Insmed, Corautus off on deals; NPS Pharma gains, dives on FDA; CV Therapeutics higher; Kos up

By Ronda Fears

Memphis, March 10 - Deal flow in the life sciences group, particularly the biotech sector, has been somewhat disappointing so far in 2006 as the close of first quarter approaches, but market sources say it's not been a big surprise. A couple more follow-ons got off late Thursday, from Insmed, Inc. and Corautus Genetics, Inc., although both at hefty discounts.

"We're confident about the [biotech] sector and life sciences really as a whole but more on the performance side, not in the way of deals. First quarter is shaping up that way," said a fund manager in Boston.

"I am looking for a better showing in the second half of the year, after there has been some confidence-building with regard to earnings. Nice performance from some of the ones that have brought deals would also help."

Meanwhile, on trading desks a new spate of potential merger speculation was fueling considerable activity, particularly with several research pieces out on the topic.

Insmed prices at big discount

Insmed, Inc. raised $40 million in gross proceeds from a follow-on offering of 20 million shares at $2 - discounted 9% from Thursday's closing level of $2.19 - and the stock took a hit. While some players were upbeat as the company is using the funds to launch its first drug, there are still concerns because the market for the drug is small.

Glen Allen, Va.-based Insmed has earmarked proceeds to fund the commercial launch of its lead product, Iplex - the only Food and Drug Administration approved once-daily IGF-1 (Insulin-like Growth Factor-1) replacement therapy for children with seven growth hormone deficiency syndrome. The company also plans to pursue marketing authorization for Iplex in Europe.

"I do agree that Iplex is a superior drug, but so far has limited usage. Realizing the company needs capital and has secured it is not entirely comforting - they will need more next year. The next milestone is the launch [of Iplex], and because that market is so small it will be as if the company is marketing Ibuprophen - it will be tiny and perhaps used as a sell on the news vehicle. The possible other uses for Iplex are speculative at this point, and the drug has not even been put on the market yet for its main purpose," said a buysider.

So, he continued, "There are the basics - FDA approved the drug, there is a strong pipeline and decreasing debt. We all know this already, we'll just have to wait until there is some more substantial news. The bottom line is that Insmed is a company with a negative balance sheet and will be until there are revenues from Iplex, whatever they may be."

Insmed shares (Nasdaq: INSM) dropped 13 cents, or 5.94%, to close Friday at $2.06. Some 8.76 million shares changed hands, compared with the three-month running average of 3 million shares.

Corautus deal seen overbooked

Corautus Genetics, Inc. also discounted its deal rather steeply but upsized the number of shares to accomplish a bigger dollar figure, which some players took issue with because it was said to be well over-subscribed.

Atlanta-based Corautus raised roughly $29 million in gross proceeds from the upsized follow-on offering of 7.5 million shares, boosted from 6.5 million, at $3.85 - discounted 8% from Thursday's closing level of $4.20.

"The offering was oversubscribed. I only got one third of my order," said a buyside market source in Atlanta. "That is what happens when they give away shares so cheap. All I can say is the offering is over and behind us."

Corautus shares (Nasdaq: VEGF) lost 34 cents, or 8.1%, to end Friday at $3.86 with 1.13 million shares traded, versus the norm of 59,080 shares.

The buysider also remarked that he thought there would be a lot of players in Corautus "jump ship," because the deal seemed to suggest the company's lack of confidence it its lead product and those trials. He also pointed to a recent set-back in the trials.

Corautus is focused on gene therapy products for the treatment of cardiovascular and peripheral vascular disease with its Vascular Endothelial Growth Factor-2 (VEGF-2) gene. Proceeds are earmarked for working capital and to fund clinical trials and manufacturing costs.

Late in February, Corautus announced an update of a phase 2b clinical trial of VEGF-2 for the treatment of severe angina resulting from cardiovascular disease, saying it now expects to complete the enrollment in the trial around June 30, versus an earlier projection to complete enrollment by March 31.

CV Therapeutics up on shipping

Speaking of angina, Palo Alto, Calif.-based CV Therapeutics, Inc. announced Friday that the company has begun filling orders and shipping its new heart medication Ranexa to pharmaceutical wholesalers.

"It's show time," said a sellside biotech stock trader in New York. "With FDA approval achieved, with no liquidity issues in sight, barring a recall disaster, the risk reward is way up."

Because of that, he said there were "virtually no sellers" in the stock. "As volume indicates, you couldn't shoot a share out of a tree with a turkey shotgun at this price."

