Achillion gains on debut; Cadence slips; DOV Pharma nosedives; Celgene better; Renovis falls 76%

By Ronda Fears

Memphis, Oct. 26 - Another initial public offering got off, this time from Achillion Pharmaceuticals, and again came below range. But the stock ended on firmer ground while another recent IPO stock, Cadence Pharmaceuticals, Inc., retreated but was not underwater.

Elsewhere in secondary action, big cap names in the sector like Celgene Corp. helped prop up the major biotech indexes, but there were some big downers like a bankruptcy warning at DOV Pharmaceutical, Inc. that weighed on other distressed issues, such as Discovery Laboratories, Inc.

Biotech stocks overall felt better despite ill-boding news from Big Pharmas about drug candidates, as traders said they were preparing for a strong ending for biotechs in 2006.

AstraZeneca plc (NYSE: AZN) took a big hit, plunging 7.5%, after reporting it had dropped development of NXY-059, a potential blockbuster stroke drug. The news devastated South San Francisco-based Renovis, Inc., which developed the drug and licensed it to AstraZeneca. Renovis shares (Nasdaq: RNVS) plunged $10.77, or 75.85%, to close at $3.43.

GlaxoSmithKline plc also fell, by 2.25%, after saying it would delay filing for Food and Drug Administration approval of its cervical cancer vaccine Cervarix.

"The sector is in a serious uptrend and poised for a double top breakout," remarked a sellside trader, although he noted that volume was "a little light" in the sector.

In the mid-cap neighborhood, Millennium Pharmaceuticals, Inc. - the bested suitor for the takeover of AnorMED, Inc. by Genzyme, Inc. - gained after posting better-than-expected third-quarter results and improving its 2006 outlook.

Of note on the upside, Summit, N.J.-based Celgene lead the biotech pack higher, spiking despite missing analysts' revenue projections, and traders attributed the rise to short covering in the face of figures that suggest the company is solidly turning the corner into profitability. Celgene posted net income of $20.4 million, or 5 cents per share, compared with $668,000, or break-even on a per-share basis, a year ago. Excluding stock option expenses, EPS was 15 cents, a penny better than the First Call consensus for 14 cents. Revenue grew to $223.1 million from $113.9 million, just shy of analysts' forecast for $228.5 million.

Celgene shares (Nasdaq: CELG) shot up $5.50 on the day, or 12.46%, to $49.64.

Bankers were remaining optimistic about new deals in the remainder of the year, as well.

Achillion eases off day's high

The IPO slate got a little lighter with the Achillion deal, although it was priced below range. The New Haven, Conn., biotech raised $54 million in gross proceeds from the sale of 4.5 million shares at $11.50 each - below talk for $14 to $16.

Out of the chute the stock (Nasdaq: ACHN) gained, opening at $11.60, and trading up to $12.75 before pulling back rather sharply to settle at $12.39. Traders noted, though, too, that trading was very light in the stock, with just 361,420 shares moved.

Achillion, focused on infectious diseases such as HIV and hepatitis C, plans to use proceeds for drug development.

The deal came on the heels of Cadence's IPO that priced at $9 each - below talk for $11 to $13 - and gained to $9.40 on its debut. The stock (Nasdaq: CADX) retreated in trade Thursday, slipping by 11 cents, or 1.17%, to close at $9.29 after trading as low as $9.10.

Sources said it still looked as if the Catalyst Pharmaceutical Partners Inc. and Rosetta Genomics Ltd. IPOs would likely get priced Thursday but ImaRx Therapeutics, Inc. and Light Sciences Oncology, Inc. would get delayed.

DOV dives on bankruptcy warning

To the downside, DOV Pharmaceutical fell 36% on Thursday after announcing it was exploring initiatives to improve liquidity and that it may be forced to file bankruptcy. In addition, as of Friday, the stock will be delisted from Nasdaq trading.

The company has hired Houlihan Lokey Howard & Zukin Capital Inc. to assist in evaluating strategic options and restructuring efforts. Two weeks ago, the Hackensack, N.J.-based company said it was working with HSBC Securities (USA) Inc. to evaluate strategic options while it strived to focus on less expensive early-stage studies for its pipeline of drugs for neuropsychiatric disorders.

"The support vanished," said a sellside equity trader.

"It's interesting and a bit alarming."

DOV Pharma shares (Nasdaq: DOVP) fell 20 cents, or 35.82%, to close at 35 cents.

DOV said it will be delisted from Nasdaq as of Friday for failing to meet the minimum stock price requirements, which will trigger the acceleration of its 2.5% convertible subordinated debentures, due 2025, on or before Nov. 11. However, DOV said it currently does not have the capital to repurchase the $70 million debentures.

DOV Pharma said Thursday it would initiate discussions with major stakeholders regarding strategic alternatives, which include a consensual restructuring of capital structure.

"There was some large buying because the vultures come swooping in at times like these," said another sellside trader, referring to a late-day surge and after-hours uptick by 3.4% to 35.5 cents.

DOV Pharma shares have plunged over 90% since late April, following setbacks involving its bicifadine for chronic back pain and the sleeping pill Indiplon it developed and licensed to Neurocrine Biosciences, Inc.

Discovery revamps loan

If not for the DOV Pharma warning, traders said Discovery Laboratories would have gotten more of a rise from its news of restructuring its $8.5 million loan with PharmaBio Development, Inc., the strategic partnering group of Quintiles Transnational Corp.

