CuraGen sinks; Indevus soars; Voyager pulls IPO; Insmed up on FDA approval; Tercica falls

By Ronda Fears

Nashville, Dec. 13 - Biotech players were stumped Tuesday by Voyager Pharmaceuticals Corp. pulling its initial public offering but heartened by an upturn in financing activity in the private placement arena with a handful of good-sized deals on the tape.

On the Voyager news, one buyside source expressed disappointment but said he remained bullish on the story, saying, "We are going to have to wait. I look for Voyager to lay off some employees and make adjustments. The CEO is going to take the heat. [It's] still a strong buy. I thought it was going to get off this week, after the delay and reworking the details, but, alas, it will now be off somewhere on the horizon."

Voyager had been pitching an IPO of 4.5 million shares, downsized from 5.9 million, and had sweetened the price talk last week to $11 to $15 per share from $15 to $19 per share. The deal, via W.R. Hambrecht & Co.'s OpenIPO auction venue, was delayed last week before it was shelved by the company on Tuesday.

Patrick Smith, chief executive of Voyager, said that the company still plans to advance clinical development of its lead product candidate, Memryte, for mild to moderate Alzheimer's disease. The Raleigh, N.C.-based company has Memryte, a small, biodegradable implant comprised of leuprolide acetate and a polymer, in phase 3 trials.

Meanwhile, there were several private transactions with handsome proceeds.

Calgary, Alta.-based Oncolytics, focused on therapies for cancer, had a C$16.48 million PIPEs transaction on the tape, and Laval, Quebec-based LAB International Inc., which is developing inhaler-delivered drugs to treat cancer pain, completed a stock PIPE for $12,316,890. Additionally, Toronto-based Transition Therapeutics Inc., which has drugs in development for diabetes, multiple sclerosis and hepatitis C, announced a C$10.35 million follow-on bought deal.

In the United States, San Diego-based Halozyme Therapeutics, Inc., which is focused on infertility, ophthalmology and oncology therapies, announced a $16.1 million direct placement of stock. And, Princeton, N.J.-based Cytogen Corp., which develops therapeutic and molecular imaging/diagnostic products, pocketed $13.27 million from the direct placement of units for stock and warrants.

CuraGen crashes by 23.5%

CuraGen Corp. crashed Tuesday on news that its experimental drug to prevent a complication from high-dose chemotherapy had failed to meet the main goal of a phase 2 clinical trial.

The stock dropped throughout the session, ending off by 98 cents, or 23.56%, at $3.18.

The drug, velafermin, is developed to prevent oral mucositis, an inflammation of the mouth and throat, in patients taking high-dose chemotherapy ahead of bone marrow transplants. The phase 2 study evaluated 212 patients, who were divided into four treatment segments with various dosages and one placebo. CuraGen said that while velafermin failed to show a statistically significant overall benefit, it did show some effectiveness in one of three groups, the company said.

Thus, CuraGen said it would conduct additional phase 2 trials, which a sellside market source said was a decision the market clearly disagreed with.

"It was a failed study," the sellsider said around noon. "Looks like it may go to $3. It probably won't go lower, but even at that price there are not enough institutional buyers. There's no one to buy even at reduced prices. I don't think $3 is a good buying opportunity.

"They have cash but, they have huge debt too," the sellsider continued. "It's all a story of the burn rate now."

Just this past August, New Haven, Conn.-based CuraGen priced a secondary offering of 4 million shares at $5.50 each, discounted from the previous day's close of $6.06, for gross proceeds of $21 million. That money was partly earmarked to repurchase from time to time its 6% convertible notes due 2007.

In July, the company said it repurchased $25.9 million of the 6% issue, in addition to $14 million in April and May, at a total purchase price of $37.7 million. At that time, CuraGen said there was $90.1 million of the 6% convertibles outstanding.

CuraGen also has a 4% convertible due 2011 in circulation with $110 million outstanding.

Indevus shares increase 17%

Swinging to the other end of the spectrum, Indevus Pharmaceuticals Inc. took off Tuesday after reporting a narrower net loss for fiscal 2005 and the acquisition of a complimentary drug from Savient Pharmaceuticals Inc. for $5 million plus royalties on future sales.

"I would say this is moving things in a positive direction," said a buyside market source.

The stock shot up by 60 cents, or 17.24%, to $4.08.

Indevus reported a net loss of $53.2 million, or $1.13 per share, for fiscal 2005 ended Sept. 30, compared with a net loss of $68.2 million, or $1.43 per share, for fiscal 2004. Total revenues were $33.3 million, an increase of 78% from $18.7 million.