CV Therapeutics shares (Nasdaq: CVTX) gained 51 cents, or 2.08%, to close Friday at $25.08. About 950,000 shares changed hands on Friday compared with the norm of 1 million shares, but the trader noted that almost half the volume Friday took place in the last hour of the session.

The company said it anticipates Ranexa will be available in pharmacies by late March, when the company's cardiovascular sales force begins calling on cardiology specialists. The drug won FDA approval in late January and, according to CV Therapeutics, is the first new approach to treat angina in more than 20 years. Angina is chest pain as a result of the heart muscle not getting enough blood.

NPS Pharma plunges 37.5%

NPS Pharmaceuticals, Inc. was moderately higher going into Friday and trended slightly above the flat line until mid-afternoon when news hit the tape that it had received an approvable letter from the FDA for its osteoporosis drug Preos, rather than a delay as many onlookers had anticipated.

Initially, there was a spike in the stock on the headline, but traders noted that a closer reading of the news put a screeching halt to the run because the FDA is seeking additional clinical data. Rather, the stock turned sharply into negative territory by the closing bell.

NPS Pharma shares (Nasdaq: NPSP) traded in a range of $8.60 to $14.50, settling the day with a loss of $5.27, or 37.54%, at $8.77 amid a heavy sell-off in the final hour of the session. Some 9 million shares traded, versus the norm of 626,377 shares.

"This whole thing is very nerve racking. The tension is high, I am holding calls out the wazoo. I'm ready for both outcomes, but still it is exhausting," said a sellside trader on the West Coast.

"I assumed a positive outcome today, with a remaining label question which, in my opinion, will hold the stock down."

The FDA issued an approvable letter for Preos but expressed concern regarding hypercalcemia associated with the dosage and has requested additional clinical data, as well as additional information regarding the reliability and use of the injection device for delivery of the drug. NPS said it has scheduled a meeting to further discuss those issues with FDA staff, to see if existing trial data is sufficient.

Kos zooms on takeover buzz

Kos Pharmaceuticals, Inc. saw a big spike Friday on a research item posing it as a possible acquisition by Schering-Plough Corp. as a solution to its lack of a high-density lipoprotien cholesterol, or "good cholesterol" drug, a sellside trader said.

Kos shares (Nasdaq: KOSP) added $2.84, or 6.1%, on Friday to close at $49.39.

Cranbury, N.J.-based Kos concentrates on drugs to treat chronic cardiovascular, metabolic and respiratory diseases, including its Niaspan that is marketed to significantly increase HDL, or "good," cholesterol while also lowering low-density lipoprotien (LDL), or "bad," cholesterol.

Schering-Plough shares (NYSE: SGP) edged up by a nickel, or 0.28%, to $18.05.

The sellside trader also noted there was a big sellside shop distributing a list of some 20 to 25 small biotechs that would be prime takeover candidates for Big Pharmas, or at least ripe for drug partnerships.

Alexion tops list for buysider

Among those on the list mentioned above getting the most attention Friday, the trader said, were gains marked by Alexion Pharmaceuticals, Inc., Adolor Corp., Medicines Co., Regeneron Pharmaceuticals, Inc. and Keryx Biopharmaceuticals, Inc.

Alexion was not the biggest gainer of those mentioned by the trader Friday, but a buyside source that saw that list said Alexion was his favorite. Alexion shares (Nasdaq: ALXN) gained $1.15, or 3.09%, to $38.40.

"Of all the ones [on the list], we love Alexion - [it has an] amazing drug that will likely be priced $200,000 to $250,000 per patient per year," the buysider said. "Given a population of at least 4,000 in the U.S. and E.U. combined, you're look at a billion dollar market opportunity."

Alexion's two lead product candidates are Soliris, or eculizumab, and pexelizumab. The company has 100% of the rights to eculizumab, for which a phase 3 trial was launched in December to test it in patients with paroxysmal nocturnal hemoglobinuria (PNH), a red blood cell disorder. The company said last month that most of its attention is focused on commercialization of the Soliris product.

The company has partnered with Procter & Gamble Co. in a 50/50 deal on pexelizumab. A phase 3 trial of pexelizumab in coronary artery bypass graft surgery patients failed to achieve its primary endpoint, but the company said last month that it will finalize an ongoing phase 3 trial of pexelizumab in acute myocardial infarction patients, with results expected in the second half of this year.

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