Genomic, Avalon sink after IPOs price at low end; Forest, Cypress dive; SkinMedica's IPO on deck

By Ronda Fears

Nashville, Sept. 29 - Market sources said Thursday that the SkinMedica Inc. initial public offering was sitting in the wings for possible pricing after the closing bell, rounding up what turned out to be a big week for biotech IPOs - at least relative to the long, summer dry spell.

On deck, according to a buysider, was SkinMedica Inc. with plans to sell 5.25 million common shares proposed at $11 to $13 each. The Carlsbad, Calif.-based dermatological company plans to use proceeds for working capital, for licensing products, to increase its sales force and for general corporate purposes.

"The IPO market is still feeling shaky. The deals this week have drawn mixed response," said the buysider. "We were told SkinMedica would be for Wednesday or Thursday, and it wasn't done Wednesday, so that leaves tonight."

Avalon Pharmaceuticals Inc. and Genomic Health Inc. both got IPOs off after Wednesday's close but both were at the low end of guidance ranges and both sank in the immediate aftermarket.

Avalon priced its IPO at $10.50 versus guidance for $10 to $12. For virtually the entire session the stock was idle, but a trader noted that nearly 1 million shares were "dumped" in the last hour or so of the session and the stock settled off by $1.01, or 9.62%, at $9.49.

Genomic priced a $60.2 million IPO at $12 a share compared with talk of $12 to $14, and the stock closed out its debut off by 25 cents, or 2.08%, at $11.75.

Sunesis Pharmaceuticals Inc., which priced its IPO on Monday at $7 a share versus the indicative range of $9 to $11, finally saw a bounce after sliding steadily after the stock debuted. On Thursday, the stock traded up by as much as 2% but came off the midday highs to end higher by just a nickel, or 0.8%, at $6.30.

"The [IPO] market overall is breaking out of the summer doldrums," a syndicate head said. "There is a bunch of deals that have been brought to the forefront for imminent pricing."

Conventional wisdom among bankers, he added, observes that biotech investors at least have reverted to a preference for late-stage companies rather than being more willing to look at upstarts, as had seemed to be a prevailing shift around mid-summer.

In the PIPEs arena it was still a bit slow but big-sized deals continued to dominate the thin lineup from biotech names. Titan Pharmaceuticals Inc., for example, got a two-year $35 million equity line from Cornell Capital Partners LP. And, India-based antibiotics research firm Surya Pharmaceuticals Ltd. announced the sale of $12 million of foreign currency convertible bonds to DE Shaw Vallance International Inc.

Forest Labs, Cypress battered

Forest Laboratories Inc. and Cypress Bioscience Inc. were pounded after they reported that their fibromyalgia drug milnacipran fell short of goals in an initial phase III study.

Although it may not entirely squash the drug's potential, analysts said the negative trial data could push back the launch date by at least a year.

Forest shares Thursday fell $3.80, or 8.98%, to $38.50, but Cypress shares took the brunt of the beating, plummeting $7.17, or 56.46%, to $5.53.

"The milnacipran news is not good, but not quite a signal to head for the doors, as I see it," said a buyside market source who is involved with Forest. In fact, he said there were takeover rumors revived toward the end of the day, which he saw as a ploy to create buy interest in Forest Labs stock.

As for Cypress, one sellside trader said he expects late-day buying seen in the stock to continue into Friday and that, in turn, could trigger significant short covering.

"I would be very afraid if I were short; these guys are good and the price could go big, fast. They have no debt, and that's always a big issue," the sellsider said. "It may go down a little more, but it's way oversold and there was some buying late today. The big players are buying in a big way."

New River bounces off Lilly

New River Pharmaceuticals Inc. got another shot in the arm from labeling trouble for Strattera, a competing attention deficit hyperactivity disorder drug marketed by Eli Lilly & Co. The ongoing trouble facing Strattera is expected to boost interest in New River's NRP104 for ADHD.

New River shares gained $1.43 on the day, or 3.12%, to close at $46.97.

Lilly announced Thursday it will add what is referred to as a "black box" warning to the Strattera label to include the risk of suicidal thoughts among children and adolescents. These type of warnings, the strongest required by the FDA, tend to hurt sales, but Lilly shares were basically unfazed by the news.

Lilly shares ended up 82 cents, or 1.53%, at $54.29.

Strattera, which had sales last year of $667 million, is the only non-stimulant drug for attention deficit disorder approved in the United States, but the label warning is in response to FDA guidance in February 2004, followed by an added label warning in December 2004 for liver toxicity.

Merrill biotech analyst David Munno said in a report Thursday that "the increasing stigmas on Strattera" may create an opportunity for New River's NRP104 as well as Shire Pharmaceutical plc's Adderall to capture more market share for ADHD treatments. He added that clinical data from NRP104 indicate that the drug has a preferred safety profile over Adderall XR.

Incyte recoups some losses

Incyte Corp. shares rebounded Thursday but still were left stinging from the FDA requesting another phase II clinical trial for its HIV drug Reverset before proceeding with two planned phase III clinical trials, which will delay the drug's launch by 12 to 18 months.

Following a 41% plunge on the news the day before, Incyte shares Thursday added back 38 cents, or 8.9%, to $4.65. The company's 3.5% convertible bonds due 2011, however, did not join the party, adding a mere point on the day to close out at 74 bid, 75 offered.

"While we wish we could have seen the Reverset delay coming, we think that the damage is overdone," said JMP Securities analyst Adam Cutler in a report Thursday, echoing several sellside analysts' reaction to the event. "We are not fans of closing the barn doors after all of the horses have run out."

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