Advanced Life Sciences, Avalon IPOs delayed; ZymoGenetics on deck for Wed; stem cell names rise

By Ronda Fears

Nashville, July 29 - The distraction from it being earnings season aside, the month ended on a sour note for the primary market with Advanced Life Sciences Inc.'s initial public offering failing to get off.

Advanced Life Sciences fell victim to the prevailing difficulty facing biotechs attempting to go public, with a delay in pricing its initial public offering even after cutting the price range on it by a whopping 44%. Avalon Pharmaceuticals Inc. also appears to have gone the way of Accentia Biopharmaceuticals Inc., getting delayed to a status of "to be determined."

In secondary action, ZymoGenetics shares came under further pressure on dilution from plans for a follow-on offering Wednesday. Nearly the entire biotech sector was weaker Friday, along with the broader markets.

Controversial stem cell research names were the exception, with U.S. Senate Majority Leader Bill Frist, R-Tenn., on Friday reversing positions and lending support to legislation to expand federal financing for human embryonic stem cell research.

Paradigm shift toward front-end

In contrast to the difficulty that biotechs in early to mid-stage development are having in the public markets, there has been a surge in venture capital and other private funding means since second quarter.

Amit Bhatia, health care IPO analyst with the independent research firm Current Offerings, said it is a shift in investment strategies to focus research and development early on, having seen Big Pharma become willing to pay up for that as it reaches the later stages of clinical trials. The bigger companies already have in place the expertise to move a product into commercialization.

"There is a shift in the paradigm, segregating the sector between the early stage R&D up to phase II trials where the technology is out-licensed and the phase III trials to commercialization," Bhatia said.

"Venture capital funds, given they have decided that public funding has dried up somewhat, are seeing that they can leverage their investments by investing in these early-stage development companies. There is more money to be made now on the front end.

Advanced Life Sciences on hold

That said, Bhatia said even biotechs further along in the development phases have trouble if their operations are in the red or do not make sense to investors. Advanced Life Sciences may be having trouble along those lines, he said, because its lead antibiotics candidate is a product bought after it was dropped by the original developer.

"Their [Advanced Life Sciences] lead antibiotic was in-licensed from Abbott. Abbott had it in trials and abandoned it due to disappointing results," the analyst said. "Advanced Life Sciences says that was because of dosing issues, but the investment community is having a hard time believing that."

Advanced Life Sciences' other candidates are in early-stage development, so they are less of an imminent concern. Particularly since the company paid a premium price to Abbott and has boosted spending on the product in the past year, yet to any avail.

"There is so much uncertainty and risk, they had to cut the price," Bhatia said, "and I doubt they go public."

Indeed, even after cutting its price range on the IPO to $8 to $9 from original plans to fetch $11 to $13, Advanced Life Sciences did not get off as planned after the market closed Thursday and now is on the horizon calendar.

Follow-ons still looking hopeful

Banker types say they are still hopeful that secondary offering will be a source of strength for funding in the public markets.

Pricing is slated for Wednesday's business for ZymoGenetics' plans to offer 6.5 million shares off the shelf with net proceeds estimated at $136.7 million, including the greenshoe.

"There has been some weakness just this week in some of the names we've seen with successful secondary offerings recently," said one top biotech investment banker. "But, even with that, we are getting good response from the investment community."

Key to a successful deal, however, the banker said, may be in the form of support from one of the bulge bracket firms.

"I think any successful deal in the immediate future will require some support from the underwriters, and that will probably mean that one of the big shops will have to be involved," he said.

Momenta Pharmaceuticals Inc.'s follow-on deal a week ago was the most recent success, and that stock was one of the few biotechs that ended Friday on higher ground. Momenta raised $130.5 million in gross proceeds with an upsized follow-on offering of 4.83 million shares of common stock at $27.02 per share - even with the previous day's closing price.

Momenta shares ended Friday up 6 cents, or 0.24%, at $25.08.

Another recent success was Keryx Biopharmaceuticals Inc., which raised $70.7 million in gross proceeds with a follow-on offering of 5 million shares of common stock at $14.05 per share - even with the previous day's closing price. The stock was off 14 cents on Friday, or 0.83%, at $16.77.

The odds are even, however, considering a couple of other recent deals were discounted, but the banker pointed out that those stocks have remained fairly strong in the aftermath of the pricings.

BioMarin Pharmaceutical Inc. priced 8.5 million shares of common stock at $7.05 per share - discounted from the previous day's closing price of $7.56. The stock on Friday dropped 25 cents, or 2.86%, to $8.50.

Rigel Pharmaceuticals Inc. fetched $75.7 in gross proceeds with a follow-on offering of an upsized 3.65 million shares of common stock at $20.75 per share - discounted from the previous day's closing price of $21.56. The stock ended Friday at $21.645, off 1.5 cents on the day, or 0.07%.

Stem cell names rise sharply

Stem cell research stocks were up sharply Friday, bucking the southerly trend in the sector and broader market, on news that U.S. Sen. Frist, R-Tenn., was now supporting a bill to expand federal financing for human embryonic stem cell research, which has already been approved in the House of Representatives.

Frist's move breaks ranks with President Bush but joins high-profile political supporters such as former first lady Nancy Reagan, and was seen in Washington, D.C., as a major linchpin in getting Senate approval. Bush has threatened to veto a pending bill that would provide further federal support for stem cell research.

StemCells Inc. was one of the biggest gainers on the news, adding 87 cents on the day, or 16.63%, to close at $6.10. Another was Geron Corp., gaining 74 cents, or 7.25%, to $10.95.

Aastrom Biosciences Inc. added 16 cents, or 5.28%, to $3.19. ViaCell shares on rose 35 cents, or 4.27%, to end at $8.54.

The controversy centers on the means of harvesting stem cells - from embryonic tissue and umbilical cords. In late May, the House of Representatives passed a bill that would loosen current federal funding restrictions on embryonic stem-cell research, and the Senate is expected to vote on a companion bill soon.

Researchers say stem cell technology offers hopes for treatment in widespread diseases such as diabetes, Parkinson's disease, spinal cord injuries and others like Alzheimer's.

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