Vivus up 15%; Hana off 10% on PIPE deal; Restore gains on debut; NxStage drops on follow-on deal

By Ronda Fears

Memphis, May 17 - Many biotech players reported they were content to sit on the sidelines Wednesday as the bloodbath in the broader markets spilled into the biotech sector as well as the medtech group. Yet, medical device maker Restore Medical, Inc. got its initial public offering off, albeit below range, and the stock found support to settle higher on its debut.

Amid inflationary shockwaves due to rising consumer prices in the face of rising interest rates, the Dow Jones Industrial Average suffered the biggest one-day loss in three years, losing 1.88%, and the Nasdaq turned negative for 2006 with a decline of 1.5% in the session. The S&P 500 plunged as well, falling 1.68%. Against that undertow, the Nasdaq Biotechnology Index dropped 1.74% on the day.

"There is bloodbath in the market in general. Even the biotechs with great revenue and EPS growth got hit. If typical seasonal cycles plus the four-year cycle kicks in, the market can tank all the way until October," said a sellside trader at one of the bulge bracket firms.

"I have no confidence at calling a bottom at this time, not with the market falling apart internally. The breadth has been absolutely horrible. Sentiment on the biotech group is lousy, no thanks to some of the recent high-profile blowups by other companies getting bad news from the FDA [Food and Drug Administration]."

On the latter point, Neurocrine Biosciences, Inc. and DOV Pharmaceuticals, Inc. continued to lose ground Wednesday, extending massive losses on news that an FDA action late Monday for the insomnia drug indiplon would not make it as competitive as had been hoped. Neurocrine shares (Nasdaq: NBIX) dropped another $1.04, or 5.01%, to settle at $19.72. DOV Pharma shares (Nasdaq: DOVP) fell 24 cents more, or 7.95%, to $2.78.

Players see no safe haven

Lots of players were content to just sit on the sidelines watching the sea of red tape pass. Besides, what with the goings on in the broader markets, many felt there was nowhere to run.

"I have felt for a long time the so-called 'normal' safe havens might not be safe this time around," said a buysider on the West Coast.

"The Fed is like a kid learning to drive with one foot on the gas and the other on the brake. Historically, the Fed has often raised the interest rates over and beyond what was necessary to deal with inflation because they deal with data at hand rather than future predictions. We all know that there is always a lag between the Fed's monetary actions and the economy," the biotech fund manager said.

"This Fed board does not seem to be any different from the past ones based on the interviews they have given so far. They may already have over-tightened and if not they seem hell bent on raising rates again. I believe the Fed has already forced us towards a recession. Add to that $70 oil and that to me is the nail in the coffin."

Another buysider, an analyst at a fund based in Connecticut, agreed, adding that he suspected many of his colleagues were "re-doubling their efforts" at research. He also noted there were a couple of industry conferences this and next week that would be a diversion from the day-to-day rigors of the market.

"We are not going to just run with the herd in this panic selling, so what else is there to do," the analyst said.

Vivus gains amid red sea

There were very few gainers in the biotech group Wednesday but Vivus, Inc. was one, and with a double-digit mark, ahead of its analyst day scheduled to begin at noon Thursday.

Vivus shares (Nasdaq: VVUS) gained 66 cents on the day, or 15.45%, to settle at $4.93.

The Mountain View, Calif., biotech has a conference call scheduled to begin at noon ET.

"Vivus has cash to last until March 2007. They still will have no products at that time and will need to raise cash once more, but I think it's a good medium term holding," said the buyside analyst in Connecticut.

The company said the call Thursday would focus on positive phase2 data for its obesity drug Qnexa, positive phase 2 data for Evamist - a transdermal spray to deliver a preset dose of estradiol to treat menopause - and data from phase 2 trials for its female sexual arousal disorder drug Alista, Testosterone MDTS for Hypoactive Sexual Desire Disorder and erectile dysfunction drug Avanafil.

