Genzyme slides on deal buzz; Cadence, Achillion up; Aspreva falls; Vertex gains 18%; Critical off on PIPE

By Ronda Fears

Memphis, Oct. 27 - It was a disappointing week in terms of initial public offerings for the biotech group, although players were glad to see something in the way of activity. Beyond the sub-par pricings, syndicate sources said they continue to think there will be a spattering of deals through the end of the year, but nothing spectacular.

Elsewhere, PIPEs deals continue to stream along, and there was still noise from the convertible bond market Friday about a possible mega deal, in the neighborhood of $3 billion, coming out of the healthcare sector with sources specifically mentioning Genzyme, Inc.

"Nothing would get launched on a Friday, true," said a sellside source at one of the bulge bracket firms that underwrites a lot of convertible issues.

"Someone could be prepping their accounts for a launch on Monday, though. We have heard the noise, the $3 billion figure and lesser amounts, and Genzyme's name bandied about, but it's just speculation right now. It has been floating around for over a week now and we've not seeing anything yet. I suppose we will just have to wait and see."

Genzyme won the bidding war for Canadian biotech AnorMED, Inc. last week by besting Millennium Pharmaceuticals, Inc.'s $12 per share offer with a bid of $13.50 per share, or roughly $580 million. On Friday, the company extended its tender offer by one day, until Nov. 7. Genzyme had been wooing AnorMED for more than a year.

Genzyme shares (Nasdaq: GENZ) on Friday dropped 98 cents, or 1.41%, to $68.69. AnorMED shares (Nasdaq: ANOR) have been hovering at the bid price, slipping Friday by 2 cents to $13.41. Millennium shares (Nasdaq: MLNM) have been on the upswing since it bowed out of the AmorMED battle, and then reported improved third-quarter results. It gained 60 cents on Friday, or 5.36%, to $11.79.

A sellside equity trader said there also has been recent buzz that Genzyme may not be done looking for merger targets, so a funding effort is not beyond reason. He said Bioenvision, Inc. has been specifically mentioned in that vein.

New York-based Bioenvision has Evoltra for acute and chronic leukemias, lymphomas and solid tumors, and Modrenal for the treatment of post-menopausal advanced breast cancer following relapse. Cambridge, Mass.-based Genzyme - focused on five areas - renal, therapeutics, transplant, biosurgery and diagnostics/genetics - is a partner with Bioenvision on Evoltra.

"Genzyme owns the North American rights to clofarabine [Evoltra]. Bioenvision owns the rights to the rest of the world (which is about 1½ times the size of the U.S. market). Bioenvision is currently sporting a market cap of $245 million and already has the drug approved for one indication in Europe," the sellsider said.

"An acquisition of Bioenvision would allow Genzyme to greatly accelerate the development of clofarabine around the world according to its own schedule and for various indications of its choice.

"Bioenvision has a shareholder base that is currently frustrated with management and would probably be willing to accept a reasonable offer for the company. Genzyme is currently paying an enormous premium for AnorMED. If they even offered a remotely fair value for Bioenvision, I'm sure this deal could get done very quickly."

Bioenvision shares (Nasdaq: BIVN) on Friday closed off 14 cents, or 2.56%, at $5.33.

IPO slate pushed back again

After a couple of disappointing IPOs got off this week with wobbly results, syndicate sources said Catalyst Pharmaceutical Partners Inc. and Rosetta Genomics Ltd. are now slated on a "day-to-day" basis along with ImaRx Therapeutics, Inc. and Light Sciences Oncology, Inc.

As for the deals that got done in the IPO market, both below range, Achillion Pharmaceuticals, Inc. (Nasdaq: ACHN) gained Friday by 95 cents, or 7.67%, to $13.34, while Cadence Pharmaceuticals, Inc. (Nasdaq: CADX) added 46 cents, or 4.95%, to $9.75. Achillion priced at $11.50 while Cadence came at $9.00.

A biotech fund manager on the West Coast said that while it has been a frenetic ride for biotech deals this year, he thinks the sentiment toward the sector is getting better.

"General markets seems odd to me. GDP [Gross Domestic Product] is a backwards-looking measurement. The fourth quarter GDP will be better considering energy prices coming down. Also, the Fed is now pressured that much more to not only hold rates steady, but some talk of rate cuts will now begin. The slowdown is housing related, so it seems as long as you aren't housing invested, you are OK," said the buyside market source.

"I agree that it's a good time to pick biotechs. There are lots of strategies to consider - volatility, options, hedging. Lots of wildcards in this pack, but there is a lot of upside potential to so many of the mid-cap issues. It really is irresistible."

Critical funding, shifts cheered

In other funding news, Critical Therapeutics, Inc. is gearing up to wrap a $20 million direct placement in which a group of institutional investors are buying 7,455,731 units at $2.6825 apiece. The units include one share and a half-share warrant with each whole warrant, exercisable at $2.62 each through Oct. 26, 2011.

On the deal, the stock (Nasdaq: CRTX) fell by 34 cents, or 12.41%, to $2.38 but traders said the funding news and other changes at the company were a good sign.

Also Friday, the Cambridge, Mass., biotech announced it will cut 63 jobs, roughly half its workforce, and take a related fourth-quarter charge of $3 to $4 million as a part of a plan to focus resources on its asthma drug Zileuton CR - a controlled-release formulation of its flagship asthma drug Zyflo.

