Adams IPO zooms; Accentia stalls, again; Guilford up on MGI Pharma merger; Momenta on tap; Isis rises

By Ronda Fears

Nashville, July 21 - Adams Respiratory Therapeutics Inc. hit a home run with its initial public offering, pricing on a day when biotech stocks soared and climbing 51.5% in the immediate aftermarket. But the enthusiasm halted with Accentia BioPharmaceuticals Inc. as its IPO stalled yet again and the issue was moved to "to be determined" status.

"This [Adams IPO] may open the channel for life sciences, biotechs, medtechs, all of those. Or not," said Ben Holmes, managing partner in the Boulder, Colo.-based hedge fund Protégé Funds that specializes in IPOs.

"Right now, there seems to be a high level of liquidity in the large funds. So, they [life sciences issuers] have a better chance, better than yesterday anyway."

Meanwhile, Momenta Pharmaceuticals Inc.'s follow-on stock offer was on deck, and the stock closed off $1.32, or 4.66%, at $27.02 but was seen in after-hours trade up by 15 cents, or 0.5%. Also, the market is looking for the IPO of Advanced Life Sciences Inc., proposed at $11 to $13 per share, to debut next week.

In secondary action, mergers joined earnings as a driving force, and new bombing incidents in London pushed biodefense issues to the forefront of investment ideas. Regarding the former, Guilford Pharmaceuticals Inc. soared on a 56% premium buyout from MGI Pharma Inc., while the purchaser lost ground on the pricey price tag. On the matter of biodefense, Isis Pharmaceuticals Inc. shot up on a government contract to pursue its Tiger biosensor system.

Oscient Pharmaceuticals Corp. and Indevus Pharmaceuticals Inc. were two other names mentioned with trading activity of note, both moving sharply higher. For most of the day, the Nasdaq biotech index held firm against the downdraft of the broader markets but late in the afternoon turned slightly south.

Adams blowout IPO up 51.5%

Adams, maker of the expectorant Mucinex, priced its IPO aggressively outside guidance, and the stock still skyrocketed in trade. The IPO consisted of 7.95 million shares at $17 each - above the price range of $14 to $16 - via joint bookrunners Merrill Lynch and Morgan Stanley. It was bumped up from 7.1 million shares, too.

The stock took off like a rocket out of the chute, and by noon had gained more than $8 a share. It settled Thursday up $8.75, or 51.5%, at $25.75. The stock was pulling back in after-hours trading, however, and was seen at 4:30 p.m. ET off 23 cents, or 0.89%.

"There was an unusual set of circumstances in this deal, in that the FDA forced the withdrawal of some competitor products of Adams," said a sellside market source. "It does tell you, though, that for a company with the right profile, there is pent up demand."

Adams sold 5.7 million shares and previous stockholders sold 2.25 million shares, for total gross proceeds of $135.2 million. The number of shares was boosted by the company from 5.33 million and selling stockholders from 1.75 million.

On Thursday, 7.74 million shares changed hands.

Chester, N.J.-based company plans to use proceeds to build its Mucinex brand, fund the development of two additional over-the-counter products and one new prescription product, and to develop its recently in-licensed product candidate erdosteine that is expected to require clinical trials prior to Food and Drug Administration approval, and for potential acquisitions.

Accentia's IPO fate uncertain

Conversely, Accentia BioPharmaceuticals just can't get its IPO off the ground. Last week the deal was delayed for a second time, and guidance has been lowered to $8 to $10 per share from $11 to $13, but market sources say there is still resistance from large institutional clients.

An official at Jefferies & Co., bookrunner on the Accentia deal, said it has been moved to a "to be determined" status. It had been slated to price Wednesday after the market close.

"It's pretty clear to all of us out here that the [Accentia] deal is not coming," said a buyside market source. "I keep getting calls from a sales guy that it's pricing this week, or tonight, but it never comes. The bankers just can't let go of it. The way I see it, it's all but shelved. I think they are just hoping someone will come along with some cash to plug into the company [on a private level]."

Accentia decided to delay its initial public offering from late June due to positive product news from the Food and Drug Administration, but sources familiar with the deal said it had met with resistance from large institutional investors although there was a tremendous response from retail buyers.

"It's been very difficult, not just from a valuation concern but also general interest in IPOs," said another sellsider. "The recent resurgence in follow-on interest, such as with Keryx, Rigel, BioMarin, and to some extent the Adams IPO, is encouraging. The [Accentia] deal has not been withdrawn," the source said, adding that the structuring of a capital effort may indeed be altered into some other type of transaction.

Tampa, Fla.-based Accentia was formed by the Hopkins Capital Group LLC and affiliates in 2002. Its lead products are SinuNase, a nasal spray used to treat chronic rhinosinusitis, and Biovaxid, an immunotherapy for non-Hodgkin's lymphoma.

Co-managers of the Accentia deal are Robert W. Baird & Co., Ferris Baker Watts Inc. and Stifel Nicolaus & Co. Inc.

Coley sets guidance on Adams

The Adams deal, however, sparked some activity in other names that have been sitting on the forward calendar without much going on for months.

Coley Pharmaceutical Group Inc., for example, took a cue from the Adams pricing and on Thursday set the price range on its IPO of 6 million shares at $14 to $16 per share - smack where the Adams guidance had been set.

Enthusiasm for the Coley IPO is supported, sources said, by Pfizer Inc.'s commitment to purchase up to $10 million of shares in a private placement concurrent with the offering price. Pfizer has already funneled $50 million to Coley for co-developing and commercializing of the lung-cancer treatment Promune, and depending on certain milestones, Coley stands to receive up to $455 million in additional payments from Pfizer.

