues, was scheduled to expire Dec. 31.

PDI shares (Nasdaq: PDII) dropped 45 cents on the day, or 4.11%, to $10.52.

Separately, Sanofi announced plans to cut around 500 jobs in France, or about 2% of its French workforce, as a result of declining sales. Analysts attributed the declining sales to generic competition and removal of drugs from the French government's reimbursement list.

Sanofi shares (NYSE: SNY) closed higher by 11 cents, or 0.25%, at $44.26.

Arena's cash position a plus

In earnings-related moves, traders said Arena Pharmaceuticals Inc. made a nice rebound despite wider net losses and declining revenues because of its strong cash position.

San Diego-based Arena posted a third-quarter net loss of $20.1 million, or 43 cents a share, widened from a net loss of $16.1 million, or 46 cents a share, in third-quarter 2005. Revenues declined to $4.4 million from $7.4 million.

The company said its cash and equivalents totaled $250.8 million at Sept. 30, including proceeds of $169 million from a follow-on stock offering in February.

Arena shares (Nasdaq: ARNA) traded in a band of $15.50 to $16.39, settling with a gain of $1.10, or 7.24%, at $16.30, recouping a lot of the 10% slide a day before the results were reported.

"I am impressed folks are holding strong," said a sellside trader, adding he expected some profit taking late in the day. When only a slight easing occurred, at the close, he added, "There was nice volume and Arena held gains from the morning. Very nice."

He noted the stock opened at $16 a share versus Tuesday's close of $15.20. Some 4.1 million shares changed hands versus the norm of slightly over 1 million shares.

"There were no surprises on the call," the trader continued.

"All is overall good so far - no downside surprises. Finances are strong, the partnership with Merck continues, and Johnson & Johnson."

Arena's pipeline is focused on obesity, cardiovascular diseases, insomnia and diabetes. Its lead drug candidate for insomnia, APD125, is a selective 5-HT2A receptor inverse agonist. The company has collaborations with Merck & Co., Inc. and Ortho-McNeil, Inc., a unit of Johnson & Johnson.

Arena recently announced the start of a phase 3 trial of Lorcaserin for obesity starting in late 2007. If things go well, the company said it anticipated filing a New Drug Application in the second half of 2010 and market launch in 2011.

On Wednesday, Arena also cut its 2006 revenue guidance, but the trader said that was not a huge concern because of the company's ability to fund operations.

"They have cash and partners to get through all their trials," the trader said.

Arena said, based on timing of expected milestones from its partners, it revised its revenue guidance for all of 2006 to $29 million to $31 million from the previous projection of $34 to $38 million.

But Arena said it now expects to end 2006 with about $213 million to $220 million in cash and equivalents, versus a previous estimate of $192 million to $202 million, due to a decrease in expected expenditures for external preclinical and clinical study fees and expenses.

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