Accentia, Adams IPOs on deck as biotech index surges; BioMarin, Keryx bode well; Amgen rockets

By Ronda Fears

Nashville, July 20 - With the Nasdaq biotech index surging 4.55% on Wednesday in the wake of a string of positive earnings reports, including those of biotech giants Amgen Inc. and Genentech Inc., the ebullience spilled over into the primary market with hopes of more accommodating terms for issuers.

With bated breath, the market was awaiting the initial public offerings of Accentia BioPharmaceuticals Inc. and Adams Respiratory Therapeutics Inc. as well as the follow-on offering from Momenta Pharmaceuticals Inc.

"Our sense is that the biotech sector is going to do reasonably well in the latter part of this year. Mutual fund inflow into the space is near all-time highs, for the past couple of months. That's showing up in the Amgens, Genentechs of the group and eventually the fund managers will extend their search for growth into the small-cap names," said Jeff Fink, head of healthcare banking at Robert W. Baird & Co.

"All of that said, it still remains a buyer's market."

Once investor interest in small cap biotechs solidly takes hold, then deal flow will open up.

"Capital tends to attract capital. We are seeing a little more life in the market but I'd say we need to see some more momentum players before I say it's wide open," Fink said.

The equity market has been particularly difficult for biotech IPOs this year but there are signs that the tide is turning, albeit slowly. For one, Genentech last week priced $2 billion of bonds, slightly discounted to par, but the equity market is what's under the microscope. Recent follow-on offerings from BioMarin Pharmaceutical Inc. and Keryx Biopharmaceuticals Inc. sent signals of improvement, too.

Keryx, BioMarin barometers

Follow-on pricings are a major barometer for biotech IPOs, Baird's Fink said.

If secondary stock offerings continue to price well, then IPOs will too. The Keryx BioPharmaceuticals and BioMarin Pharmaceutical issues from last week are of note along those lines, in addition to the upcoming Momenta Pharmaceutical secondary offering.

Momenta's follow-on is on tap for Thursday's business, according to an official at Morgan Stanley, which is running the books on the deal. Momenta shares on Wednesday slipped 27 cents, or 0.94%, to $28.34.

But Keryx being able to price its follow-on without discounting it was seen as a major coup by market observers. Last Thursday, the company raised $70.7 million in gross proceeds from the secondary offering of 5 million shares of common stock at $14.05 per share, even with the closing price for the stock that day. JPMorgan Securities was bookrunner.

The day before, last Wednesday, BioMarin priced 8.5 million shares of common stock at $7.05 per share, discounted from Wednesday's closing price of $7.56, in an offering managed by Merrill Lynch & Co. The shares initially were hit by the dilution of the follow-on but the stock has roared forth since then and on Wednesday shot up 53 cents, or 6.5%, to a new 52-week high of $8.69, surging past the previous high of $8.33.

Keryx shares also hit a new 52-week high on Wednesday, gaining 20 cents on the day, or 1.21%, to settle at $16.78. The previous high was $16.65.

BioMarin rages amid lobbying

BioMarin shares were "on fire," as one trader put it, even amid hopes for changes at the company among stockholders.

"They priced 8.5 million shares at $7.05 last week. Now the stock is at $8.75," the trader said early Wednesday, before the stock eased to the closing level. "Shareholders are pressuring the board. Changes are coming soon, I hope."

He would not expound about the nature of the hoped-for changes at BioMarin, however.

Novato, Calif.-based BioMarin has been rocked by generic competition for its lead asthma drug Orapred. Due to disappointing sales in Orapred, specifically blamed on generic competition, the company last week also lowered its revenue guidance on the drug and virtually eliminated all the 60 employees dedicated to marketing Orapred.

BioMarin, however, said headway on other drugs in development should more than make up for the loss of revenues associated with Orapred. The company raised its 2005 revenue outlook for an enzyme-replacement therapy called Aldurazyme that treats a rare genetic disease called mucopolysaccharidosis I to $70 million to $75 million from of $60 million to $66 million.

CombinatoRx still plans IPO

In addition to raising funds in the capital markets, small biotechs are increasingly focused on licensing arrangements. Earlier this week, CombinatoRx Inc., which has an IPO on the forward calendar, inked a licensing deal with HenKan Pharmaceutical Co. of Taiwan, but the transaction has not swept the IPO off the slate.

Boston-based CombinatoRx's pending IPO of 6 million shares is proposed at $10 to $12 per share. But a source familiar with the situation said timing will depend on broad market conditions, which the source agreed are seemingly on the mend.

"It is waiting for a better market," the source said.

The HenKan deal provides CombinatoRx with an upfront payment of $500,000 and up to $23 million in development and commercial milestone payments, plus royalties on future sales. The pact covers CombinatoRx's CRx-026, a novel dual action anti-cancer agent in clinical development for solid tumors.

The IPO would fetch $66 million for CombinatoRx at the middle of price talk. Underwriters for the issue are S.G. Cowen, Pacific Growth Equities, SunTrust Robinson Humphrey and A.G. Edwards.

Amgen, Genentech skyrocket

The results of Amgen and Genentech are largely responsible for increased interest in biotech stocks among investors. Amgen rocketed Wednesday to overtake Genentech as the biotech leader with a market cap of $100.5 billion as Amgen shares shot up $10.65, a whopping 15% gain on the day, to $81.17.

Several upgrades to Amgen shares and analysts' estimates for its earnings this year boosted the stock, which traders said was fed by short-covering on the improved expectations.

Genentech rose as well, but by a lesser degree with its shares adding $1.20, or 1.36%, to settle at $89.45. In just the past week, however, Genentech's market cap has increased by $4.5 billion to $94.5 billion on Wednesday.

But Amgen stole the show.

"Amgen had an awesome first quarter, $1.1 billion in profits, and ended with $4.4 billion in cash, plus bought back stock," said a trader. "We're still waiting on news for some acquisitions."

Genentech is on the hunt, too, looking to boost drug manufacturing capacity, but market watchers say visibility on the exact targets of Genentech and Amgen remains cloudy. Numerous biotechs that are considered ripe targets for acquisition have been gaining ground, however, including Abgenix Inc.

Abgenix shares climbed 75 cents, or 7.5%, to settle Wednesday at $10.75. The company, which has a close alliance with Amgen in regard to its most advanced drug - the cancer treatment Panitumumab, is scheduled to report earnings next Tuesday.

© 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.