Adams slides after secondary; Voyager IPO delayed; Cephalon spikes, Teva rises; Genitope up

By Ronda Fears and Rebecca Melvin

Nashville, Dec. 9 - As private equity firms exited Adams Respiratory Therapeutics, Inc., traders said there was good institutional buying Friday in the stock, which also had accounted for the secondary pricing at a discount of just slightly over 1%.

Institutional buyers participated in a big way in the secondary sale, encouraged by the run-up in the stock since its debut during the summer, one source said. The secondary, of 5.66 million shares, priced at $43.75 each, versus Thursday's closing level of $44.25. After the deal, the stock sank Friday by $1.22, or 2.76%, to close at $43.03, but traders said there was a fair amount of buying.

"The institutions are trying to glom as many shares as possible as the private equity guys execute their exit strategies," said a sellside market source, pointing out that the biggest sellers in the secondary offering are private equity firms that had backed Adams before its IPO this past July.

Adams shares debuted in late July after pricing in the IPO at $17.

The two biggest selling stockholders were Chicago-based EGI-Fund Investors, LLC, which is selling roughly 1.7 million shares to reduce its stake to 16.87% from 38%, and the New York-based Perseus-Soros BioPharmaceutical Fund, LP, which also is selling 1.7 million shares to reduce its stake to 9.93% from 15.29%.

Chester, N.J.-based Adams, which makes over-the-counter therapies for respiratory ailments, such as Mucinex, will not receive any proceeds from the offering.

Voyager pushed back a week

Voyager Pharmaceutical Corp.'s initial public offering will try to get off after the market close Monday or Tuesday, one market source said, while another said it was on a day-to-day basis. The delay comes after the deal was downsized and price talk sweetened amid resistance from institutional players.

Raleigh, N.C.-based Voyager has cut the size to 4.5 million shares from 5.9 million and the guidance was lowered to $11 to $15 a share from $15 to $19.

"This company has been making big promises for a couple of years and they have been a bit arrogant in there approach to taking the company public," said a buyside market source, who said he was waiting to make a call on whether he would buy Voyager shares until after the stock debuts. "They were told many times along the way that their valuations were much too high."

Other sources continued Friday, however, to say the deal was going well, with a fairly good mix of bidders in the OpenIPO auction venue of W.R. Hambrecht & Co. The trouble, one source said, was that while the number of bidders was fairly balanced in terms of retail and institutional accounts, the volume of shares bid for by those groups was weighted toward institutionals so they were "pretty much running the show."

Voyager plans to use proceeds, now ranging from $49.5 million to $67.5 million before fees and the greenshoe, for clinical trials in its lead drug candidate Memryte - a small biodegradable implant for mild to moderate Alzheimer's disease.

Cephalon spikes on Teva news

Cephalon Corp. announced it had reached a deal with Teva Pharmaceutical Industries over a generic version of the fatigue treatment Provigil. Cephalon will receive royalties on the generic Provigil, the companies said, but specific financial terms were not disclosed.

On the news, Cephalon shares rocketed upward amid considerable short covering, traders said, while Teva was modestly higher, although the stocks of both companies hit a new 52-week high. Cephalon shares passed the previous high of $52.72, to close at $55.83, up $3.74 on the day, or 7.18%. Teva shares rose 60 cents on the day, or 1.37%, to end at $44.48, passing the previous high of $44.37.

"This stock was bogged down with [the] Teva issue for the past six to eight months despite decent fundamentals," said an equity trader. "The market is responding correctly by pushing the stock up, but then there is a lot of short covering going on from the overhang of this issue. Of course, there will be some pull back from today's rally when that's over."

Under the agreement, both parties will drop their lawsuits and Cephalon will grant Teva a non-exclusive royalty-bearing license to make a generic form of Provigil effective in October 2011. Also, Teva will immediately grant Cephalon a non-exclusive license to certain rights concerning the manufacture of generic drugs and supply Cephalon with modafinil, the active ingredient in Provigil.

