Nektar, Cyberonics pitch converts; QLT spirals; Chiron players shift to 2.75s; Alkermes stumbles

By Ronda Fears

Nashville, Sept. 21 - Deal flow gathered steam in the biotech sector Wednesday even as Hurricane Rita raged toward the Gulf of Mexico landscape, slamming biotech stocks along with the broader markets.

After the closing bell, Cyberonics Inc. was on deck with a $125 million convertible bond offering and Nektar Therapeutics Inc. tossed a $200 million convertible on the table as well. The Nektar issue was talked with a coupon of 3.25% to 3.75% with an initial conversion premium of 27.5% to 32.5% and is slated for Thursday's business. Cyberonics' deal is expected to yield 2.5% to 3.0%, also up 27.5% to 32.5%.

PIPEs transactions announced by biotechs also picked up. On Wednesday, cancer and cardiac researcher GenVec Inc. said it raised $15.3 million in a direct placement of 7.65 million shares at $2.00 each and Alzheimer's researcher Memory Pharmaceuticals Corp. said it pocketed $30.6 million from a private placement of 16.1 million shares at $1.90 each plus warrants for 5.6 million shares exercisable at $2.22.

Market sources said it was looking ever more likely, too, that the initial public offerings of Sunesis Pharmaceuticals Inc. and Intarcia Therapeutics Inc. would get off this week, either Wednesday or Thursday. Additionally, players are expecting follow-on stock offerings from GTx Inc., Renovis Inc. and CoTherix Inc. for Thursday's business.

Secondary activity had a decidedly negative tone, traders said, that was reflective of the broader markets in the wake of the Federal Reserve interest rate hike on Tuesday. Compounding the bearish market sentiment was the anticipation of more devastation from Hurricane Rita following so closely on the heels of Hurricane Katrina.

Chiron holders run for cover

Reports that Novartis AG may turn its back on Chiron Corp. altogether sent Chiron shares lower, and convertible players shifted between the 1.625% and 2.75% issues for more downside protection.

Market sources told Prospect News that the Chiron convertibles were trading on the chatter Wednesday, with holders switching from 1.625% bonds into the 2.75% bonds, as there is more downside protection there.

The drag comes from Novartis saying it might sell its stake. Novartis chief executive Daniel Vasella was quoted in the Financial Times on Tuesday as saying he was not afraid to walk away from Chiron after the company rejected a $40-per-share, or $4.5 billion, buyout offer earlier this month.

Novartis was aiming to buy the 58% stake in Chiron that it does not own already.

Several analysts still expect Novartis will make another bid for Chiron, however. But one sellside analyst said Wednesday that in the event that Novartis ceases takeover talks, he doesn't see another bidder stepping up. Thus, he doesn't see Novartis having the option of selling out its stake altogether and walking away, except in a secondary sale situation and that would likely be at a loss to Novartis.

"If they decide to divest their Chiron stake in a secondary they will have to do it at a big discount," the sellsider said.

Merrill Lynch analyst Eric Ende has estimated the total break-up or acquisition value of Chiron is about $38 per share, in contrast to his estimate of the fundamental fair value for the shares at $32 to $34.

Chiron shares Wednesday were off 36 cents, or 1.64%, at $43.50.

QLT stock tumbles 13%

Canada-based QLT Inc. had already been slammed by raves for Genentech Inc.'s competing drug Lucentis in the treatment of age related macular degeneration so news that a key study of QLT's Visudyne did not meet its primary endpoint for expanded use sent its securities spiraling.

QLT shares fell $1.09, or 13.12%, to $7.22. The QLT 3% convertible bonds due 2023, rarely active, saw several trades Wednesday with the issue ending the day lower by 1.75 points at 90.5 bid, 91.5 offered, a sellside trader said.

The study investigated the efficacy of Visudyne in patients with predominantly occult AMD and QLT said that while it did not reach its primary endpoint at one year, it did reach significance at two years. The Food and Drug Administration had requested a second study in this indication, prior to granting regulatory approval. Visudyne is approved in the U.S. for predominantly classic AMD, in Europe for the treatment of predominantly classic and occult AMD, and in Japan for predominantly classic, minimally classic and occult AMD lesion types.

Analysts said that retinal specialists are unlikely to continue using Visudyne in a meaningful manner in occult lesion types in light of the disappointing data and the very strong data for Lucentis in occult and minimally classic AMD. Genentech's Lucentis is due to be launched in 2007.

Genentech Inc. shares also were lower, losing $1.20 on the day, or 1.34%, to $88.55 following QLT's news. Roche Holdings AG, a majority owner of Genentech, also reported its Tarceva drug has been approved by the European Union for use to treat non-small-cell lung cancer after failure of at least one prior chemotherapy regime.

Eyetech risk arbs dump OSI

OSI Pharmaceuticals Inc. is another partner in Tarceva and said in its own statement that the companies will explore additional uses of Tarceva in solid tumors and in combination with other therapies. Its use is due to be expanded in the United States to include it as a pancreatic cancer treatment, so to many the drop in OSI shares was a surprise.

In heavy volume, OSI shares dropped $1.08, or 3.615%, to close Wednesday at $28.82.

In addition to the explanation for the OSI drop from traders that "the market is just terrible today" one said that OSI's acquisition of Eyetech Pharmaceuticals Inc. continues to overshadow the stock. That, a risk arbitrage trader said, was a big factor in some players calling it quits in that trade.

"EYET shorts that are dead in the water now are putting downside pressure on OSIP," a buyside market source said. "Maybe if enough people are disturbed with this deal, it does not get done. Not many outside of EYET and OSIP management like it. If it gets shot down, EYET tanks hard. The shorts then can cover and get out of a major jam."

A double short scenario was rejected as a strategy in play by the risk arb trader, however. That, he said, would be doomed to backfire because if the acquisition falls through then they would have to cover shorts in both stocks.

"We are involved and despite the negative reaction to the EYET acquisition, this deal will get done," the buyside trader said. "The deal DOES NOT need shareholder approval from OSIP."

He said there were some risk arb positions - short Eyetech, long OSI shares via options- getting unwound and that was a big factor in the OSI decline Wednesday.

Eyetech shares Wednesday lost 24 cents, or 1.33%, to $17.74.

Alkermes shares fall 9%

Alkermes Inc., partners with Cephalon Inc. in Vivitrex - a once-monthly shot to treat alcoholism, took the brunt of the blow from the Food and Drug Administration's delay in making a decision on their application for the drug until Dec. 30.

Following a big drop in after-hours trading Tuesday on the news, Alkermes shares on Wednesday fell $1.67, or 8.94%, to settle at $17.00. Cephalon shares lost 76 cents, or 1.64%, to close at $45.55.

A decision had been anticipated by Sept. 30, and Alkermes and Cephalon said in a joint statement that they still expect to launch Vivitrex in the first half of 2006. But the delay was seen as a big setback for Alkermes.

© 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.