Voyager plans IPO; Able Labs plunges; Mylan Labs launch seen; Boston Scientific up, J&J lower

By Ronda Fears

Nashville, July 5 - In a holiday shortened week, players in the biotech space were anticipating trying to squeeze five days of business into three or four. "It was really surprisingly a bit slow this morning, but things picked up this afternoon," a sellside source in New Jersey said. "Everyone was a bit slow catching up this morning but it will be go-go sessions for the rest of the week." There was plenty of news, even some on the financing front, to accommodate activity, however.

Cranbury, N.J.-based Able Laboratories Inc. was one of the biggest movers Tuesday, to the downside, after canceling its annual meeting that was due to take place Friday - its second delay in facing stockholders. This time, though, the news was more daunting, as Able Labs executives said it was uncertain if the company would ever be able to resume operations, in light of forced product recalls.

Trouble at Able Labs, which makes generic versions of medications such as Tylenol and Ritalin, began in May when it shut down all manufacturing operations and recalled all of its products due to chronic quality-control problems, which was followed by the resignation of its chief executive and a layoff of more than half its workforce. On May 27, the Food and Drug Administration issued a formal recall of all Able Labs products.

Able Labs said in the announcement Friday that it "can give no assurance as to if, or when, it will be able to resume manufacturing operations." Able Labs shares on Tuesday fell 47 cents, or 13.35%, to end at $3.05.

Boston Scientific Corp., which has been the subject of market chatter about acquisition activity, soared Tuesday following its news from late Friday that a federal jury late ruled that Johnson & Johnson's popular Cypher drug-coated stent, along with several other uncoated stents, infringe upon two Boston Scientific patents.

Johnson & Johnson, in the middle of a controversial acquisition of Guidant Corp., was weaker on the news. Meanwhile, Guidant was lower, as well, following news that the U.S. Food and Drug Administration on Friday put its most severe rating on the recall of two makes of Guidants' implantable defibrillators and put a lesser designation on six others. Yet, some risk arbitrageurs involved in the Guidant/J&J merger were capitalizing on the dip. "We played Guidant/J&J but not in the traditional sense of buying Guidant and shorting J&J," said one risk arb trader. "We did it with call options, and we came out ok."

Bausch & Lomb took off sharply Tuesday on its acquisition of a majority interest in a Chinese ophthalmic pharmaceutical company, however. One sellside trader noted that enthusiasm was vaulted by the growing economy in China, which has propelled it as a hot area of growth in all sectors, particularly biotech.

Mylan emerges amid slow flow

In primary market activity, it was a light day but word of upcoming deals sparked some interest.

In straight debt circles, news emerged that Mylan Laboratories Inc. is scheduled to launch a $500 million junk bond on Wednesday that, together with a new bank facility and cash on hand, will fund up to $1.25 billion in stock buybacks. Last week, even as the Federal Reserve hiked interest rates, Mylan's $275 million term loan - part of a $475 million bank facility - was reverse flexed to 150 basis points over Libor from 175 bps. Mylan Labs shares on Tuesday added 13 cents, or 0.68%, to close at $19.19.

In PIPEs, the number of deals seen Tuesday was slight, but dollar amounts were respectable, as Sirna Therapeutics Inc. announced a private placement stock sale anticipated to fetch $28 million at $1.60 per share. Closing on part of the private placement, which will include warrants, in the first week of July and the remainder after seeking stockholder approval. Sirna shares Tuesday lost a nickel, or 2.99%, to end at $1.62.

Meanwhile, initial public offering activity was nonexistent. G. Steven Burrill, principle in Burrill & Co., remarked in a report Friday that while it has been tough for biotechs to raise capital in the initial public offerings and debt markets, as well as PIPEs deals, venture capital money is still accessible and partnering or mergers and acquisitions with Big Pharma is an ongoing source of capital to continue business.

However, Merrill Lynch analyst Eric Ende said in a report Tuesday that demand in the biotech space, while slowing somewhat, appears healthy. The current four-week moving average funds flow is up $68 million, compared to May's moving average of a $311 million gain, he said. Flows into healthcare/biotech funds are positive $1.6 billion year-to-date, according to Merrill research, versus a gain of $1 billion in the 2004 time frame.

Still, investors are very risk adverse, particularly regarding IPOs.

"IPOs represent a certain amount of risk and, of the spectrum of risk, biotech represents the highest of these," said Ben Holmes, a managing partner in Protégé Fund, a hedge fund based in Boulder, Colo., that specializes in IPO investing.

Burrill sees 10-15 IPOs in 4Q

The pendulum has been swinging away from IPOs more to M&As and partnering, but Burrill sees some uptick in IPO activity later this year.

"Last year at this time, the industry had raised a total of $10.1 billion from financings and $4.3 billion from partnering deals. This year, we are seeing a reverse of this at the same point - financings are down 27% at $7.4 billion, while partnering deals are up 46% at $6.2 billion," Burrill said.

