Predix, Electro-Optical IPOs imminent; Durect gains on trial news; Voyager IPO talk seen aggressive

By Ronda Fears

Nashville, Oct. 14 - Biotech players exhibited a bit more modesty about long positions going into the weekend, traders said, although analysts were pounding the table for several picks they see having slipped into nice entry points. Meanwhile, market sources expect a couple of biotech and medtech initial public offerings to get off during the Oct. 17 week.

"Buying was a lot more selective, still a lot of short covering [in biotech names] where people are looking for positive surprises" in third quarter results, one sellside trader remarked. "There were a few, too, that have been beaten down so hard in the last couple of weeks that [buy] triggers kicked in."

One of the most devastated was Human Genome Sciences Inc., which on Thursday finally broke a string of eight declines with a nearly 4% rise. That was followed on Friday by a gain of 38 cents, or 4.73%, to $8.41.

Traders expressly attributed stock upgrades to the rise in Celgene Corp. and Bradley Pharmaceuticals Inc. Celgene jumped by $4.09, or 8.59%, to $51.70 on a Merrill Lynch & Co. upgrade to buy from neutral. Bradley climbed $1.20, or 11.71%, to $11.45 on a strong buy recommendation from Raymond James.

Predix, Electro-Optical on deck

From the primary side of the fence, a big rise for Durect Corp. as it began phase III trials for an Alzheimer's drug, caused players to take a gander at the initial public offering of one of its partners, Voyager Pharmaceuticals Inc. There were are big fans of Durect eager to play Voyager as well, but there were a couple of buysiders who think the IPO price talk is too aggressive.

Voyager's IPO timing has not been determined, but during the Oct. 17 week market sources expect IPOs from Electro-Optical Sciences Inc. and Predix Pharmaceuticals Holdings Inc. to get done.

Electro-Optical is pitching 4 million shares at $5 per share - a price range cut from $5.50 to $6, in turn lowered from $8 to $10 per share, which was reduced from initial filing at $10 to $12. The Irvington, N.Y.-based medical device company focuses on instruments used in the early diagnosis of melanoma.

Predix is pitching 5 million shares at $10 to $12 per share. The Lexington, Mass.-based company is focused on highly selective small-molecule drugs that target G-Protein Coupled Receptors and ion channels.

Durect gains on trial launch

Durect Corp. got another healthy bounce Friday on announcing that it is beginning enrollment in phase III studies on its Alzheimer's treatment and, as a sellside market source predicted Thursday after the company's third-quarter results, the stock took off sharply.

On Friday, the stock climbed 43 cents, or 6.67%, at $6.88. That came on top of a 5.74% surge ahead of results after the closing bell Thursday, which showed a spike in revenues and a narrower net loss.

Also, Global Crown Capital analyst Kate Winkler said in a report Friday to watch Durect early next week for data from a larger number of patients that "we believe should convincingly substantiate the earlier clinical evidence that Durect has succeeded in formulating a long-acting local anesthetic, Saber bupivacaine." Winkler expects surgeons and investors will greet the results with interest and enthusiasm.

After the two consecutive gains, however, one sellside market source said he was holding his hand.

"Although Durect beat Street expectations, yesterday's [Thursday's] earnings report was really already built in to the current price per share. Revenue growth was not sequential, but year-over-year, and earnings will certainly not be the catalyst that moves this stock," the sellsider said. "An upgrade or other positive news will have a much greater impact. I agree with the hope analysis, as the success of Durect lies solely on its pipeline and a future marketable drug. I am holding my shares."

Durect also on Thursday filed a $75 million shelf registration, so he said it would make sense to expect a follow-on stock offering somewhere in the near future, and that would bring some dilution that might soften some views on Durect.

Cupertino, Calif.-based Durect, which designs drug delivery systems, has agreements with Endo, Voyager Pharmaceutical Corp. and Pain Therapeutics Inc., along with patent licensing.

Durect, Voyager piggyback

Durect has been seen for a while as a means to play the planned Voyager IPO, and now the view is vice versa as well. But market sources are wrangling with the indicative terms of the IPO.

"I invested in Durect because I liked their pain programs and the stock was dirt cheap at the time," said a buyside market source in New York. "Having Voyager's business can't be anything but a positive for Durect, even if, as a lot of people think, the shorts hop on Voyager. If that happens, they will be hurting Voyager, not Durect. In other words, a short attack on Voyager may hurt Voyager's stock, at least in the early going, but Durect will still be getting Voyager's revenues. There's no negative for Durect in this."

But a lot of folks who bought Durect to play the Voyager angle may be disappointed, said another buysider at a fund based in Philadelphia.

"Seems a lot of people jumped on Durect thinking or believing that Voyager is the whole salvation of Durect. After Voyager is done and discarded into the historical medical trash bin, Durect will most likely still be here because of their multi-product pipeline," the buysider said. "But if you even raise your questions or voice an ounce of concern, you are automatically labeled a heretic and should be banned from the Voyager pantheon."

Voyager talk seen aggressive

As for his part, the buysider said the price talk on the Voyager IPO seems aggressive, and he has a "position in Durect as of several months ago and have also invested pre-IPO in Voyager."

Raleigh, N.C.-based Voyager Pharmaceutical Corp. set the size of its IPO late Thursday, saying it planned to issue 5.9 million shares with a proposed price range of $15 to $19 per share. Via WR Hambrecht + Co., it will be handled in the bank's OpenIPO auction process.

The range is too optimistic, the New York buysider said, particularly in light of the fact that the company has no revenues even with a drug candidate in late-stage development.

The company is developing drugs associated with aging and development. Its most advanced product candidate is Memryte, a small, biodegradable implant comprised of leuprolide acetate and a polymer, being developed for the treatment of mild to moderate Alzheimer's disease. According to Voyager, leuprolide acetate has been widely used over the past 20 years for the treatment of a number of hormone-related disorders, such as prostate cancer, endometriosis and precocious puberty, and has a well-established safety record in humans.

Voyager had a net loss of $11.6 million for the calendar year ended Dec. 31, 2004 and a net loss of $12.4 million for the first six months of 2005 with no sales.

"If you have spent any serious time investing in biotechs you realize what the shorts can do to a promising company," the New York buysider said. "Dendreon is an example of a bio with a prostrate cancer treatment that has successfully completed phase three clinicals and is still be held down by the shorts. I just hope Voyager does not become a battleground stock."

Voyager trials extend to 2007

Part of the resistance to the price proposed for Voyager, the Philly source said, is that even though the company has a product in phase III trials those results aren't expected until 2007 and that may be optimistic.

Voyager has said it expects to complete two pivotal Phase III clinical trials of Memryte in late 2007, he said.

"If you add it up, getting all clinical sites active takes many months, as does recruiting and screening 1,600 patients," he said. "Then you have 56 weeks of trials, then a few months to collect and crunch the data. Early '07 isn't even possible.

"Voyager has a long way to go and many challenges to become a revenue-generating pharma company. So, the longs provide the hype, the shorts provide the shrill, but phase III success is huge from any angle and that is what the early Voyager players are expecting. Right now everyone seems optimistic, so that makes me skeptical. It will be interesting to watch."

© 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.