Teva launches $2.75 billion bonds; NitroMed pockets $52.6 million; SGX Pharma sweetens IPO talk

By Ronda Fears

Memphis, Jan. 25 - With the deal train roaring along in the biotech space, Teva Pharmaceuticals Industries Ltd. took center stage late Wednesday as it launched $2.75 billion of bonds for Thursday's business to repay the bridge loans it incurred in the acquisition of Ivax Corp.

"The stock should get knocked down tomorrow a.m. as convertible buyers [arbitrageurs] hedge their position," said a biotech stock trader. "You see a little strength after-hours here on position squaring by risk arbs related to the merger close."

Teva shares (Nasdaq: TEVA) ended Wednesday off by 32 cents, or 0.78%, at $40.63 but were higher in after-hours trade, seen at 4:43 p.m. ET higher by 32 cents, or 0.79%, at $40.95. Typically, the launch of a convertible sends the underlying stock immediately lower because of hedge fund participation, which accounts for upwards of 75% of activity in the convertible market.

But because of the Ivax merger, which also is scheduled to close Thursday, there was heavy risk arb activity and those positions were having to be unwound to play the convertible, traders said. Most expected the stock will be weaker Thursday, though, on the convertible deal.

As for the straight debt, Israel-based Teva (BBB/Baa2) is selling $1 billion of 30-year senior notes and $500 million of 10-year senior notes, but guidance for that paper was being gauged against the convertibles and would probably not be circulated until sometime Thursday, market sources said.

Separately, the convertibles are scheduled to price after the market close Thursday, and syndicate officials said the straight bonds would likely price just ahead of the convertible or just afterward.

As for the convertibles, the $750 million tranche of 20-year convertible senior notes were talked with a coupon of 1.5% to 2% and an initial conversion premium of 22.5% to 27.5%, and the $500 million tranche of 20-year convertible senior unsecured bonds is talked with 0.25% to 0.5% coupon and 14% to 17% initial conversion premium.

Traders tangle in 'Smackdown'

Basically, traders in the biotech space Wednesday were pulled so many directions - positively by Amgen, Inc. and several Big Pharma names but negatively by the likes of Imclone Systems, Inc. and Cephalon, Inc., to name a few - that it turned into a session of head-butting, as one source put it, to an all-out "Smackdown," as another couched the day's events, borrowing the World Wrestling Entertainment title.

A day ahead of Amgen, Inc.'s earnings - due Thursday - the stock was higher and traders said that whether the rise was due to short covering or real accumulation, the signal was very positive for the Big Biotech story and the sector as a whole.

"Everyone has been on pins and needles about what was going to happen with Amgen after what happened to Genentech," said a biotech stock trader at one of the bulge bracket firms. "It could be short covering, it could be general optimism. Either way it's a very good sign that people think Amgen is going to nail earnings, or surpass expectations."

Two weeks ago, there was a massive bailout of Genentech Inc. after the other Big Biotech story reported a 64% spike in fourth-quarter earnings. But the market focused on lackluster sales of its colon cancer drug Avastin, which also has been a hopeful off-label drug for lung and breast cancer, and Genentech stock tumbled more than 10% over the course of the following two days. Genentech shares (NYSE: DNA) on Wednesday added 21 cents, or 0.24%, to close at $86.41 compared with a 52-week range of $43.90 to $100.20.

Amgen shares (Nasdaq: AMGN) hit an intraday high of $76.27 but came off that to end the day at $75.47, higher by 53 cents, or 0.71%.

Another positive angle of the view, the sellside trader said, is the impact that a pleasing earnings report from Amgen might have on merger and acquisition activity. There were ill-boding signs, too, however, such as ImClone Systems Inc., which suggested it will hit the sale block.

Initially, the ImClone news sent the stock soaring but as market watchers studied the situation it became less of a sure thing and sentiment soured. ImClone shares (Nasdaq: IMCL) recoiled Wednesday, losing 87 cents, or 2.46%, to $34.49, nearly reversing all of the 3.8% gain seen Tuesday when it reported earnings.

Deal flow still roaring

Deal flow was not about to take a back seat to earnings, though, and the deal train continued to roll along like a bullet with mixed results, evens without Teva's jumbo deals.

"We are really pumped with what we've seen so far just three weeks into the year," said a junior syndicate official. "There's been an inordinate amount of follow-ons, but those are a great gauge for the IPO market. So far, it's looking pretty decent."