The swing towards partnering has been dramatic, a 90% increase over the first quarter of 2005, according to Burrill & Co. research

"Expect this trend to continue," Burrill said. "Strategic partnering and M&A will increase as will their transaction values and for earlier stage compounds. This will keep biotech on the radar screen and I would expect that we will have a very positive fourth quarter, mostly because with a predicted strong 2006 for biotech, investors will realize that now is the time to buy before the run up.

"For this reason, expect to see 10 to 15 IPOs to be completed in the United States in the second half of '05, with the majority occurring in fourth quarter," Burrill said.

Voyager Pharma plans fall IPO

In addition to Avalon Pharmaceuticals Corp.'s roughly $50 million IPO tentatively scheduled for late July, Voyager Pharmaceutical Corp., which is developing a treatment for Alzheimer's disease, is hoping to fetch as much as $200 million through an IPO around August with pricing in the fall, chief executive officer Patrick Smith has said in published reports, having already raised some $55 million from individuals to fund its early drug trials.

On Tuesday, a Voyager official said the company is in a "quiet period" with the SEC and could not comment further on a report published in "Triangle Business Journal," a regional newspaper covering the Raleigh and Durham, N.C., area. There has not been an S-1 filing at the SEC by the company as of Tuesday, however. The Raleigh, N.C., biotech, whose lead drug candidate is in phase II trials, has reportedly hired an unnamed investment bank for advice on the offering.

In mid-June, Voyager raised another $10 million in a private stock sale, the majority of which came from existing angel investors. The company plans to use part of the new money to help it conduct a phase III clinical trial on its Alzheimer's treatment, which is expected to get kicked off in September.

Voyager also last month named two new members to its board of directors. The first new member is Jim Artman, a retired partner with KPMG LLP. He will chair the audit committee for the Voyager board. William Edward McConville, a past president of Albany, N.Y.-based Siena College, is the second new board member.

For collaboration in discovery research with leading Alzheimer's research teams led by Drs. George Perry, Mark A. Smith, and Craig S. Atwood, all affiliated with Case Western Reserve University's department of pathology. For drug development and delivery support, Voyager has an agreement with Durect Corp.

Durect a direct play on Voyager

Voyager's aspiration to raise $200 million with an IPO nonplused some watchers who also follow Durect, as Durect pulls back from a new 52-week high hit a couple of weeks ago.

Still, although Durect was lower again Tuesday, some traders said it was a buying opportunity seen as a stepping stone to participate in Voyager's success. Another strategy was to play Durect through its 6.25% convertible due 2008.

"They [Voyager] utilize the Durin Rod technology from Durect. If Voyager is worth that [$200 million], why is Durect worth half that?" posed one sellside trader. "That is why people are buying Durect."

The trader, who also traffics convertibles bonds, said the terms on Durect's issue - at around a 4.2% yield, up 11.5% - make it a pretty fine way to play the Durect story.

Durect shares on Tuesday lost 13, or 2.44%, to close at $5.00, after hitting a new 52-week high of $5.25 in mid-June. The convert on Tuesday was quoted 166.75 bid, 168.75 offered.

As for Durect's slide and the view of it being a buying opportunity, the trader quipped, "Some people are like Slinkies - not really good for anything, but they still bring a smile to your face when you push them down a flight of stairs."

Durect also has been on some onlookers' radar screen as a takeover target or subject of a major partnership. Cupertino, Calif.-based Durect develops treatments directed to pain relief therapies as well as central nervous system disorders, cardiovascular disease and cancer. In addition to Voyager, its strategic partners include BioPartners GmbH; Pain Therapeutics Inc.; Endo Pharmaceuticals Holdings Inc. and Thorn BioSciences LLC.

Novavax discount follow-on

As another sign of buyside muscle in the stock market, Novavax Inc. managed a follow-on stock sale Friday, but at a 24% discount. The company sold 4 million common shares via placement agent Lane Capital Markets LLC at $1 each, a discount to its closing price of $1.32 on Thursday.

The offering - on a best efforts, all-or-none basis - was a success, the company announced Tuesday. In trade Tuesday, the stock dropped another dime, or 9.35%, to close at 97 cents.

Malvern, Pa.-based Novavax is a biopharmaceutical company that specializes in women's health products, such as prenatal vitamins and its lead product candidate Estrasorb, a hormone therapy, and infections diseases, as well as oxybutynin, for urinary and bladder complications, and an undisclosed antihistamine.

The company plans to use proceeds for research and development, including clinical and preclinical studies, and general corporate purposes.

"We believe this financing, together with a customary upfront payment from a possible Estrasorb partnership agreement, will assist Novavax in advancing the development of our drug delivery and biological technology pipelines," said Nelson M. Sims, CEO of Novavax, in a prepared statement.