Discovery Labs said the revamped loan will extend the $8.5 million principal that was due Dec. 31 to a lump sum payment due April 30, 2010. In connection with the extension, Discovery Labs enhanced the loan collateral pledge and issued a seven-year warrant to PharmaBio to purchase up to 1.5 million shares with a strike price of $3.58 per share, exercisable for cash or a reduction of the then outstanding loan balance.

"The warrants represent another 2.5% dilution. The inverted offering, if/when it happens, may be 20 million shares at $2, because I think $40 million is what they need," said a sellside trader.

"But they have to pull the trigger soon while the price is in the $2.50s. Such an event may prompt Discover Labs to touch the new $100 million valuation point. The old one was $1.67, so take a 20% off that number, and that's the risk."

Discovery Labs shares (Nasdaq: DSCO) gained 4 cents on the day, or 1.47%, to close at $2.77.

"Restructuring this arrangement to long-term status is a key component of our current financial strategy," said John Cooper, chief financial officer of Discovery Labs, in a statement.

"Having this capital available allows us to further progress our key surfactant replacement therapy pipeline programs, specifically Surfaxin and Aerosurf. Importantly, restructuring this obligation better positions us as we evaluate strategic alternatives intended to enhance the future growth of the company."

The restructured loan provides that, in addition to the extended principal payment term, interest payments that were previously paid quarterly will now accrue annually and are payable at the loan's maturity in April 2010. Additionally, the interest rate has been reduced and Discovery may repay the loan, in whole or in part, at any time.

"Management has made a good move. They pushed out millions in bone-crushing debt in a good way. It only cost 1.5 million shares to stave off $8.5 million in immediate cash loss. That's much better than the equity line. Looks like good terms, too, and they did it before the last possible second," the trader continued.

He credited the influence of Jefferies & Co., Inc. for the event. In June, Discovery Labs hired Jefferies to help identify strategic alternatives, including business alliances, commercial and development partnerships, financings, business combinations and other similar opportunities.

Warrington, Pa.-based Discovery Labs in May cut its workforce by 34% and reorganized its corporate management in order to cut costs and align operations with its business properties following a setback in April to getting its lead drug candidate Surfaxin approved. FDA approval for the drug, for the prevention of respiratory distress syndrome in premature infants, has been delayed because of manufacturing safety issues.

Discovery Labs also has Aerosurf in development initially to treat premature infants suffering from respiratory disorders intended to obviate the need for intubation and conventional ventilation.

Millennium gains 7%

Millennium Pharmaceuticals rose sharply Thursday after posting a substantially narrowed third-quarter net loss and improved its full-year loss guidance. Millennium also said it plans to reduce discovery expenses and cut its staffing by 14%.

Cambridge, Mass.-based Millennium said it will increase focus on its only commercial drug, the cancer therapy Velcade for multiple myeloma, and is expanding an agreement with Johnson & Johnson to co-promote the drug in the United States.

Millennium shares (Nasdaq: MLNM) added 73 cents on the day, or 6.98%, to close at $11.19.

Earnings were a mixed bag, with a third-quarter net loss narrowing to $13.7 million, or 4 cents per share, from a loss of $73.8 million, or 24 cents per share, in third quarter 2005. On an adjusted basis, the loss was 2 cents per share, versus the analyst consensus for 1 cent per share. And, revenue fell to $104.1 million from $201.7 million, whereas analysts expected $111 million.

Millennium narrowed its full-year guidance for a net loss to $50 million and $60 million from a previous projection for a loss of $95 million to $115 million.

Sales of Velcade increased to $53.2 million, however, the company lowered its projected Velcade sales estimates to about $220 million from a prior range of $225 million to $250 million, while royalties projections were boosted to between $130 million and $135 million, from $115 million and $125 million.

Celgene players eye Millennium

Now that Millennium is out of the race for AnorMED, some players in the stock continue to suggest that it could be a takeover target itself and perhaps from the likes of Celgene, which has Revlimid and Thalomid as complimentary drugs to Millennium's Velcade.

"That was the booster for Millennium," said a trader.

Earlier this month, as many expected, Millennium withdrew from the bidding war for AnorMED, leaving Genzyme the victor in a union it had been pursuing for roughly a year with no encouragement from AnorMED. AnorMED's lead drug candidate Mozobil, currently in phase 3 trials to be used in stem cell transplants for patients with multiple myeloma, a blood cancer, and non-Hodgkin's lymphoma, is its big draw.

Celgene has Thalomid for erythema nodosum leprosum, or leprosy, and Revlimid for transfusion-dependent anemia and both also are being studied in blood cancers such as myeloma. It also has Alkeran for late-stage multiple myeloma.

While Millennium has a collaboration with Johnson & Johnson, Celgene has collaborations with GlaxoSmithKline plc and Novartis AG.

"It would be a good match with great value," said a buyside analyst in Boston, referring to a Celgene union with Millennium.

"It is all about access and these days oncology is gold."

If such a union is not being discussed, he said Millennium is challenged by Celgene's Revlimid and Thalomid numbers to improve figures for Velcade. He noted that Celgene reported Revlimid sales of $101 million soundly beating The Street estimates, and Thalomid sales of $108 million, also ahead of expectations.

"Revlimid has taken a dent in its [Velcade] use and will certainly keep eclipsing its use forever," the buysider said.

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