Lonza, CV Therapeutics converts on tap; Cubist zooms; Abgenix up on belt tightening; Wyeth a boost

By Ronda Fears

Nashville, June 28 - Biotech bonds got a shot in the arm along with their underlying stocks from Wyeth boosting its earnings outlook, while the broader markets soared with the retreat in oil prices to below $60 a barrel. Wyeth itself only saw a gain in its shares as traders reported little to no activity in its convertible floaters, however.

Wyeth raised its 2005 financial outlook late Monday, attributing the boost largely to improved drug sales and lower-than-expected expenses. Wyeth bumped up its 2005 adjusted EPS range to $2.80 to $2.90 a share, surpassing the First Call analyst consensus of $2.82 a share. On Tuesday, Wyeth shares

In particular, Wyeth said the company was seeing strong sales of its infant pneumonia vaccine Prevnar, rheumatoid arthritis medication Enbrel and antibiotic Zosyn. Prevnar had sales of $1.1 billion, Zosyn had 2004 sales of $760million and Enbrel had sales of $1.9 billion in 2004. Wyeth officials did not mention how sales of its blockbuster antidepressant Effexor were faring, though, following 2004 sales of $3.3 billion.

Pfizer Inc. was a notable laggard while virtually the entire field of biotechs moved up Tuesday on news that the company plans to follow through with revised labels on its erectile dysfunction drug Viagra to alert the public to reports of blindness by some users, even though it disagrees with the label and is fighting it with the Food and Drug Administration. Pfizer shares slipped 18 cents, or 0.64%, to close Tuesday at $27.90.

Pfizer said the FDA has asked that similar labeling on other erectile dysfunction prescription medications - Cialis, marketed by Eli Lilly and Icos, and Levitra, a product of GlaxoSmithKline and Bayer. Those other four drugmakers participated in the broad rally in biotechs stocks.

Financing action lightens up

Following a fairly busy slate of primary activity Monday, biotech issues were limited to convertibles and stock from CV Therapeutics Inc. at bat in the United States, and Swiss pharmaceuticals and chemicals concern Lonza Group AG with a new issue in Europe.

There also were a couple of PIPEs deals announced by Corautus Genetics Inc. and Swedish-based Biotage AB.

HemoSense Inc. finally managed priced its initial public offering Monday, selling the 3.5 million shares at $5.50 each for proceeds of $19.25 million - discounted from the latest range of $6 to $8 per share, the fourth price cut. HemoSense shares closed Tuesday up 2 cents to $5.52.

HemoSense's IPO was delayed twice since the June 13 week; following a series of price revisions. The San Jose, Calif.-based maker of a handheld blood coagulation monitoring systems originally pitched the IPO at $9 to $13. That was revised to $8 to $10, and then to $7 to $9 before the latest guidance of $6 to $8.

Lonza launches Swiss convert

In the European market, Lonza on Tuesday launched a CHF330 million convertible talked with a coupon range of 1.25% to 1.625% and initial conversion premium of between 30% and 35% via joint bookrunners Credit Suisse First Boston and Deutsche Bank Securities, with pricing expected Tuesday or Wednesday.

The four-year bond may be increased by CHF50 million, in addition to there being a CHF50 million greenshoe available. The Swiss pharmaceuticals and chemicals concern has earmarked proceeds to refinance debt due next year and for general purposes.

Lonza shares spent much of Tuesday's session in lower territory, but closed the day higher by CHF0.30, or 0.43%, at CHF69.80 in Europe.

Barclays: New Lonza attractive

The new Lonza convertible has an attractive valuation at the middle of indicative or better, Barclays Capital Markets convertible analysts said in a report Tuesday.

Analysts Luke Olsen, James Davies and Heather Beattie said in the report that they "recommend the new issue, particularly for outright investors, if it prices in the middle of the indicated range or better."

