Coley, China Medical ease back; Mpex announces venture capital; Kosan slips; Elan issues retreat

By Ronda Fears

Nashville, Aug. 11 - Coley Pharmaceutical Group Inc. and China Medical Technologies Inc. on Thursday both retraced gains from the debut of their initial public offerings, but fans were faithful, noting that volume in both stocks was very thin.

Mpex Pharmaceuticals Inc. announced a $32 million venture capital round, and there were a couple of small PIPEs in the market, but otherwise it was quiet in the primary arena. However, there was a big bank deal that emerged.

BMS Omega Bermuda Holdings Finance Ltd. - a subsidiary of pharmaceutical giant Bristol-Myers Squibb Co. - closed on a new $2.5 billion credit facility last Friday that consists of a $2 billion term loan A due Aug. 5, 2010 and a $500 million term loan B due Aug. 5, 2007. Interest rates will vary from Libor plus 25 to 35 basis points, depending on ratings, and the term loan A will be available for 90 days and the term loan B through Dec. 31.

Word of the Bristol-Myers unit's deal caused some to wonder what the pharmaceutical giant was planning to do with the proceeds.

"I am curious," said a source at one of the biggest funds dedicated to life sciences investments. "Will they pay a dividend, make an acquisition or do they have some in-licensing deals in mind? Then, they could just be raising money to pay fines and legal settlements. We've seen Big Pharma have to do that. Until some light is shed on this, I'm sure there will be a load of speculation."

Eli Lilly & Co. sold $1.5 billion of floating-rate notes last week in part to pay a $690 million settlement with plaintiffs in a lawsuit related to its schizophrenia and bipolar drug Zyprexa. The floater proceeds also were earmarked to help fund the repatriation of $8 billion in overseas earnings per the American Jobs Creation Act of 2004, which the buysider said might be Bristol-Myers' situation.

Coley, China Medical retreat

After big gains with the debut of their IPOs, Coley Pharma and China Medical shares both gave big portions back, but volume was light.

"I am not too concerned, I think they both go higher over time," said an IPO fund manager who participated in both deals. "The volume tells me there were just some people flipping out of it. We're still long, like most of the people who bought in."

Coley shares closed Thursday off 63 cents, or 3.34%, at $18.25. The IPO got off at $16.00 - the aggressive end of guidance for $14 to $16 a share. Volume was 860,151 shares versus 5.66 million on Wednesday.

China Medical shares Thursday fell $1.14, or 7.04%, to $15.06, landing the stock nearly back to the pricing point after a more than 25% rise out of the chute. The upsized IPO priced at $15.00 each - smack at the middle of price talk for $14 to $16 a share. Volume was 1.44 million shares versus 6.2 million shares on Wednesday.

Kosan slips in heavy volume

Kosan Biosciences Inc. continued to decline Thursday on concerns about dilution from its follow-on stock offering. The company sold 4.5 million shares off the shelf at $8.75 each, discounted from Thursday's close of $9.00 per share.

"As deals go, this pricing isn't so bad, near market," said another buyside market source. But, he said he was selling out of Kosan rather than buying new shares into the weakness. "The overall dilution of this financing deal is about 15.5% up to 17%, depending on the level of over-allocation sold."

Gross proceeds are $39.375 million, excluding the greenshoe. When originally filed on Aug. 4, gross proceeds were estimated at $43.5 million based on the then-current stock price of $9.65.

Based in Hayward, Calif., Kosan Biosciences plans to use proceeds for research and development and general corporate purposes. The company has two first-in-class anticancer agents in phase II and phase Ib clinical trials: KOS-862 and 17-AAG, an Hsp90 (heat shock protein 90) inhibitor and geldanamycin analog.

Kosan's most advanced compound, KOS-862, which is in two phase II clinical trials and multiple phase Ib clinical trials, and its follow-on compound KOS-1584, which is in phase I clinical trials, are partnered with Roche.

Mpex taps VCs for $32 million

Closely held Mpex Pharmaceuticals Inc. announced Thursday a $32 million private placement of series B preferred stock, plus a total of $3.7 million raised from the sale of common stock and series A preferred shares, a funding round led by new investor SV Life Sciences.

HBM BioVentures (Cayman) Ltd./HBM BioCapital LP was the other lead investor, and other new Mpex investors were Aberdare Ventures and Adams Street Partners. Those joined existing Mpex investors Western States Investment Group and Charitable Leadership Foundation.

"We are very pleased to have raised significant capital from a strong syndicate of investors," said Bill Gerhart, chief executive of Mpex, in a statement. "This capital will enable us to advance our first two candidates through preclinical and early clinical development, as well as attract and support future R&D partnerships."

San Diego-based Mpex is working on small molecule inhibitors of bacterial resistance that can be combined with antibiotics to overcome resistance and improve clinical outcomes for the most severe infections. Its most advanced candidate is an aerosol antibacterial being developed to treat patients with cystic fibrosis and other serious respiratory infections.

Beyond the lead candidate, Mpex has a pipeline of other combination antibacterials for the treatment of resistant bacterial infections in the hospital and community settings.

"By combining inhibitors of resistance with proven antibiotics," said Mike Ross, general partner of SV Life Sciences, "we believe Mpex is pursuing a very attractive strategy for developing new anti-bacterial agents with significant market potential."

Elan stock, convertibles sold off

Sellers prevailed in Elan Corp. plc securities Thursday in the wake of the latest news on its multiple sclerosis drug Tysabri, while partner in the drug Biogen Idec Inc. continued to climb.

Elan shares dropped 14 cents on Thursday, or 1.63%, to $8.46, and a convertible trader said it was "possible a short squeeze play is setting up" in the shares. He said the Elan 6.5% convertible due 2008 was flat or unchanged on swap but the issue lost "a couple of points" to close Thursday at 135 bid, 136 offered.

The bond has pretty much moved off most high-yield and distressed desks, where it landed when the Tysabri news broke in February, which also sent Elan shares in to a nosedive. But the sellside trader, at a bulge bracket firm, said the issue may be destined to return to high-yield trading desks.

"I think it's pretty iffy right now. On one hand, Elan has virtually all its eggs in the Tysabri basket so if that is a flop then they are screwed. There you see the real selling today," the trader said. "If Tysabri makes it, though, then you'll see Elan get a nice pop. There's were you see the short squeeze play setting up."

If one believes there is a possible short squeeze getting set up, he said, there will be some buying on the downdraft in order to cover a short position now in anticipation of a run-up in the offing.

Earlier this week Elan and Biogen shares rose sharply on an update about Tysabri from the partners. The two said they were taking preliminary steps to resume clinical trials and more data is expected by the end of summer. They pulled the MS drug from the U.S. market on Feb. 28 when two patients contracted a potentially fatal brain condition.

"I think part of the problem with Elan restoring investor faith is they [Elan and Biogen] can't say for sure anymore that Tysabri is coming back," the trader said, noting that he was a seller Thursday. "I have always thought the course back would be slow and sales are going to be much less robust than some of the estimates out there."

Biogen shares Thursday continued to climb, adding 46 cents on the day, or 1.11%, to $41.73.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.