Restore Medical adds 2.4%

Another gainer was medical device maker Restore Medical, Inc. after pricing its IPO of a reduced 4 million shares at $8 - below the price range of $9 to $11 a share - raising $32 million in proceeds. The deal was downsized from original plans to sell 5 million shares.

Restore Medical shares (Nasdaq: REST) closed higher by 2.37% at $8.19 after trading as low as $7.58 amid light volume. Over the course of the session, just 973,570 of the new shares traded.

Deutsche Bank Securities (bookrunner) and RBC Capital Markets were joint lead managers.

St. Paul, Minn.-based Restore Medical makes medical devices to treat sleep disordered breathing, such as its Pillar palatal implant system. Proceeds earmarked for research and development.

Pre-IPO, the largest shareholder was MPM Capital with 3.98 million shares, or a 37.9% stake.

Hana to pocket $40 million

In another deal on the tape, Hana Biosciences, Inc. said it was gearing up to close a $40 million direct placement of stock in which a group of institutional investors agreed to buy 4,629,500 shares at $8.50 each and executive officers and a director agreed to buy 71,600 shares at $9.07 each.

Hana Biosciences shares (Nasdaq: HNAB) dropped 87 cents on the news, or 9.59%, to settle at $8.20.

Lehman Brothers Inc. is the bookrunner with Jefferies & Co. and Oppenheimer & Co. Inc. as co-agents of the deal, which is expected to close Friday.

San Francisco-based Hana is a biopharmaceutical company focused on developing treatments for cancer. Earlier this month, the company said it plans to submit a marketing application for its nausea treatment Zensana to the FDA in the second quarter. If approve, the company said it would expect a 2007 launch of the drug.

NxStage off 6.6% on deal

Medical device maker NxStage Medical, Inc. plans to sell 5.5 million common shares in a follow-on offering and a secondary offering of 500,000 shares by selling stockholders, including original venture investors Sprout Group, Atlas Ventures, Federated Investors, Healthcare Investment Partners and/or principals in those funds.

Lawrence, Mass.-based NxStage went public last October with the sale of 5.5 million shares at $10.00 - below a sweetened guidance range of $11 to $12, which had been reduced from original price talk of $13 to $15.

NxStage shares (Nasdaq: NXTM) dropped 75 cents, or 6.58%, to close Wednesday at $10.65.

NxStage develops, manufactures and markets innovative systems for the treatment of end-stage renal disease, or ESRD, and acute kidney failure.

The company plans to use proceeds to fund continuing operations, including the expansion of sales and marketing programs and hiring additional personnel, to finance working capital needs, including investment in its portable hemodialysis System One field equipment, and for general corporate purposes.

Coley edges up on fast track

Coley Pharmaceuticals Group, Inc. seesawed sharply throughout the session but managed to settle above water for the day on news that the FDA has granted its hepatitis C drug candidate Actilon fast-track status, which could speed up regulatory approval. The drug is in phase 2 clinical trials.

"This doesn't impact the actual approval (the drug has to be proven to work), but it is encouraging that the FDA allowed the fast-track status at such an early stage," said a sellside trader. "We did get a pop to over $15 upon the release of the press release this morning, but this 200-point drop [in the DJIA] has taken the steam out of any potential buyers."

Coley is scheduled to present at the Digestive Disease Week conference in Los Angeles that begins Saturday and runs through next Thursday. The conference is said to be the largest, most prestigious gastrointestinal meeting in the world.

Vertex lower

Also to be presenting at the Las Vegas conference, the trader noted, is Vertex Pharmaceuticals, Inc. Vertex also had news on the tape Wednesday but its stock fell victim of the market pull and settled solidly into negative territory.

"I don't think this fall has much to do with Vertex. There's a bloodbath in biotechs and it [Vertex] is going down with the rest of them," said a trader in the stock. "I would sit tight. I am not emotional about this kind of stuff. I sold some shares early but kept my core."

Vertex shares (Nasdaq: VRTX) dropped $1.29 on the day, or 3.99%, to close at $31.03.

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