Electro-Optical delays IPO again; Jerini IPO scheduled for Oct. 24 week; Affymetrix off; Cephalon higher

By Ronda Fears

Nashville, Oct. 21 - Life sciences bankers were scratching their heads in frustration Friday as yet another initial public offering failed to get off deck, with the medtech Electro-Optical Sciences Inc. having to delay its IPO because of market conditions, according to a syndicate source. Predix Pharmaceuticals Inc. also delayed its IPO this week, and SkinMedica Inc. has pulled its issue altogether, for now at least.

"We saw several IPOs blow up this week," said a syndicate source, who remained non-committal about specific barriers to getting IPOs done right now. "Earnings, clinical trial information, a lot of different data points are issues with fund managers right now.

"But, we remain optimistic," the syndicate official continued. "We have to, I suppose. There's no real way of knowing when the tide is going to turn, but it will eventually. Meanwhile, these life science companies need capital, so we will continue to try to make something happen."

Meanwhile, a new follow-on stock deal was put on the calendar by Point Therapeutics, Inc. The Boston-based company develops a family of dipeptidyl peptidase inhibitors for use in cancer, type 2 diabetes and as vaccine adjuvants. Phase III trials for its lead product candidate, talabostat, were launched earlier this month. Point Therapeutics shares Friday ended off by a nickel, or 1.19%, at $4.25.

While tough times prevail for IPOs, investors abroad, at least in one instance, were showing a nicer reaction to a new biotech stock.

Jerini IPO coming in Germany

Berlin-based Jerini AG's initial public offering of 15.5 million shares is being talked at €3.20 to €3.60 each. Book-building is set to begin Monday when the roadshow kicks off. Closing is slated for Oct. 31. The shares are being sold publicly in Germany and through a private placement to institutional investors elsewhere.

"Feedback from our recent investor education has been extremely positive," said Jens Schneider-Mergener, founder and chief executive of Jerini, in a company statement. "We see this as a confirmation of our business model and our significant progress over the past few years. Our focus is on investors with a long-term perspective who want to participate from the onset in our future growth."

Gross proceeds, including the greenshoe, are estimated at €61 million based on the mid-point of the price range. Jerini said it plans to use proceeds to finance the market launch of its lead product Icatibant, a new drug candidate to treat the hereditary heart condition, angioedema.

Icatibant is in the final phase of phase III clinical testing, and Jerini expects to file for marketing approval in the United States and the European Union in 2006. Approval is expected in 2007. Jerini plans to market the product in Europe on its own and to commercialize it with a yet-unnamed partner in the United States.

The stock is slated to begin trading Nov. 1 on the Frankfurt Stock Exchange.

Affymetrix drops almost 5%

Affymetrix, Inc. fell sharply Friday after posting a 44% drop in third-quarter profits as production constraints curtailed sales of a new microchip used in genetic research and drug development and warned that fourth-quarter sales would also lag.

The stock, which is up about 22% so far this year, plunged $2.12 on Friday, or 4.77%, closing at $42.35. The stock was seen down as much as 7% in after-hours trading Thursday on the company's post-close earnings report.

"Affymetrix is the best at what it does," said a buyside analyst. "Financials need to be taken care of, but they are having growing pains. They have the product and research to have a thriving company."

The Santa Clara, Calif.-based company - which makes equipment such as a GeneChip for genetic analysis for use in the life sciences and in clinical diagnostics industries - said it is expanding capacity at its Sacramento plant by 60% over the next few months and is building a new plant in Singapore. The investments will mean slightly lower profit margins in 2006, said chief financial officer Gregory Schiffman.

"We have enabled a whole new scale of genetic research ... we expect by year-end to no longer have limits on meeting customer demand," said Affymetrix chief executive Stephen Fodor on a conference call after the earnings.

The company, which warned last month of the capacity problems, reported net income of $8.7 million, or 13 cents a share, compared with $15.4 million, or 24 cents, a year earlier. Revenue rose 4.4% to $83.4 million.

For fourth quarter, Affymetrix lowered its revenue outlook by about $10 million to about $123 million. But sequentially, that represents a 50% growth rate.

Cephalon gains over 2%

As had been expected, Cephalon Corp. announced Friday morning that its attention deficit hyperactivity disorder drug Sparlon, previously called Attenace, has received an approvable letter from the Food and Drug Administration and the company expects to launch the drug early next year. It was news widely anticipated on The Street and sent Cephalon securities upward.

Cephalon shares added $1.17 on the day, or 2.64%, to $45.45. Also, a convertible trader reported the new 2% Cephalon convertible due 2015 traded up 2.625 points on an outright basis to 111.25, with "decent" volume.

Thomas Weisel Partners analyst Donald Ellis noted in a report Friday that, due in part to increased awareness of ADHD in adults, the market for ADHD drugs is growing rapidly, having gained to $3.1 billion in 2004 from $750 million in 2000.

Merrill Lynch analyst Gregory Gilbert said in a report Friday that he sees Cephalon capturing a bigger share of the ADHD market, estimating Sparlon to garner 5% in 2006. For reference, he noted the market leaders for ADHD drugs - Concerta and Adderall XR - have market shares of roughly 24%.

Discovery Labs soars 11%

Discovery Laboratories Inc. found lots of buying Friday after announcing that the FDA will likely decide on its Surfaxin lung treatment by April after accepting additional data it requested.

"This is just the beginning of the good news parade," said a sellside trader on the West Coast. "Confidence in the management on Wall Street is going to send this thing to the moon."

In August, shares plummeted from about $9 when the FDA said Discovery Labs' drug Surfaxin was approvable, but demanded more information in order to finalize labeling issues and correct previously reported manufacturing issues at its contract drug manufacturer, Laureate Pharma Inc. Following a submission of data earlier in October, the agency was satisfied.

Surfaxin is a synthetic surfactant, a substance that reduces surface tension, allowing lung tissue to absorb oxygen. The treatment is focused toward premature infants, who are often born without surfactant in their lungs. If approved in April, Discovery anticipates a launch of Surfaxin in the second quarter.

Discovery Labs gained 63 cents, or 10.9%, to end Friday at $6.41.

Cyberonics interest rises

Cyberonics, Inc. interest picked up sharply Friday and the stock was pushed up 2% ahead of the weekend, which a buyside market source said was largely propelled by hopes of a possible merger in the offing. A sellside trader said there had been interest in the Houston-based medical device maker's 3% convertible as well, but little activity.

"The scenario is this, but all supposition. St. Jude gave the impression if Cyberonics brought a product to the point of being marketable they'd buy them out. There was never anything definite, but there were a lot of market rumors," the buysider said.

"When Cyberonics accomplished the feat, St. Jude [St. Jude Medical, Inc.] turned their back on them, maybe even hoping they'd fail on marketing it themselves and they'd then pick them up even cheaper in the resulting financial bind."

But, he added, Cyberonics "proved they were able to stand alone. And, St. Jude seeing they were locked out started to work a deal with ANSI [Advanced Neuromodulation Systems, Inc]. Cyberonics was dumped when that [$1.3 billion] deal was announced earlier this month."

"This is all just supposition. Just thinking out loud and none of it is proven," he stressed, because there never was any confirmation of the market buzz that a merger was being pursued. "If it is true, however, it means St. Jude will not be buying Cyberonics at any time. But maybe that leaves another medical device maker, like a BSX [Boston Scientific Corp.] or MDT [Medtronic, Inc.] to step in."

Cyberonics shares closed Friday up 52 cents, or 1.92%, at $29.75.

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