BioVex to begin IPO show Monday amid tough environment for biotech pricings

By Ronda Fears

Memphis, Sept. 28 - BioVex Group Inc. is preparing to go on the road with its initial public offering next week with cautious optimism in the current market environment that syndicate officials away from that deal refer to as increasingly discriminating.

A roadshow is scheduled to begin Monday that will play BioVex's story to investors in Europe as well as California and along the East Coast. One market source said the deal is tentatively slated to price the week of Oct. 16.

BioVex plans to sell 3.4 million shares, proposed at $11 to $13 per share. The bookrunner is Janney Montgomery Scott LLC, and Stifel Nicolaus is co-manager.

"We will just see how it plays out," said another syndicate official, hesitating to pin down a pricing time line. "I personally think it's a good story." But, he characterized the IPO market for biotechs presently as "bearable."

Cambridge, Mass.-based BioVex is focused on cancer and infectious disceases. Its lead cancer product is OncoVEX for solid cancer tumors, with several phase 1 and 2 trials under way for a variety of cancers. Its lead infectious disease candidate is ImmunoVEX HSV2, a vaccine for genital herpes, for which the company plans to begin a phase 1 clinical trial in early 2007.

Early stage biotechs are having the most trouble in an already tough IPO market that makes it especially difficult for biotechs - the riskiest among the IPO candidates. Investors are more receptive to later-stage biotechs, albeit seeking to find friendlier terms for their portfolios.

Replidyne example of climate

Replidyne, Inc.'s IPO in late June underscores the difficulty facing the industry for even late-stage biotechs, another syndicate official at one of the bulge bracket firms said.

The Louisville, Colo., biotech, focused on antibiotics, raised $45 million from a downsized IPO that priced at $10 each, below the range of $14 to $16, and the stock has lingered in that neighborhood since. Joint bookrunners were Merrill Lynch & Co. and Morgan Stanley & Co. Inc.

Replidyne shares (Nasdaq: RDYN) closed Thursday off by 8 cents, or 0.85%, at $9.34. The stock has traded in a range of $8.95 to $9.67 since debuting on June 28.

"Replidyne is a phase 3 biotech and it still struggled. It was late summer, when the market was at its worst. Launching it then was crazy," the syndicate official said.

"Replidyne reinforces that a deal is hard to get done right now. Investors have pricing leverage. They can hang back and put in bids below range and get it filled."

Replidyne's lead product, the antibiotic Orapem in the same class of antibiotics as penicillins and cephalosporins, is preparing for commercial launch. The company also has REP8839, a topical antibiotic for skin and wound infections, in early development.

Amicus sign of times ahead

Amicus Therapeutics, Inc.'s story that unfolded over the summer is perhaps a better sign of times to come for biotechs trying to raise money to continue operations - venture capital or private equity investments, the syndicate source said.

"The private market is alive and well," the banker said. "I think you're going to see more of that. Amicus is a great example of this. It was a situation where the venture capital funds made an offer close to where the IPO would come in at, and it was a bird-in-the-hand."

Two weeks ago, Amicus closed a $60 million series D financing round, led by New Enterprise Associates, Canaan Partners, CHL Medical Partners, Frazier Healthcare Ventures, Palo Alto Investors, Prospect Venture Partners, Quaker BioVentures and Radius Ventures. Affiliates of Och-Ziff Capital Management Group also participated in this round of financing as new investors.

Many of those had been involved with the company previously, but the venture capital funding came about six weeks after Amicus scrapped plans for an IPO because of market conditions. The IPO was withdrawn Aug. 2, after having sat on the forward calendar since mid-May, with hopes of raising $86.25 million. The IPO was to be managed by Morgan Stanley as bookrunner, Goldman, Sachs & Co. and Pacific Growth Equities.

Cranbury, N. J.-based Amicus develops small molecule, orally active pharmacological chaperones for the treatment of human genetic diseases. The company is in phase 2 clinical studies for its lead product candidate Amigal for Fabry disease. It plans to start phase 1 studies for AT2101 for Gaucher disease in the second half of 2006.

Mavericks may proliferate

In addition to the traditional venture capital firms involved in early stage financing for biotechs, the syndicate source expects more hedge funds and Big Pharmas as well as Big Biotechs to get involved.

"There will always be the venture capital funds, but we are going to see more hedge funds involved, the Mavericks of the world," he said.

"Smaller biotechs are also very sensitive to the big pharmas and big biotechs being very interested in acquisitions."

Maverick Capital Fund with several affiliates has indeed been involved, providing venture capital to the likes of Perlegen Sciences, Inc., which also has an IPO filing that has been sitting on the forward calendar since April.

Mountain View, Calif.-based Perlegen, formed in late 2000 as a spinoff from Affymetrix, Inc., also raised $50 million in December 2005 through a placement of preferred stock with Pfizer Inc., taking the major pharma's stake in the company to 12%. Under the terms of the transaction, if Perlegen executes an IPO within a year, Pfizer has agreed to buy up to an additional $25 million of Perlegen stock.

Perlegen collaborates with partners to develop genetically targeted treatments for metabolic, cardiovascular, central nervous system and inflammatory diseases by identifying DNA variants associated with a particular disease or drug response using a process known as whole genome scanning.

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