Adams hit 4%; Conor slips after follow-on; Diomed pockets $10 million from PIPE; Oscient gains

By Ronda Fears

Memphis, July 27 - While there were a couple of deals on the tape from medical devices names Thursday, the primary scene remained quiet in typical summer doldrums. But syndicate sources said it was an unusually dry summer, noting that the initial public offering of Osiris Therapeutics Inc. is now seen getting pushed to next week's business.

"We've had some good signals in the market but there has been too much volatility, not enough stability in the gains we've seen," said a biotech banker at one of the bulge bracket firms.

"Let me put it this way, no one is feeling real comfortable about any deals right now. We are seeing sporadic inflows in the biotech space [from investors] but until we see that sustained for a while, I don't think you will see a big parade of deals, at least not IPOs."

Osiris plans to sell 3.5 million common shares in its IPO, with the price range said to still be at $11 to $13 a share. Deutsche Bank Securities is running the books, with Leerink Swann & Co. and Jefferies & Co. as co-managers.

The Baltimore-based company is focused on medical conditions in the inflammatory, orthopedic and cardiovascular areas as well as adult stem cell therapy. Proceeds are earmarked to fund business growth, including clinical trials and preclinical research and development, to repay a $20.6 million promissory note and for general corporate purposes.

Bird flu names see light selling

Several of the small biotechs working on a vaccine for the avian flu strain H5N1 took a blow Thursday in a belated reaction to news earlier in the week from GlaxoSmithKline plc on the progress it has made in developing a bird flu vaccine and suggestions that the Big Pharmas involved in this work could well supply vaccinations for the world.

One trader in several of those names - Vical, Inc., Novavax, Inc., BioCryst Pharmaceuticals, Inc. and Generex Biotechnology Corp. - said, however, that while the declines were fairly large, volume was light in those names.

"Most of those companies' stock value dropped today by 10% or more," the trader said. "There wasn't any volume to speak of, though. We saw some big block sales but not a run-for-the-gate sell-off."

Indeed, one buysider said he was remaining faithful.

"I continue to be a believer and I'm hanging long and strong," said the fund manager in Atlanta. "Tomorrow looks to be one ugly day. It could be the capitulation we have been looking for, followed by news. That's why I am hanging on."

Adams falls on plant buyback

In another downside move, Adams Respiratory Therapeutics Inc. took a hit after announcing Thursday it plans to buy back a facility from Cardinal Health, Inc. for $28 million, which it sold to Cardinal in 2004 for $8 million plus inventory. Adams said it will finance the purchase with cash and debt.

Adams shares (Nasdaq: ARXT) fell $1.87 on the news, or 4.2%, to $42.64.

"Looking back, the original decision to sell the Fort Worth facility to Cardinal Health in April 2004 was absolutely the right decision for our company at the time," said Michael J. Valentino, chief executive of Adams. "With $14 million in annual net sales, we needed to focus our efforts on maximizing the commercial potential of our then newly approved product, Mucinex. As a result of this sharp focus, we now consider sales, marketing and advertising core competencies of Adams and the Mucinex brand has become a category leader.

"Two years later, with several products on the market and trailing-12-month net sales of more than $225 million as of Mar. 31, our business priorities have evolved. Now it is imperative that we make appropriate investments in people, processes and equipment, so that manufacturing becomes another core competency of Adams."

But, a buyside market source said it seemed "outrageous to pay $24 million for this pile of brick and mortar, or even $12 million for that and $12 million for inventory." Since the sale to Cardinal, Adams said the facility has been upgraded and modernized, and noted that about $12 million of the buyback price is made up of inventory.

The 130,000-square-foot plant is the primary manufacturing and packaging facility for Adam's Mucinex and Humibid, a guaifenesin-based extended-release bi-layer tablet for coughs. There are around 270 employees at the Fort Worth plant.

Oscient soars, players like deal

To the upside, Oscient Pharmaceuticals Corp. got lifted Thursday on its recent acquisition of the drug Antara from Reliant Pharmaceuticals for $78 million, which was announced Monday.

"Everyone has stroked the numbers, analyzed the deal and it is looking really good," said a trader. "This is dirt cheap for a company that has just put a deal together which will have long-term upside."

Oscient shares (Nasdaq: OSCI) on Thursday gained 5 cents, or 7.03%, to close at 83 cents.

Antara, used to treat high cholesterol and high triglycerides, is part of the growing $1 billion fenofibrate market, according to Oscient, and will be commercialized by the company's existing sales force, which currently is marketing its antibiotic Factive for respiratory tract infections and Testim testosterone gel.