At the middle of guidance, the analysts said the convertible would be 0.45% cheap, using a credit spread of 65 basis points and 18.5% stock volatility. They also plugged in a 2.1% average future common dividend yield and 75 bps stock borrow cost. They added that the high bond floor - around 96.2 on worst terms and 98.1 on best - would make it particularly attractive for outright investors if it prices in the middle of the indicated range or better.

The analysts pointed out that they penciled in a volatility assumption of 18.5%, noting that they see a potential risk of downward volatility pressure if EMS-Chemie issues further exchangeables or warrants into Lonza. EMS currently has a 19.5% stake in Lonza and has two existing out-of-the-money exchangeables into Lonza due July 2008, for CHF300 million, and 2010, for CHF50 million, which together cover roughly half of its stake. Last month, the analysts added, EMS' chief executive said that its stake in Lonza is financial and not long-term strategic.

Lonza could have takeover risk

Lonza is not without risk, however, the Barclays analysts pointed out.

Key risks include business fundamentals, the analysts said, as chemical and biotech concerns like Lonza have come under pressure recently due to some large drug clients like Genentech Inc. and Bristol-Myers Squibb Co. moving to integrate their drug production, taking away manufacturing business from Lonza.

"We also question whether 65 bps is sufficient [credit] spread for this unrated CHF3.5 billion market cap issuer [as] spread risk will likely be difficult to hedge. Also, we see a risk of pressure on implied volatility due to further issuance, particularly by EMS-Chemie," the Barclays analysts said in their report.

Additionally, there could be takeover risk.

"Stock borrow is harder to predict and may be a function of future M&A activity involving Lonza. On that point, Lonza's relatively smaller size could render it in play if larger pharmaceutical players seek to further consolidate and integrate," the analysts said.

In a recent report, has Morgan Stanley analysts said Lonza's loss of business from Genentech and Bristol-Myers Squibb was a "body-blow to Lonza's biotech manufacturing ambitions" and put its business model under threat.

Abgenix ticks up on cost cuts

Abgenix Inc., another biotech that has been on radar screens as a potential takeover target, on Tuesday announced layoffs and plant closures aimed at reducing its cash burn rate and the move was mildly applauded by investors.

Abgenix shares were unchanged on the day at $8.72 and its convertibles moved slightly higher, with a trader pegging its 3.5% due 2007 issue at 94.5 bid, 95 offered and the 1.75% due 2011 at 89.5 bid, 90 offered - both up about a half-point.

The plans to tighten the belt further "seemed to fall on deaf ears," said one convertible trader.

Abgenix said that by consolidating research and pre-clinical resources into its British Columbia facility, and subsequently subleasing excess capacity at its Fremont facility, it will cut its workforce by 15% and together the actions should slow its burn rate. The company offered guidance for cash burn plus capital expenditures of $105 million to $120 million for 2005 and said it would update the guidance during its second quarter earnings call.

Abgenix said it is striving to focus on its development pipeline, particularly the potential commercial opportunity of its lead product candidate, panitumumab.

Cubist fans take heart on data

Cubist Pharmaceuticals Inc. soared Tuesday on news that its antibiotic Cubicin had been shown to be effective in treating heart infections. The stock was up 14% in pre-market activity and kept climbing from there, settling with a 21.87% gain, or $2.39, to $13.32.

Late Monday, Cubist said that a Phase III clinical trial had shown Cubicin to be successful in treating patients with endocarditis, or inflammation of the heart valves, and bacteria in the bloodstream. As a result, Cubist said it expects to seek expanded regulatory approval of the drug for those conditions before the end of the year. Cubicin is already approved to treat complicated skin infections.

"This is very big news for Cubist. The trial results have surpassed our expectations. We look forward to having these data presented to the broader scientific community and we are eager to share the data with the FDA," said Cubist chief executive Mike Bonney in a news release.

"A new therapy in this difficult-to-treat condition would provide a much needed alternative for these seriously ill patients."

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