"We are encouraged that the development of our pipeline remains ahead of schedule, as evidenced by the recent positive preclinical results for both hormone and non- hormone compounds. This financing, with participation from sophisticated life- science investors that represent new shareholders, will allow us to strengthen our cash position and accelerate our research programs."

Novavax has successfully applied its micellar nanoparticle technology to commercialize Estrasorb and complete Phase I trials for Androsorb. The company said it expects to file investigational new drug Applications for two of these drug candidates before the end of 2005.

Boston Scientific soars on win

Boston Scientific Corp., which also has been the subject of market chatter about M&A activity, soared Tuesday following its news from late Friday that a federal jury late ruled that the Johnson & Johnson's popular Cypher drug-coated stent, along with several other uncoated stents, infringe upon two Boston Scientific patents.

Boston Scientific shares on Tuesday gained $1.71, or 6.36%, to close at $28.60. The Natick, Mass.-based company, one of the world's biggest makers of cardiovascular stents, has been very active as an acquirer and company executives during its earnings call last month that growth through acquisitions continues to be a major approach.

"We are very pleased with the jury's verdict. It confirms our belief that we have fundamental intellectual property covering drug-eluting stent technology and stent design," said Paul A. LaViolette, Boston Scientific chief operating officer, in a statement on Friday.

Money damages and any other relief will be determined later, and the court has not yet set a post-verdict schedule, but Standard & Poor's credit analyst Cheryl E. Richer said the latest verdict in a spate of coronary stent-related court battles between Boston Scientific and J&J is a "material win" for Boston Scientific.

"While this development helps support an improving credit profile for the company...jury outcomes will likely be appealed by both companies. As a result, final resolution will likely take some time, unless the companies enter into a settlement agreement," Richer said. "To that end, this latest outcome provides significant leverage for Boston Scientific."

The verdict follows a June 9 ruling in a Dutch court that gave Boston Scientific the right to damages and an injunction against Cordis from manufacturing or selling certain balloon catheters in the Netherlands, including those used in J&J's Cypher stents. But there have been other verdicts that Boston Scientific stents infringe on J&J patents.

J&J slips on patent loss news

Johnson & Johnson, meanwhile, roamed around the unchanged mark throughout the session, sometimes higher, sometimes lower, but ended the day off slightly, continuing to suffer from the Guidant overhang, traders said.

J&J shares on Tuesday settled off by 10 cents, or 0.15%, to $64.85.

For its part, J&J announced said late Friday it will ask the court to overturn the jury's decision. If the motion fails, J&J will file an appeal in the U.S. Court of Appeals in Washington, D.C. Last month, another Delaware jury found that Boston Scientific's Taxus Express, Express, Biliary and Liberte stents infringed upon J&J patents. Boston Scientific has said it is considering appealing the decision.

Analysts at SunTrust Robinson Humphrey said Friday's verdict "seems to even the legal playing field" between the two leading stent makers.

"Both decisions are slated for hearings on damages in early August, and we believe there is now an increasing likelihood that a settlement agreement would take place in the coming months," the SunTrust analysts wrote in a note early Tuesday.

J&J has suffered somewhat because of complications arising in its bid for Guidant, due to the recall of some of its defibrillators. Guidant shares on Tuesday added 37 cents, or 0.56%, to close at $66.10.

Bausch & Lomb view lifted

Eyecare products maker Bausch & Lomb was cheered heartily on Tuesday on its acquisition of a 55% interest in China Shandong Chia Tai Freda Pharmaceutical Group, an ophthalmic pharmaceutical company, from Sino Biopharmaceutical Ltd., for $200 million. In addition, Bausch & Lomb agreed to buy an additional 15% of China Shandong held by two other entities for $54.5 million.

Bausch & Lomb expects the deal to be neutral to 2005 earnings and to add 5 to 10 cents to 2006 earnings and 10 to 15 cents in 2007 earnings. The company anticipates closing the transaction in the third quarter. The acquisition will be financed from existing cash resources, the company said.

Bausch & Lomb shares closed Tuesday soared $5.72, or 6.99%, to $87.50.

Bausch & Lomb generated over $150 million of free cash flow for the 12 months ended March 31 and had about $480 million of cash at the end of the first quarter, said S&P's Richer. Its ophthalmic pharmaceutical division represented 24% of 2004 sales, and the acquisition of Chia Tai Freda, the leader in the China ophthalmic pharmaceuticals market, will accelerate the company's expansion into the rapidly growing ophthalmic pharmaceuticals market in China, she said.

Chia Tai Freda develops, manufactures, and markets medications used to treat ocular inflammation and infection, glaucoma, and dry eye, including the Moisten and Mioclear lines of eye drops. It generated sales of $62 million in 2004.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.