Nuvelo zooms after deal; SGX cuts guidance, prices at low end; Sepracor soars; BioMarin bounces

By Ronda Fears

Memphis, Jan. 31 - SGX Pharmaceuticals, Inc. sweetened its initial public offering for the second time Tuesday as the San Diego-based biotech struggled to get the deal off, and the deal did price after the closing bell, at $6 - the low end of the reduced price range.

Meanwhile, Nuvelo Inc. got its follow-on done with whopping success, and the stock gained 7% in reaction.

On the earnings front, analysts were the ones who were caught asleep at the wheel with regard to Sepracor, Inc., maker of the popular sleeping pill Lunesta and the asthma treatment Xopenex.

On Tuesday, Marlborough, Mass.-based Sepracor reported fourth-quarter profits that blew away Wall Street estimates and, as a result, the stock shot up more than 15%. Sepracor's zero-coupon convertibles also gained on an outright basis, but the spike in the stock sharply curtailed gains for hedge funds holding the paper as they had to scurry to cover short positions.

Sepracor shares (Nasdaq: SEPR) gained $8.53 on the day, or 17.63%, to $56.91.

Sepracor posted fourth-quarter earnings of $37.2 million, or 32 cents per share, reversing a $33.7 million net loss in fourth-quarter 2004. Revenue surged to $311.1 million from $131.4 million, aided by $144.9 million from Lunesta, which was launched in April. Analysts on average were expecting quarterly EPS of 5 cents on revenue of $282.9 million, according to Thomson Financial's First Call.

For the quarter, Lunesta generated sales of $144.9 million. Xopenex, a nebulizer treatment for asthma, rose to $146 million from $117.2 million a year ago.

Sepracor also marked its first profitable year with net earnings of $5 million, or 4 cents per share, with revenue climbing to $820.9 million from $380.9 million in 2004. Analysts had estimated an EPS loss of 42 cents on revenue of $793.7 million.

For the year, Lunesta revenues were $329.2 million and Xopenex revenues were $430.5 million, up from $319.8 million in 2004.

Sepracor convertibles go to 100.5

A convertible market source said the Sepracor zero-coupon convertible due 2024 saw "tremendous" action Tuesday on the earnings, particularly the forecast. He said the convertibles closed the day at 100.5 bid, 101 offered, up 6 to 8 points on the day on an outright basis but up only 0.5 point to 0.75 points on swap.

"There is a lot of room to run for this issue," said a convertible market source.

Looking forward, Sepracor also surprised analysts with its 2006 forecast for net earnings of about $1.70 a share and diluted earnings of about $1.50 a share. Analysts are expecting earnings of $1.24 a share. The company projected revenue of $1.275 billion in 2006, versus analysts' expectation of $1.20 billion.

The company in December submitted its arformoterol tartrate inhalation solution New Drug Application to the Food and Drug Administration as a long-term maintenance treatment for patients with chronic obstructive pulmonary disease, or COPD.

SGX sweetens IPO to price

SGX Pharmaceuticals priced its IPO of 4 million shares at $6.00 - at the low end of a reduced price range of $6 to $7, which had been lowered from $7 to $8 a share, which had been slashed from the original price range of $11 to $13.

Lowering the price talk reduced the estimated net IPO proceeds to the developmental cancer drug company to $22.2 million at the midpoint of price talk or $25.8 million if the greenshoe is fully exercised. Previously, net proceeds would have been $25.9 million, or up to $30.1 million with the greenshoe.

San Diego-based SGX ended up expecting to pocket $20.3 million of net proceeds, which it said would mostly be used for research and development. Its primary drug candidate, Troxatyl, is in a phase 2 and 3 clinical trials for the third-line treatment of acute myelogenous leukemia, a blood cancer.

SGX said that three of its pre-IPO investors - Atlas Venture Associates IV, Inc. with a 17.5% post-IPO stake, BAVP, LP with a 17.93% stake and Sprout Capital VIII, LP with 9.91% - indicated an interest in purchasing a total of $6.1 million of common stock in the IPO. Pre-IPO, Atlas held 22.85% of SGX stock and BA Venture Partners had 22.61%.