Wellesley, Mass.-based Coley develops drugs for cancers, infectious diseases and respiratory disorders. Proceeds will be used to fund growth and general corporate purposes, including clinical trials and drug development activities, expansion of its infectious disease program, prosecution and maintenance of patents, working capital and capital expenditures. Founded in 1997, Coley has raised around $138 million in venture capital.

Merrill Lynch and JPMorgan are joint bookrunners on the Coley deal. Co-managers are Lazard Capital Markets and Leerink Swann & Co.

Metabolic raises A$14 million

PIPEs activity was slim to none among U.S. biotechs, but Australia-based Metabolic Pharmaceuticals Ltd announced Thursday it has completed the second leg of a A$14 million fund-raising effort, with the issuance of stock at A$0.61 per share, to provide enough funds to complete planned trials of its obesity and pain drugs.

The final leg was preceded by A$10 million raised recently in a private placement to institutional investors, also at A$0.61 cents each, and this increases the capital raised by the company over the last month to A$14.04 million.

"We are very pleased with the show of support for our lead drugs targeting obesity and neuropathic pain," said Metabolic chief executive Dr. Roland Scollay in a statement.

Metabolic has earmarked proceeds for further research in its lead drug for the treatment of obesity, as well as to conduct clinical trials on a drug for the treatment of chronic pain.

Shares of Metabolic were unchanged Thursday on the Australia stock exchange at A$0.615.

Guilford takeover a slam dunk

MGI Pharma Inc.'s purchase of Guilford Pharmaceuticals Inc. for $246.9 million, the equivalent of a 55.6% premium price tag, sent Guilford securities zooming on the news.

The transaction is structured in cash and stock valued at about $178 million, plus the assumption of $69.4 million of convertible debt. Total consideration of $3.75 for each Guilford share represents a 55.6% premium over Guilford's closing price Wednesday. MGI Pharma would pay common stock valued at $2.625 for each Guilford share, along with $1.125 a share in cash, with the stock portion subject to a 15% collar.

Guilford shares climbed Thursday by 99 cents, or 41.08%, to close at $3.40. Meanwhile, MGI Pharma was punished for the pricey price tag, with its stock off $1.47, or 5.33%, to $26.10.

MGI Pharma, based in Bloomington, Minn., is focused on oncology and acute care drugs. Baltimore-based Guilford specializes in drug delivery platforms.

"This strategic transaction significantly advances our efforts in building an acute-care business and enhances our existing oncology franchise," said Lonnie Moulder, chief executive of MGI Pharma, in a statement.

Moulder said Guilford's sedative agent Aquavan will compliment its own Aloxi product. Guilford also has developed a biodegradable wafer for the delivery of the chemotherapy agent carmustine. Guilford has two commercial products - Gliadel, which treats high grade malignant gliomas, and Aggrastat, which is used for acute coronary syndrome. Its product pipeline also includes NAALADase and PARP inhibitors.

The deal, expected to close by the end of September, will begin contributing to MGI Pharma earnings in 2008, the company said.

Guilford convertibles rise on deal

MGI Pharma said it plans to extinguish Guilford's convertible debt, which totaled $69.4 million as of March 31, on closing. The 5% bond due 2008 shot up alongside the stock, gaining to near par on the news.

Takeover protection for the convertible, which has become a matter of great importance in the market, was moot as the issue was way out of the money before the MGI Pharma buyout news. But because of that it was a huge slam dunk for those holders who are presumed to get par or a nice conversion rate as a result of the transaction.

"I traded the [Guilford] bonds yesterday at 83. At a 60% premium, this was a lay-up," said another sellside convertible trader.

"When they hired the Dean [new CEO Dean J. Mitchell] back in November they brought on someone who knew the industry. When Aquavan trials were suspended in March he made a comment about 'willing to explore other options.' People are just not paying attention to these smaller names."

On the MGI Pharma buyout, the Guilford convertible shot up to 98 by Thursday's close, he said.

In addition to the base merger terms, MGI Pharma said it also may provide Guilford with bridge financing pursuant to a credit agreement for up to $18 million if the acquisition closing occurs after Oct. 1.

Isis hits radar as biodefense play

Biodefense has become a focus worldwide, and with fresh terrorism incidents in London as a reminder there were some lookers eyeing the group. One of interest was Isis Pharmaceuticals, which announced Thursday that it has procured several U.S. government contracts to advance its Tiger biosensor system.

Also, Merrill Lynch analyst Peter Welford in a report Thursday highlighted several global biodefense names: Acambis, Avant Immunotherapeutics, Bavarian Nordic, Cangene, Crucell, VaxGen and Vical. Welford's pick among those is Acambis, with West Nile and Dengue vaccines entering phase II trials.

"The biodefense market for vaccines may grow exponentially in the coming years. The U.S. government's forthcoming Project BioShield II could provide [billions of dollars] in incremental funding for vaccine development," Welford said in the report.

Isis Pharmaceuticals was not on Welford's list, but a sellside trader at another shop said it was up sharply as its recognition as a biodefense play was boosted significantly by its news Thursday.

Isis said it has been granted contracts totaling $5 million from several agencies, including Homeland Security, to continue advancing the development of applications and to support the initial operations of its Tiger - Triangulation Identification for Genetic Evaluation of Risks - biosensor system.

The Tiger biosensor system is a revolutionary system for the identification of infectious organisms, according to Isis, as it can simultaneously identify thousands of infectious organisms without having to know or suspect what may or may not be present in a sample.

"They all want to buy Amgen, Genentech, but there are many small cap biotech companies that have some real value," the trader said.

Isis shares on Thursday rose 19 cents, or 4.15%, to $4.77. The company also has a 5.5% convertible bond due 2009, which one sellside shop quoted up 4.75 points to 85 bid, 86 offered.

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