"This is going to be aggressively rolled out. The drug [Antara] was just launched in early 2005, and already did $35 million sales in the last 12 months, so it will instantly add money to Oscient's bottom line," said a biotech fund manager in Boston. "Even though there are generic fibrates, there is no generic substitution for Antara. As I said before, many of the Oscient reps have experience selling, so ramp-up time will be short. There is nothing but good news here for anyone long on Oscient. Anyone bashing this deal does not know what they are talking about, or they are short the stock."

The buysider said he was not too concerned about how Oscient financed the deal, either.

"From where they did the financing, there is no way to look at the stock and not see it as a buy," he remarked.

Oscient entered into an agreement with Paul Capital Partners' Paul Royalty Fund II, LP for $70 million of the acquisition financing. In that, the investor gets $40 million in a revenue interest for royalties on the net sales of Antara and Factive. Also involved was $20 million in debt due in 2010 and a $10 million equity stake at 90 cents a share, plus warrants to purchase 2.3 million shares at 86.8 a share.

Nabi falls as sentiment sours

On a 16% revenue rise, Nabi Biopharmaceuticals reported after Wednesday's close that its second-quarter loss narrowed sharply, but traders said Thursday that a less robust outlook weighed on the stock and it dropped nearly 7%.

"With NicVax in the lurch and R&D activity at the company dwindling, it looks to some folks like this story has played out," one sellside market source said. Nabi said second-quarter research and development spending, primarily earmarked for its nicotine addiction drug NicVax, declined by 42%.

Nabi shares (Nasdaq: NABI) lost 34 cents on the day, or 6.79%, to $4.67.

The Boca Raton, Fla.-based biotech posted a net loss of $14.8 million, or 24 cents a share, versus a loss of $20.9 million, or 35 cents a share, a year before, while revenue grew to $29.9 million from $25.9 million.

Nabi credited the improved financials with better pricing and strong patient demand for its PhosLo calcium acetate.

Conor slips after follow-on

Medtech concern Conor Medsystems, Inc. raised $96.25 million in gross proceeds from the follow-on offering of 3.5 million shares at $27.50 apiece, discounted from Wednesday's close of $27.75 - and still the stock was seen holding up well in trade Thursday.

"The bookrunners [Citigroup and Morgan Stanley] really propped this up well," said a trader.

Conor shares (Nasdaq: CONR) lost 30 cents on the day, or 1.08%, to $27.45, but the stock had been on an upward track since plans of the follow-on hit the wires Monday.

Menlo Park, Calif.-based Conor plans to use proceeds to fund the development of commercial-scale manufacturing facilities, to build a sales force, for working capital and for other general corporate purposes. The company's current focus is on commercialization of its cobalt chromium paclitaxel-eluting coronary stent system, CoStar, for the treatment of restenosis - the re-narrowing of the inner channel of the artery following balloon angioplasty.

Conor has signed agreements with Biotronik AG, Interventional Technologies Ltd. and affiliates of St. Jude Medical, Inc. to distribute the CoStar stent outside the United States; it was approved in Europe in February. The company plans to pursue commercialization in the United States with its own sales force, subject to regulatory approval.

But by its own recognition, competition in stent development is stiff.

The company noted that Johnson & Johnson and/or Guidant Corp., Abbott Laboratories, Medtronic Inc. and Boston Scientific Corp., with far greater financial and marketing resources than Conor, have developed or are actively marketing drug-eluting stents approved by the FDA.

A number of smaller companies such as Biosensors International Group, Ltd.'s Netherlands-based subsidiary, Occam International BV, and Sorin Biomedica SpA also have commercially launched drug-eluting stents in Europe, the company added.

Diomed dives 6% after PIPE

Another medical device name, Diomed Holdings, Inc., secured $10 million from a private placement of convertible preferreds that convert into 8.7 million common shares at $1.15 each.

As part of the offering, holders of the company's existing convertible stock will tender their existing preferreds for shares of the new preferred stock. About 4 million shares of existing preferred stock were exchanged for new preferreds.

Diomed shares (Amex: DIO) lost 9 cents on the day, or 6.38%, to settle out the day at $1.32.

"A good [earnings] report, plus this $10 million in new cash is nice," said a source at a health care fund based in Connecticut. "I think we will see $3 very soon."

Also Wednesday, Andover, Mass.-based Diomed reported a second-quarter net loss of $921,000, or 5 cents a share, narrowed from a loss of $2.7 million, or 14 cents a share, a year before, while revenues increased to $6.08 million from $4.8 million. Sales of the company's EVLT laser treatment for varicose veins grew 23% in the first half of 2006 versus the first half of 2005.

"We are extremely pleased with our second-quarter results," commented James A. Wylie, chief executive of Diomed, in a news release. "After implementing a series of modified strategic initiatives and adjusting our tactical sales plans, we delivered record revenue and drove sequential revenue growth of 33%."

The company ended second quarter with a cash and short-term investment balance of $7 million compared with a cash and short-term investment balance of $9 million at the end of first quarter.

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