Critical Therapeutics zooms after financing round; Mylan launches bank facility; Eyetech seen higher

By Ronda Fears

Nashville, June 21 - Partnerships with big cap companies and PIPE deals seem to be taking up the considerable slack on the biotechnology financing front as initial public offerings continue to struggle. Counter to the lackluster IPO reaction from investors, the latest biotech PIPE action, from Critical Therapeutics Inc., was met with a huge rally.

Meanwhile, Mylan Laboratories Inc. launched its $475 million new credit facility (Ba1/BBB-) on Tuesday. The new bank debt, along with $500 million in junk bonds (BB+), will help finance Mylan's aggressive $1.25 billion stock buyback plan announced last week. The Dutch auction, at $18 to $20.50 per share, continues through July 15, unless extended. The stock continues to hover in the auction range, ending Tuesday at $19.44, down $0.22.

Mylan's five-year bank facility will consist of a $200 million revolver and a $275 million term loan. Price talk on the term loan is currently Libor plus 175 basis points, a source told Prospect News.

In the equity arena, biotech stocks were zigzagging all over the board Tuesday, settling slightly lower on whole, and one equity trader commented that volume in the sector seemed light as a vast amount of the investment community was in Philadelphia at the Biotechnology Industry Organization 2005 conference.

"There is a lot of information coming out of that [BIO conference], a lot of people will be digesting what they are hearing for a while," the trader said. "News flow [in biotech] really was slow today, too, so that was a factor."

PIPEs take up IPO financing slack

With tough conditions prevailing in virtually all the capital markets, not just IPOs, the presence of biotechs among PIPEs issuers has been elevated in recent sessions. On Tuesday, Critical Therapeutics closed its $54.3 million private placement of shares and the stock soared nearly 15% intraday.

Critical Therapeutics shares gave back some of the early gains, settling out Tuesday with a rise of 68 cents, or 11.15%, to end at $6.78.

A handful of other biotech concerns have tapped the PIPEs market already this week, including World Heart Corp. with $12 million of stock to help fund its acquisition of MedQuest Products Inc. Ottawa-based World Heart, which makes heart pumps, shares climbed $0.04, or 3.74%, to end at $1.11 in the U.S. markets on Tuesday.

On Monday, Grant Life Sciences Inc. announced a sale of $2 million of 10% convertible notes in the PIPE market, but the regular convertible market has been virtually sealed off in terms of primary activity for months amid heavy losses in the asset class. That said, Invitrogen Inc. brought to market last week its fourth convertible bond, and market sources have said it has been doing well in trade. Invitrogen shares Tuesday, though, were off a quarter to $78.79.

Nanotech spin draws interest

Advances in nanotechnology emerged as just one of the myriad of topics getting an investment spin as a result of the BIO 2005 conference. On Wednesday, in addition to the BIO 2005 conference wrapping up, the market is looking forward to a conference call from Encysive Pharmaceuticals Inc.

Encysive, which was applauded loudly last week after announcing plans to pursue market its pulmonary arterial hypertension treatment Thelin directly in Europe, is a nanotech play. But it was a sleeper Tuesday, with the stock up a penny to $11.02 and the 2.5% convertible due 2012 quoted unchanged at 98 bid, 99 offered.

"This is an area of great promise. I believe the breakout technologies will be in biotechnology/pharma and in high tech with micro engineering and the machinery that builds the machines at the nanotech level," said one buyside market source based in Florida. "But, after spending a great deal of time and money on the subject my conclusion is the breakout period will take another 10 years."

Another company, Bentley Pharmaceuticals Inc., has a drug delivery system that is supposed to be a nanotechnology advancement, he said.

"The term 'nano,' though, is used very broadly now because it's a hot topic," the buysider said.

Another company that has done well with nanotechnology, he said, is the now controversial Irish concern Elan Corp. plc with a nanocrystal drug delivery system making non-water soluble drugs soluble, which he said is "a true advance" in drug formulation.

"Elan is now hidden under the Tysabri issues," he said, "but has real value, in my opinion." Elan's nanotech division, he said, "would be a good company to hold if it were separately traded."

Elan "on thin ice" due to Tysabri

Until issues surrounding Elan's multiple sclerosis drug Tysabri, in development with Biogen Idec, are resolved, the buyside source said the company will continue to be shunned in the market. Following five cases of a potentially fatal brain condition that were contracted during clinical trials, Elan and Biogen suspended sales of the drug.

"I'm sorry, but I don't agree with comment that Elan's potential outweighs the risk of investing [in it], primarily due to Elan's cost structure and the amount of the financial bet they placed on Tysabri," the source said.

"I think Elan still has a chance to make it but it's risky and the transdermal gel [which involves nanotechnology] won't save the company. I believe Elan will survive and overcome the Tysabri study hurdle, but they are walking on thin ice - this is a make or break situation for them and they know it."

Elan shares lost a penny to close Tuesday at $6.99. The 6.5% convertible were described by a sellside trader as somewhere inside of 119 bid, to 121 offered, but he said the issue was not seen in play Tuesday.

Serologicals streamlining yawned

Serologicals Corp. on Tuesday outlined an accelerated integration program for two of its units, Chemicon and Upstate, that the company said is anticipated to result in several accretive contributions to its performance and operations.

The market's reaction, however, was to basically shrug off the initiatives. One convertible trader referred to the news as "a yawn," because of the stock price. Serologicals' 4.75% convertible is deep in the money, seen recently at 157, while the underlying stock on Tuesday added a penny to end at $21.03.

Specific objectives, Serologicals said, include reducing the time to introduce products to to six to nine months from the current average of nine to 12 months, boost the number of new products introduced to more than 1,500, starting in 2005, from a level of 1,200 in 2004 and a corresponding estimated gain in revenues per product in the first 12 months to an average of $10,500 by 2007 from $6,600 in 2004.

Atlanta-based Serologicals also said it hopes to boost its compound growth to over 15% by 2007.

Earlier this year, the Chemicon and Upstate sales forces were consolidated creating an integrated focus on research and drug discovery customer development. In addition, the company has implemented several strategic business segments such as stem cell research, among several others, that are responsible for the overall direction of resources.

"While the timing and execution of this plan is consistent with our original expectations when the Upstate acquisition was announced, the magnitude of synergies is expected to exceed original expectations," said Serologicals chief executive David Dodd.

Eyetech up ahead of "vision day"

Ahead of Eyetech Pharmaceuticals Inc.'s scheduled conference call it dubs "Vision Day" to discuss its pipeline and expansion of Macugen age-related blindness treatment with research analysts, the company saw a nice bounce in its securities.

Eyetech shares shot up $1.018, or 8.5%, on Tuesday, ending at $12.988. The 2.5% convertible was seen a point higher at 100.625 bid, 101 offered.

The company took a huge hit in late May when Genentech Inc. announced preliminary results of a clinical trial, saying its experimental drug Lucentis was able to maintain or improve vision in wet AMD patients. Soon after Genentech's news, Alcon Inc. said the FDA had granted conditional approval for its wet AMD drug Retaane.

Genentech shares on Tuesday plunged $1.59, or 1.91%, to $81.58 while Alcon stock rose $1.43, or 1.33%, to $108.56.

Eyetech became a major player in the AMD race with its acquisition of Visx Inc. Eyetech itself was spun off from Allergan Inc. about two years ago.

Eyetech's call is slated to begin at 12:30 p.m. ET on Wednesday.

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