At Sept. 30, the Lexington, Mass.-based company had consolidated cash, cash equivalents and marketable securities totaling $101.2 million.

"We have had significant development activity on each of the products in our pipeline and have added two products that fit very well into our urology, gynecology and men's health franchise," said Glenn L. Cooper, chief executive of Indevus, in a news release. "We now have six products within our core focus area that are either on the market or in development."

Among its top products is Sanctura for overactive bladder, with fiscal 2005 sales of $23 million, "despite extensive competition from large pharmaceutical companies," the company reported.

Indevus expands pipeline

"The pipeline is very robust with three products at the phase 3 stage as well as one phase 2 product and two earlier stage products," Indevus' CEO Cooper said.

"Moving into 2006, we look forward to building on our accomplishments and continuing the development of the products currently in our pipeline while identifying new opportunities to acquire and in-license candidates that fit our core area."

Along those lines, the company also announced Tuesday that it would acquire the hormone drug Delatestryl for $5 million from Savient Pharmaceuticals.

Indevus estimated that Delatestryl would increase its revenue base and sales force utilization by as much as $3.5 million in 2006. Delatestryl is a marketed injectable testosterone preparation for the treatment of male hypogonadism. Hypogonadism is a reduced or absent secretion of hormones from the sex glands.

Indevus acquired the U.S. in-licensing rights to Nebido, also a treatment for hypogonadism, from Schering AG in July and said Tuesday it expects to file a New Drug Application with the Food and Drug Administration in the first quarter of 2007.

Hedgies short covering Indevus

A sellside market source in the convertible market attributed a good deal of the rise in Indevus shares to short covering by holders of its 6.25% convertible bond due 2008. He pegged the bonds at 95.25, with little action against the rise in the stock.

"Believe me that this stock is going much higher. I told you about the converts covering a while ago. I told you they will only concentrate in the urology area and license off their other drugs, and that they would license a new drug that they could sell almost at once," he said.

"I follow volume and accumulation, which has been going on for the last six months. Why would the converts cover... because they feel more confident in what the company is doing. When the bonds were issued, shorts piled into this stock. That's why you saw this stock virtually collapse. All of a sudden, in mid-November the short interest decreased and there were buyers for the bonds."

There also continues to be a fair amount of takeover speculation regarding Indevus, he said. That too could be driving short covering, he added.

"The powers that be want to close the shorts, move the stock up over $6.66 and start the shorting game all over again," the sellsider said. "Indevus is a great company and shorts figured it all out and all or most of them ran to cover in the same month or two."

Medicis exits Inamed pursuit

Medicis Pharmaceutical Corp. stepped out of the bidding war over Inamed Corp. and was cheered for the move with its stock gaining more than 4% in trade Tuesday. Its departure, abandoning a deal that was struck in March in which Scottsdale, Ariz.-based Medicis had offered to buy Inamed for about $2.8 billion in cash and stock, leaves a clear path for Botox-maker Allergan Inc.'s $3.2 billion offer for Inamed.

"I think there was some disappointment that the deal was not going through," said one trader. "But I think people were happier that Medicis was not going to up their bid."

Medicis shares gained $1.40 on the news, or 4.2%, to $34.71.

Inamed shares were off 57 cents, or 0.65%, at $87.59.

Allergan shares also dipped slightly, losing 74 cents on the day, or 0.67%, to close at $109.20.

Allergan entered the picture in late November with an offer that topped Medicis' bid for Inamed, which makes Reloxin, a competing treatment to Allergan's anti-wrinkle Botox. And Medicis will walk away with $90 million in break-up penalties.

Insmed soars, Tercica falls

Insmed Inc. rocketed while rival Tercica Inc. took a huge dive Tuesday on news that Insmed's competing drug to treat growth deficiency in children had received FDA approval.

Both stocks came off their respective high or low points of the session, with Insmed easing off an early 28% gain to end Tuesday up by just 15 cents, or 10.07%, at $1.64 while Tercica rebounded from a plunge of more than 33% to close the session lower by $2.88, or 29.09%, at $7.02.

Late Monday, Insmed announced that the FDA had approved its drug Iplex for the treatment of IGF-1 deficiency in children severely short in stature. The kicker was that the FDA granted Iplex orphan drug status, which allows seven years of market exclusivity. Tercica's drug Increlex, which has been approved by the FDA to treat a similar condition in children, also has orphan drug status.

Last week, Tercica filed suit against Insmed, alleging that Insmed has been unfairly promoting Iplex as being safer than Increlex. Insmed had said the suit is without merit.

As for the decline in Tercica, one market source said, "This stock is way oversold."

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