SGX Pharmaceuticals, Inc. sweetened its initial public offering guidance, but then it was learned from a buyside market source Wednesday that the Cardica Inc. IPO had been shuffled up higher on the calendar to the week of Jan. 30 from Feb. 6. The Redwood City, Calif.-based maker of systems used for coronary artery bypass plans to sell 3.5 million shares at $12 to $14 each.

Meanwhile, in general, sources said the Altus Pharmaceuticals, Inc. IPO seemed to be coming along nicely while Gaithersburg, Md.-based Iomai Corp., which concentrates on vaccines and immunostimulants delivered to the skin, might be hitting a snag. Iomai is pitching 6.25 million shares at $11 to $13 per share.

Altus aims to sell 6 million shares proposed at $14 to $16 per share. The Cambridge, Mass.-based company, formerly a subsidiary of Vertex Pharmaceuticals Inc., is focused on treatments for chronic gastrointestinal and metabolic disorders. Vertex shares (Nasdaq: VRTX) on Wednesday added 14 cents, or 0.42%, to $33.68.

Not to be outdone, particularly by the heavy follow-on activity, the PIPEs market piped up on the deal train with a big $58.6 million transaction from NitroMed, Inc. on Wednesday, among others. And venture capital transactions are getting off to a nice start for 2006 with MAP Pharmaceuticals, Inc. closing a $25.25 million series C financing. MAP's lead product candidates are intended for the treatment of pediatric asthma and adult migraine.

SGX sweetens IPO price talk

While there has been enthusiasm about new deals in the biotech space of late, SGX Pharma on Wednesday cut the guidance for its IPO to $7 to $8 per share from $11 to $13 just ahead of pricing the deal. The number of shares in the offering remains the same at 4 million with a greenshoe of up to 600,000 shares.

But the move will shave the expected net proceeds to $42.6 million at the midpoint of guidance, or $49.3 million with the greenshoe fully exercised, from earlier expectations of nearly $50 million.

San Diego-based SGX, a developmental cancer drug company, said most of the money from the offering will be used for research and development. Its primary drug candidate, Troxatyl, is in a phase 2 and 3 clinical trial for the third-line treatment of acute myelogenous leukemia, a blood cancer.

"I think it comes down to this being a one-trick pony," said a buyside market source. "Risk aversion is still a big factor right now."

Pre-IPO, the biggest investors in SGX were Atlas Venture Funds, with 3.74 million shares or 22.85%, and BA Venture Partners, with 3.71 million shares or 22.61%.

Nitromed ends off slightly

NitroMed, Inc. took a dive close to 3% in pre-market action with news on the wires about a big $58.6 million PIPE transaction. But the stock curbed the day's loss to a fractional downturn by the close as players perceived the news as a positive event insofar as the deal size suggested strong interest in the name.

"I no longer have a position, and am looking for a reentry point. I'm curious to see how the news today hits the stock," said a buyside market source early Wednesday. "It might be a short-term negative that will allow for a small bounce once the dust settles."

Traders said interest built in the NitroMed story as the day wore on and NitroMed shares (Nasdaq: NTMD) settled the session lower by just 2 cents, or 0.17%, at $11.50.

Lexington, Mass.-based NitroMed announced Wednesday that it had sold about 6.1 million shares to selected institutional investors at $10.25 apiece, which it expected to pocket $58.6 million in net proceeds for the commercial launch of its first marketed product BiDil - as heart medicine approved for black patients. The stock closed Tuesday at $11.52.

In June, the Food and Drug Administration approved BiDil after NitroMed reported the results of a study targeting black patients, which the company said was conducted because two previous trials in the general population of severe heart failure patients found no benefit, but suggested a benefit of BiDil in black patients. The drug, a hypertensive agent, is a combination of two older drugs, neither approved for heart failure - hydralazine and isosorbide dinitrate.

While the deep discount shocked many holders of NitroMed, some were loading up on the news because of recent experience with similar transactions.

"That [Wednesday's level for NitroMed shares] may mark the bottom," one buyside source said. "Remember ViroPharma pricing that secondary around $16? After it was priced, the stock went up something like $3.80 that day."

In early December, ViroPharma, Inc. fetched $142 million with an upsized follow-on offering of 9 million shares at $16.75 per share, discounted 4% from $17.45, and on the same day the stock gained $1.35 on the day, or 7.74%, at $18.40. ViroPharma shares on Wednesday closed up 23 cents, or 1.16%, at $20.04.

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