In November, Cephalon said it expected a generic version of Provigil to enter the market in 2006. Cephalon projected 2005 sales of Provigil to total $500 million to $525 million, slightly less than half its overall sales for the year.

Cephalon convertibles rise

Cephalon also was a big name in the convertibles market Friday morning, trading higher outright by a couple of points, but mostly flat on a hedged basis, after the biotechnology company announced that it had settled a patent infringement dispute with Teva Pharmaceutical Industries by giving Teva rights to market a generic form of its narcolepsy drug Provigil.

Teva convertibles were also trading higher by about a point. But several traders said Cephalon was their most active issue of the day.

One New York-based sellside trader said the generic pharmaceuticals sector overall picked up on Friday, with Par Pharmaceutical Cos. doing a touch better dollar neutral, as its stock rose seemingly on no particular news. But Watson Pharmaceuticals Inc. convertibles traded in slightly. The Cephalon 2s traded in the 128.50 bid, 129.75 offered range, while the Cephalon 0% B convertibles moved up to as high 103.7 but were mostly in the range of 101.5 bid, to 102.5 offered.

"The 2s - which are 9.5 year paper - trade in the low vol 22ish range, which is cheap to me. It was very active today and better bid," the New York sellsider said.

Genitope patents spur buying

Buying continued Friday in Genitope Corp. after it announced the day before that it had filed two patents for the composition and use of a panel of monoclonal antibodies directed against specific epitopes in the variable regions of the B-cell receptor, which potentially represent a novel, personalized approach to treat non-Hodgkin's lymphoma and other cancers.

Genitope shares Friday added 7 cents on the day, or 0.85%, to end at $8.31, which according to one trader followed a nearly 7% rise the day before when the news hit the tape.

"What's particularly exciting about this approach is that it is more personalized and more targeted than current monoclonal antibody therapies for NHL but lends itself to an off-the-shelf therapy that does not require customization," said Dan W. Denney, chief executive of Genitope.

The Redwood City, Calif.-based company's primary product, MyVax Personalized Immunotherapy, is a patient-specific active immunotherapy based on the unique genetic makeup of a patient's tumor and is designed to activate a patient's immune system to identify and attack cancer cells.

The patent filings specifically cover the panel of BCR-reactive monoclonal antibodies as well as aspects related to their development, the diagnostic screening and sub-classification of patients based on BCR variable-region utilization, and the therapeutic use of the monoclonal antibodies alone and in synergistic combination with MyVax Personalized Immunotherapy.

"If the monoclonal antibodies developed at Genitope prove to have anti-tumor effects similar to those seen at Stanford, they could eventually be used in conjunction with MyVax Personalized Immunotherapy and might reduce or eliminate the need for chemotherapy in the early treatment of NHL," Denney said.

Genitope view broadening

A sellside source said the news was excellent for several reasons.

"First, it means Genitope is no longer a one trick pony. It has a pipeline! Imagine that," the sellsider said. "Second, the patient community has long known that there are many sub-groups, different tumor environments, if you like, that will most likely respond better to more specific Mabs [monoclonal antibodies]. The Rituxan approach to clobbering any B-cell is crude (it whacks all yer B-cells), but commercially attractive."

Rituxan is Genentech, Inc.'s drug that is indicated for the treatment of non-Hodgkin's lymphoma.

"Third," the sellsider continued, "a Mab [monoclonal antibodies] that only targets the sub-set of B-cells bearing certain markers is preferable for a whole host of reasons. It's a much more elegant solution."

He said it also is noteworthy in discussing the Genitope story that the big facility the company is building will be well used for multiple purposes - vaccines, monoclonal antibodies and potentially other things.

"Like I keep saying, immunotherapy is a field in its infancy," the sellside source said. "The best is yet to come. Genitope all of a sudden is not dependent on MyVax results in second quarter for buzz. A huge patient sub-population who enjoyed good results with Rituxan (but may be becoming resistant to it) are going to be clamoring for a new, more specific Mab [monoclonal antibodies] to which they are not refractory."

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