"The CEO is completely restructuring the company. The PIPE funding is part of that," said a sellside trader.

"This might be a problem in the short-run, but it improves the company's chances of surviving."

Proceeds from the PIPE will be used to fund the launch of Zileuton, scheduled in the second half of 2007. The rest will be used for general corporate purposes. London-based SkyePharma plc is partners on Zileuton, which was approved by the Food and Drug Administration in July.

The stock has been on the rise in recent weeks on speculation that it would be open to a merger in announcing top level board of director changes, but has retreated this week amid the general downturn in the biotech sector.

Critical Therapeutics announced earlier this month that Cory Zwerling, a 19-year veteran at Bristol-Meyers Squibb Co., was joining its board to chair a newly-established Strategic Advisory Committee. In July, the company's vice president of sales force resigned and on Friday the company said its chief scientific officer, Walter Newman, had resigned, effective Oct. 31, due to the strategy change.

Invitrogen flirts with new low

In another downer, Invitrogen Corp. fell close to a new low intraday Friday after it posted a reversal of fortunes with a swing to a net loss in third quarter and warned of fourth-quarter results that would be below expectations. Invitrogen also said it is looking to improve its sales strategy and reduce its cost structure, and to refocus its business strategy.

The stock (Nasdaq: IVGN) came off the day's low, however, to settle with a loss of $8.03, or 12.16%, at $58.01. It had traded as low as $55.94, flirting with the 52-week low of $55.81 hit on Aug. 7 after second-quarter results were reported.

A trader said "the trade" was in options.

"A good play on the stock is to sell the $65 November put and collect the $2 for the month," he said. "Invitrogen is a bargain near $60 and $65 is still below fair value. Even if Invitrogen does not beat [forecasts], the stock is likely to stay near $65-plus."

After Thursday's close, Carlsbad, Calif.-based Invitrogen reported a loss of $129.8 million, or $2.53 a share, for third quarter, versus net income of $23.9 million, or 42 cents, a year before. Excluding one-time items, the company posted profit of 87 cents a share. Revenue rose to $311 million from $289.6 million, smack on Wall Street projections.

"After three consecutive years of double-digit revenue and earnings growth, we had expectations to achieve similar results this year," remarked Invitrogen chief executive Greg Lucier in a statement. "That has clearly not happened."

On a conference call, the company forecast fourth-quarter revenue in the $310 million range and EPS in the mid-80 cents neighborhood. First Call analysts on average are looking for $338 million in revenue and EPS profit of 92 cents.

Vertex soars on short covering

To the upside, Vertex Pharmaceuticals, Inc. soared after announcing positive trial data for its hepatitis C drug Telaprevir, or VX-950, and improved third-quarter results. Traders said a good portion of the rise was due to short covering, but there was "a decent amount" of bona fide buyers on the news.

Vertex shares (Nasdaq: VRTX) gained $6.09 on the day, or 17.62%, to $40.66.

"Vertex is onto a blockbuster drug here," said a sellside trader.

"It hasn't been without its dramas and traumas, but this has been worth it."

Early Friday, the Cambridge, Mass., biotech said that complete results of the phase 1b trials will be presented at the annual meeting of the American Association for the Study of Liver Diseases in Boston from Oct. 27 through 31.

Also helping the story, late Thursday the company reported a narrowed third-quarter net loss of $51.8 million, or 46 cents a share, versus a net loss of $79.6 million, or 84 cents a share, a year before, as revenue grew to $53.3 million from $36.2 million. The company attributed much of the improvement to collaboration revenues.

Vertex has collaborations with Cystic Fibrosis Foundation Therapeutics, Inc., GlaxoSmithKline plc, Kissei Pharmaceutical Co., Ltd., Merck & Co., Inc., Mitsubishi Pharma Corp., Janssen Pharmaceutica NV and Novartis Pharma AG.

Aspreva off 14% on failed trial

At the other end of the spectrum, Canadian biotech concern Aspreva Pharmaceuticals Corp. plunged after its drug candidate CellCept failed in trials for the neuromuscular disease myasthenia gravis. Aspreva licenses CellCept from Roche Holding AG and also is testing it on autoimmune diseases, including lupus nephritis and pemphigus vulgaris.

Traders said the slide in the stock was shorting as well as selling, as more disappointing news is anticipated when the company reports third-quarter results Nov. 1.

On the news, Aspreva shares (Nasdaq: ASPV) sank 11.6% to $19.59.

"Myasthenia gravis doesn't represent nearly the potential sales as are indicated by this ridiculous sell-off. Its potential sales contribution is tiny compared to the other two applications," a sellside trader in New York said.

"I think this is as much shorting as selling. I would be leery to hold a short through earnings. Lupus is the main application and efficacy is already proven, and with only 10-11% market penetration, today's price is a gift. I would expect quick recovery on price after today."

Victoria, B.C.-based Aspreva is scheduled to report third-quarter results on Nov. 1.

Yet, one buysider said he sold off his position and would observe from the sidelines, fearful the situation would develop in to one similar to several others of recent history, such as DOV Pharmaceuticals, Inc., in which poor trials sent a stock spiraling and essentially shut off a company from funding sources.

He noted that this was the second major setback for Aspreva in the past few weeks. Earlier this month, Aspreva dropped 11% after the company warned of disappointing revenue in third quarter.

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