Also, the company said that as a result of the IPO, the $6 million December 2004 convertible note held by Millennium Pharmaceuticals, Inc. will automatically convert into 1 million shares of common stock, and, thus, Millennium will have a 7.04% equity stake in SGX.

Nuvelo zooms 7% after deal

Nuvelo, Inc. took off sharply on the heels of a follow-on stock sale as it was just barely discounted from Monday's close. Nuvelo will pocket nearly $100 million to help fund late-stage trials.

The company sold 6.5 million shares of common stock in a follow-on offering priced at $16.00 each versus Monday's close of $16.03.

Nuvelo shares (Nasdaq: NUVO) on Tuesday gained $1.12, or 6.99%, to $17.15.

San Carlos, Calif.-based Nuvelo said proceeds, estimated at $97.3 million on a net basis, will be used for general corporate purposes, including the advancement of drug candidates in clinical trials, the development of a commercialization infrastructure, capital expenditures and to meet working capital needs. Some proceeds also are earmarked to pay The Irvine Co. the lesser of 10% of any amount raised in excess of $75 million or any remaining deferred rent obligation, which as of Sept. 30 was $7.2 million.

Nuvelo focuses on treatments for severe cardiovascular conditions and cancer. It has alfimeprase, a blood clot dissolver, in phase 3 trials with heart patients. Recently, the company announced a collaboration with Bayer AG on that drug.

"This is a company that, based on alfimeprase alone, in 2008 is a $2 billion market cap enterprise with 50 million shares out there," said one Nuvelo fan on the buyside. "You do the math, but if you cannot, that values the stock at $40. That is all you need to know."

BioMarin bounces on E.U. nod

BioMarin Pharmaceutical Inc. shares took off big time Tuesday on news that its genetic disease treatment's approval has expanded from the United States to Europe, but the credit lagged far behind the stock's gain.

Novato, Calif.-based BioMarin announced at the closing bell Monday that the European Commission has granted marketing authorization for its Naglazyme, the first specific treatment approved in the European Union for the genetic disease mucopolysaccharidosis VI, or Maroteaux-Lamy syndrome, with orphan status that gives BioMarin 10 years of market exclusivity.

BioMarin shares (Nasdaq: BMRN) gained 77 cents, or 7.03%, to $11.73.

"We are pleased with the growing sales and profitability of Aldurazyme, and with Naglazyme now approved in Europe and the United States, we expect combined worldwide sales of Aldurazyme by our joint venture and Naglazyme by us for 2006 to be in the range of $118 million to $132 million," Jean-Jacques Bienaime, chief executive of BioMarin, said in a news release.

BioMarin's Aldurazyme is an enzyme replacement therapy for the treatment of mucopolysaccharidosis I, an inherited, often life-threatening lysosomal disorder; it was developed with partner Genzyme Corp.

Bienaime said that with European commercial operations in place, the company is ready to launch Naglazyme and is in position to partner with companies looking to bring other products for rare diseases to the European marketplace.

BioMarin seen as ripe target

A sellsider on a convertible desk was pounding the table for the BioMarin 3.5% convertibles due 2008, largely due to anticipating a bigger Genzyme roll in the BioMarin story, but the issue edged up just about a half-point, he said.

BioMarin's convertible traded up to 98 bid, 99 offered on Tuesday while the stock shot up more than 7%.

"It's not so hard to see Genzyme buying them. The [BioMarin] CEO sold his last company to Genzyme," the convertible sellsider said. "SANG [SangStat Medical Corp.] was sold to Genzyme on 8/4/03 for $520 million, or $22.50 a share. The announced premium was 54.66%. This company [BioMarin] fits too."

SangStat Medical, based in Fremont, Calif., specializes in organ transplantation therapies. The company makes products that preserve organs prior to transplantation. SangStat also owns Thymoglobulin, which is used to prevent graft rejection in kidney, pancreas, and liver transplants.

Cambridge, Mass.-based Genzyme is a medical products company with three divisions - Genzyme Molecular Oncology focused on gene-based cancer diagnosis and treatment products, Genzyme Biosurgery, which makes medical and surgical products and its primary division, and Genzyme General, which performs drug development and genetic testing.

Genzyme shares (Nasdaq: GENZ) gained 29 cents, or 0.41%, to close Tuesday at $70.94.

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